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Got $5,000? Here Are 2 Dividend Growth Stocks to Buy and Hold for Decades

By David Jagielski – Oct 17, 2020 at 6:50AM

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These are investments you won't have to worry about checking on every day.

If you are in a financial position to invest $5,000 in new stocks today, you will find no shortage of exciting options. If you would like to balance the potential for solid returns with long-term stability, dividend stocks might be the best place to start your search. Companies that have a history of regularly increasing their payouts are particularly attractive, because they generally sport strong financials and tend to have proven, resilient business models.

Two stocks that fit that profile are AbbVie (ABBV 0.14%) and Visa (V 0.97%). Let's look at why both companies are strong buy-and-hold investment picks for your portfolio.

Sun shining on a jar full of coins.

Image source: Getty Images.

1. AbbVie

Drugmaker AbbVie is already an attractive income-generating investment; its current dividend yield of 5.5% is well above the S&P 500 average of around 2%. That means that you could earn $275 in annual dividends on a $5,000 investment. And AbbVie regularly boosts the size of those dividends payments. Though it has only existed as an independent company since January 2013, if you include the years that it was part of Abbott Laboratories, it is technically a Dividend Aristocrat. Five years ago, AbbVie was paying its shareholders a quarterly dividend of $0.51; it has increased those payments by more than 130% since then, for an average compound annual growth rate (CAGR) of 18.3%. 

Although the Illinois-based biopharmaceutical company may not be able to keep raising its dividend payments at such a high rate, there are plenty of reasons for investors to remain optimistic about AbbVie given the strong results it has been generating amid the COVID-19 pandemic.

On July 31, AbbVie released its results for the recent second quarter, and reported net revenue growth of 26.3% year over year, reaching $10.4 billion. Those numbers were boosted by sales from Allergan, which was acquired in a $63 billion deal that closed on May 8. On a comparable basis, the company's net revenue declined by a fairly modest 5.3%, which isn't all that bad given that during Q2, many hospitals and clinics were deferring medical procedures and people were avoiding trips to doctors' offices. 

AbbVie has generally posted strong results with profit margins of at least 17% in each of the past five years. But one looming risk for the company is that it will lose patent protection on Humira in 2023 and face new competition. The drug generated $4.8 billion in net revenue in Q2 -- nearly half of AbbVie's total sales.  But the Allergan acquisition should provide new revenue streams for AbbVie from its popular Juvederm and Botox products, and AbbVie still has some time to find additional ways to compensate for the inevitable decline of Humira. 

2. Visa

Visa and rival MasterCard dominate the credit card industry. Both companies are well-positioned to perform even better in the future as people spend more money online via card payments. The COVID-19 pandemic is also accelerating the trend away from cash and toward contactless payment methods, which could lead to more growth for credit card companies. 

On July 28, Visa released earnings for its fiscal third quarter, which ended June 30. Its net sales were down 17% year over year to $4.8 billion, demonstrating that the company wasn't immune to the impact of the pandemic. However, the important takeaway for investors is that even amid economic shutdowns around the world and a sharp drop in sales, Visa still netted a profit of $2.4 billion -- roughly half of its revenue. But that's just par for the course. What makes this company such an incredible investment is that it's a profit-generating machine: During the past 10 quarters, its margin has only fallen below 49% once.

If Visa maintains those strong margins, at least half of every incremental dollar in revenue will flow down to the company's bottom line -- and at this point, there's no reason to believe that it won't be able to do that. In fiscal 2019, Visa's sales rose 11.5% year over year to $23 billion, lifting net income by 17.3% to $12.1 billion.

That consistency is what makes Visa a terrific stock to buy and hold. Its dividend yield today is fairly low -- just 0.6%. But revenue growth combined with high margins could pave the way for significant increases in payouts down the road. In the past five years, Visa has increased its quarterly dividend payments by 150%, from $0.12 to $0.30, with a CAGR of 20.1%.

Which is the better stock to buy today?

Both of these dividend stocks are promising long-term investments even though each is underperforming the S&P 500 so far in 2020:

ABBV Chart

ABBV data by YCharts

In terms of dividend yield, AbbVie is the clear choice. Visa may close the gap if it keeps growing its payouts, but there's no guarantee that it'll ever catch up. And even if it does, it could take some time. However, given that both companies generate impressive margins, it would be hard to go wrong buying and holding either of these stocks for the long haul.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard and Visa. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Visa Stock Quote
$213.79 (0.97%) $2.06
AbbVie Stock Quote
$159.62 (0.14%) $0.23
Abbott Laboratories Stock Quote
Abbott Laboratories
$106.96 (0.89%) $0.94
Mastercard Stock Quote
$351.29 (0.76%) $2.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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