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3 Dividend Aristocrats to Buy and Hold Forever

By Reuben Gregg Brewer – Jul 29, 2020 at 10:05AM

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It takes a lot to call a stock a forever hold. Here are three names that meet that challenge today.

No stock is perfect, but some companies are just built to last in a way that sets them apart from the pack. Here are three stocks that stand out for their mix of relatively generous yields, strong businesses, and historical commitment to investors, a factor that has earned them the title of Dividend Aristocrats.

But there's a lot more to like here than just a 25-plus year history of dividend increases. If you are looking to buy and hold a stock forever, you need to take a look at Nucor (NUE -0.03%), Chevron (CVX 0.26%), and Consolidated Edison (ED -2.34%).

1. The steel giant

Nucor is one of the largest integrated steel mills in the United States. It has increased its dividend for 47 consecutive years, and currently yields around 3.75%, which is toward the high end of the company's historical range. Steel is a cyclical business, so the company's sales and earnings are under pressure right now given that the economy fell into a recession in February. That's actually an opportunity here, though, because Nucor has one of the strongest balance sheets in the steel space. The company's financial debt to equity ratio is roughly 0.45 times, which is pretty reasonable given the current market environment. The ratios of its closest peers are higher, some much higher. 

Fingers flipping a die that says short and long with dice spelling term next to it

Image source: Getty Images

But there's much more to like here. For example, the company uses electric arc furnaces, which are more flexible than older blast furnace technology. It has a unique pay structure built around profit sharing, so employees make a lot when business is good, but share in the pain when times are tough (giving the company a break on one of its biggest costs right when it most needs it). And it has a vertically integrated operation, covering inputs (notably scrap metal), bulk steel making, and the production of specialty products (using a fair portion of the bulk steel it makes). It has a long history of industry-leading margins because of this unique combination of factors. It also tends to use its financial strength to invest in its business during downturns so it can come out the other side a stronger company -- something it is doing right now, with management announcing the green lighting of two projects during Nucor's second-quarter 2020 earnings conference call

2. The energy giant

Next up is international energy major Chevron, which has increased its dividend annually for 33 years. The company's 5.7% yield is also near historical highs. Like Nucor, it has peer-leading balance sheet strength, with a financial debt to equity ratio of around 0.25 times at the end of the first quarter. That number is destined to rise, however, because the oil industry is deeply out of favor today and the company is leaning on its balance sheet to get through to the other side.

But Chevron has a history of thinking long-term, focusing on supply and demand over decades, not months, which has historically served the company and shareholders quite well. It's highly likely the oil major makes it through this difficult market in stride. 

NUE Dividend Yield Chart

NUE Dividend Yield data by YCharts

That said, Chevron isn't letting the industry downturn go to waste. It has stepped in to buy Noble Energy in an all-stock deal for $5 billion, plus the assumption of around $8 billion worth of debt. This move, assuming it's consummated as planned, will expand Chevron's U.S. and Mediterranean businesses. But the bigger takeaway is that Chevron is using this period of industry weakness to pick up good assets on the cheap, a move that bodes well for the future. 

3. The utility giant

The last of the Dividend Aristocrats here is Consolidated Edison, or Con Ed as it's locally known, a utility that provides electricity, natural gas, and steam to the New York City metro area. It currently yields around 4%, which is up from around 3.2% at the start of 2020. The dividend has been increased annually for 46 consecutive years. The rise in the dividend yield is notable because it relates to the severe impact that COVID-19 has had in New York, something that has led investors to dump shares. And to be honest, near-term financial results could be rough reading. 

But that's not the right way to look at Con Ed, or the utility sector in general. The company provides vital energy to a key global business hub that has a long history of resilience and growth. On top of that, its business is regulated, providing it with a monopoly in exchange for government oversight. Regulators tend to focus on things like reliability and storm preparedness, so spending and growth plans span years and generally live outside of Wall Street's ups and downs. Con Ed currently has plans to spend around $4 billion a year between 2020 and 2023, which back its expected average annual rate increase of 5% over that span. Yes, it's a difficult time, but Con Ed hasn't stopped moving forward, and that's an opportunity for investors. 

Thinking long term

Investors looking for great dividend stocks need to step back and examine more than just yield. If you are going to buy and hold a company for decades, you want to know that you are investing in a name with a great business. Nucor, Chevron, and Con Ed are all names that fit that bill and offer above-market yields today. Take some time to dig in here and you'll likely find that one or more of these Dividend Aristocrats ends up in your portfolio. 

Reuben Gregg Brewer owns shares of Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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