Companies that have a long streak of paying dividends (think longer than 25 years) are typically managed by shareholder-friendly management teams and have a competitive advantage. If you invest in a stock with these qualities, you certainly stack the odds more in your favor.
Three dividend-paying stocks that could fit the bill are McDonald's (NYSE:MCD), Hasbro (NASDAQ:HAS), and Procter & Gamble (NYSE:PG). Here's why these stocks should be paying out dividends for decades to come.
1. Customers like McDonald's new look
McDonald's has dealt with headwinds in recent years, ranging from consumers becoming more picky about what they eat to the recent departure of CEO Steve Easterbrook. That departure might sound concerning, but McDonald's brand is bigger than one man, and the changes Easterbrook made should serve shareholders well for a long time.
Mickey D's has made significant adjustments in recent years to improve performance. The company's efforts in digital ordering, delivery, and modernizing restaurants have led to notable gains in traffic and earnings growth. Comparable-restaurant sales and earnings have grown at healthy rates in recent years, despite lower-than-expected results in the third quarter.
The stock climbed 132% over the last five years, and while Easterbrook's ability to improve the growth profile of the company will be missed, McDonald's should remain a solid dividend stock.
The company announced an increase to its quarterly dividend of 8% in September. This marked 43 consecutive years of dividend increases since paying its first in 1976 and marks the company as a Dividend Aristocrat. This put the company on track to complete its $25 billion cash return to shareholders over three years through 2019.
The stock sports a P/E of 25 times next year's earnings estimates, but McDonald's currently pays an above-average yield of 2.36%. Despite shifting consumer preferences, its brand power is proving to be incredibly resilient, which I believe makes the classic restaurant chain a reliable income investment.
2. Hasbro is going digital
Hasbro has been around since 1923 and is known for classic toy brands, like G.I. Joe, Monopoly, Transformers, and its Star Wars-branded toys.
The stock has doubled for shareholders over the last five years, but Hasbro has recently wrestled with U.S.-China trade-war headwinds. Most notably, the threat of increased tariffs on Chinese imports took its toll in the third quarter, disrupting Hasbro's ability to get inventory on store shelves. This made business slow, with sales falling 2% year over year in the U.S. and Canada in Q3.
Overall, the company is in good shape for the long term, mainly because it is seeing strong growth in digital experiences, where kids are spending more time these days. The toymaker experienced 20% year-over-year growth from its entertainment, licensing, and digital segment in the third quarter. Its latest Transformers film, Bumblebee, and Magic: The Gathering Arena digital card game have contributed to growth in the segment lately. Plus, Hasbro's recent acquisition of Entertainment One will enhance the company's storytelling capabilities across TV, film, and gaming.
Hasbro has been delighting children with its toy franchises since it first started selling doctor and nurse toy kits in the 1940s. Delivering fun over the years has been very profitable for the company. It has paid a dividend every year since 1981.
The stock currently trades for a forward P/E of 20.7 and pays an above-average dividend yield of 2.59%.
3. Procter & Gamble is leaner and stronger than ever
Procter & Gamble is the ultimate buy-and-hold consumer staples stock. Its products include everyday essentials like Tide laundry detergent and Crest toothpaste. People will still be buying these products no matter what the economy does.
The stock surged 36% last year after reporting balanced growth in revenue and earnings. In recent years, the company has cycled through different leadership, but current CEO David Taylor has been effective at focusing on categories where performance drives brand choice. This investment in product superiority has worked very well. Organic sales growth year-to-date in fiscal 2020 is up 6%, a slight improvement over last year's stellar 5% growth.
P&G is a Dividend King. It has paid a dividend every year since 1890 and has increased the payout annually for 63 years straight. The stock currently has a forward P/E of 24 and pays an above-average dividend yield of 2.36%.
The rewards of dividend investing
One of the best ways to get the most out of these stocks is to take advantage of reinvesting the dividend payout to accumulate more shares over time. There are enormous benefits to dividend reinvestment. For example, McDonald's stock has returned 432% over the last 20 years. However, by reinvesting the dividend, investors would have gained 758% on the stock.
On a $10,000 investment, that's the difference between having $52,000 compared with $85,000. The difference just gets wider over time as the stock climbs in value. Seen this way, you don't have to go for high yields to make good returns with dividend stocks. As with any kind of investing approach, it just takes persistence and patience.