The past two months haven't been pretty for investors. The unprecedented proliferation of the coronavirus disease 2019 (COVID-19) pandemic pushed equities to their fastest bear market in history.

Yet despite the fact that the stock market has historically always (eventually) rebounded and put bear markets into the rearview mirror, investors are clearly nervous about the recent volatility and uncertain growth outlook tied to COVID-19. That's where dividend stocks come into play.

A businessman placing crisp one hundred dollar bills into two outstretched hands.

Image source: Getty Images.

Dividend stocks can be a portfolio game-changer

Dividend stocks offer investors a number of advantages compared to non-dividend-paying stocks. Maybe the most important is that they tend to substantially outperform over the long run.

A J.P. Morgan Asset Management report published in 2013 found that companies that initiated and grew their payouts between 1972 and 2012 averaged an annual return of 9.5%. This compared to non-dividend-paying stocks, which averaged an annual return of 1.6% over this same time frame. That's a nearly 500% average annual improvement by owning dividend stocks.

This data really shouldn't come as a shock given that dividend stocks are almost always profitable and time-tested. In other words, a company's board of directors isn't going to approve doling out a percentage of profits to shareholders if it doesn't foresee continued profitability and/or growth.

Dividend stocks can also help take the edge off of inevitable stock market corrections and bear markets. Although stock yields aren't going to cancel out rapid, steep declines like we've witnessed recently, they do help to hedge these losses somewhat, and they can keep long-term investors from making hasty decisions to sell.

Maybe the most under-the-radar advantage of dividend stocks is the ability to reinvest your payout back into additional shares of stock via a dividend reinvestment plan. Owning more shares of dividend-paying stock means a larger payout, which in turn will allow you to purchase even more shares of stock, thereby compounding your wealth more quickly over time. This is the same strategy that successful money managers use to build wealth for their clients.

An ascending stack of generic-drug tablets seated atop a messy pile of cash.

Image source: Getty Images.

You'll never have to sell these dividend stocks

The best dividend stocks of all are those that you never have to sell. Here are three great companies that you can buy now and hold forever.

Johnson & Johnson

The first dividend stock you can buy and never worry about selling is, perhaps, the safest name in the entire healthcare sector, Johnson & Johnson (NYSE:JNJ). Less than two weeks ago, J&J's board voted to increase the company's dividend for the 58th consecutive year, pushing its yield up to 2.7%. It should also be noted that J&J is riding a 36-year streak of adjusted operating earnings growth and is one of only two publicly traded companies with a higher credit rating than the U.S. federal government. 

Beyond these remarkable figures, there are two other factors that make Johnson & Johnson special. First, there's the generally defensive nature of the healthcare industry. In short, we don't get to decide when we get sick or what ailment(s) we develop, which means there's always going to be demand for pharmaceuticals, medical devices, and consumer health products, regardless of how well or poorly the economy is performing. This leads to relatively predictable cash flow for Johnson & Johnson in any environment.

Secondly, Johnson & Johnson's three operating segments each bring something to the table that's critical to its success. Consumer health products, for instance, is the slowest-growing of all three segments but offers the most consistent cash flow and pricing power. Medical devices is a recent slow-grower but offers, perhaps, the most surefire long-run growth opportunity for an aging global population.

Finally, pharmaceuticals provide the bulk of J&J's margins and growth, but unfortunately, brand-name drugs have a finite period of exclusivity. Together, these three segments make for a virtually unstoppable healthcare conglomerate.

Two friends clanking their Coca-Cola bottles together as they chat outside.

Image source: Coca-Cola.

Coca-Cola

A second high-quality dividend stock you can add to your portfolio and hold forever is beverage giant Coca-Cola (NYSE:KO). Not to sound like a broken record, but it, too, increased its dividend for the 58th consecutive year in February. The 3.6% Coke is currently yielding is well ahead of the average yield of S&P 500-listed companies. 

Geographic diversity is one reason Coca-Cola is bubbling with opportunity. It's operating in all but one country worldwide (North Korea) and has at least 21 brands that generate more than $1 billion in annual sales. Having its footprint in so many markets allows Coca-Cola to take advantage of higher-paced emerging-market growth, as well as predictable developed-market sales.

To build on this point, it's worth pointing out that Coke holds approximately 20% of developed-market cold beverage market share but just 10% of the cold beverage share in developing and emerging markets. The latter account for 80% of the global population, giving the company plenty of runway to grow its sales and profits in the years to come.

Another factor that can't be overlooked is just how successful Coca-Cola has been over the years in terms of brand engagement. Coke has one of the most-recognized brands in the world, and it's turned to everything from holiday tie-ins to social media influencers to improve consumer engagement. Brand image is important, and Coke has a long history of funneling new and return customers to its products.

A kids Happy Meal, with fries, apple slices, chicken nuggets, and a cup of milk.

Image source: McDonald's.

McDonald's

Putting aside the recent COVID-19 disruption, McDonald's (NYSE:MCD) is another top-tier dividend stock you can set in your portfolio and forget about forever. In September 2019, McDonald's increased its dividend for the 43rd consecutive year, with the company now dishing out about $3.6 billion in annual payouts and yielding 2.8%. 

While there's no question the Golden Arches are being faced with an unprecedented challenge from the coronavirus, the company was absolutely firing on all cylinders prior to the spread of this illness. The company's Velocity Growth Plan, which was introduced in the first quarter of 2017, was responsible for 5.9% comparable-store sales growth in 2019 and in excess of $100 billion in systemwide sales. The key for McDonald's has been in courting previous customers with higher-quality foods and keeping existing customers happy with a combination of snacks and a diverse value menu.

McDonald's success can also be attributed to its growing reliance on technology. Within its stores, the company is relying on automated ordering systems to reduce labor hours or make existing labor hours more productive. Meanwhile, digital, mobile, and delivery apps are making it easier than ever for hungry consumers to order and receive their food.

When it comes to fast-casual dining, McDonald's is still the kingpin, and it's likely going to stay that way for a long time to come.