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3 Dividend Aristocrats to Buy and Hold Forever

By Neha Chamaria - Nov 28, 2020 at 6:17AM

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These established dividend-growth stocks won't disappoint you, come what may.

Among the thousands of dividend-paying stocks out there, only around 65 are featured on the list of Dividend Aristocrats today. It's an elite group, comprised of companies that have increased dividends consecutively for at least 25 years. In doing so, these companies have proven their mettle by raising dividends even during the worst of times, which symbolizes shareholder commitment.

Not surprisingly, Dividend Aristocrats can be excellent sources of steady, passive income. Some of these stocks, in fact, are so compelling that you could buy and forget them for a really long time while they make money for you. I've found three such stocks for you, which are discussed below.

But wait, there's more. These three stocks are one notch above Dividend Aristocrats -- they're all Dividend Kings, which means they've raised dividends for an incredible 50 straight years or more! Here's why they're great picks. 

Look beyond volatility 

Known for Post-It Notes and Scotch tapes, 3M ( MMM 2.67% ) is, in reality, a megaconglomerate with nearly 60,000 products under its belt and sales in nearly every corner of the world. 3M is an innovator -- one-third of its sales come from products invented in the past five years. That, along with dividend growth (3M has increased dividends for 62 consecutive years) has translated into rich returns for patient shareholders. The stock yields 3.3%.

A rising arrow over a stack of coins and plant shoots, representing income growth.

Image source: Getty Images.

An influx of macro headwinds hit 3M in the past couple of years, and that's reflected in its share-price performance. But the company took challenges in its stride and restructured its business to strengthen its balance sheet and boost profitability. So despite the difficult times, 3M's operating income grew 9.5% during the nine months ended Sept. 30, 2020.

Having a portfolio of diversified products has helped, too. For example, though the coronavirus outbreak hit 3M's sales, demand for its N95 respirator masks has shot through the roof during the pandemic.

With 3M now intently focused on lucrative businesses like healthcare, income investors shouldn't have to worry about dividends. 3M's management has, in fact, time and again emphasized how important dividends are. In reply to an analyst's question about capital allocation policy during 3M's third-quarter earnings call, here's what CFO Monish Patolawala said:

We've -- what we've always said is our first priority is investing organically because that's where we believe we get the best return. Our second priority has been paying dividends. Dividends has been a hallmark of 3M, and I know our investors care about it.

3M can be a volatile stock, but its dividend growth has made up for much of it and should continue doing so for years to come. 

A proven business to bet your money on

Procter & Gamble ( PG 1.51% ) stock, yielding 2.3% currently, has paid a dividend for 130 years and increased it annually for 64 consecutive years. Credit largely goes to a portfolio chock-full of globally renowned brands, most of which have become household names.

Specifically, P&G owns 65 brands today, down from 170 roughly five years ago. The move to divest low-margin products to build a stronger, leaner portfolio appears to have paid off, going by the uptick in P&G's cash flows.

PG Cash from Operations (TTM) Chart

PG Cash from Operations (TTM) data by YCharts.

P&G continues to grow, with sales rising 5% to $71 billion and operating margin, excluding one-time charges, improving 1.4% in financial year 2020 (ended June 30). The company increased its dividend by 6% during the year.

Management aims to pay out $8 billion in dividends in fiscal 2021 compared with $7.8 billion in 2020. "Fiscal 2021, we'll continue our long track record of significant cash generation and cash returned to shareowners," said COO and CFO Jon Moeller during P&G's first-quarter earnings call.

That reaffirms P&G's commitment to dividend growth, and there's little chance the company will want to break its incredible 64-year streak. In other words, investors can expect P&G's dividends to grow bigger for years to come, backed by a strong, recession-proof product portfolio.

Tremendous growth potential here

Johnson & Johnson ( JNJ 2.23% ) is a great example of what a big difference dividends (when reinvested) can make to a stock's return over the years -- the company has increased dividends every year for 58 consecutive years. Its last dividend raise was a respectable 6.3% in April 2020, and the stock currently yields 2.8%.

JNJ Chart

JNJ data by YCharts.

You can bet on Johnson & Johnson's dividend growth for years, even decades to come, for three reasons: a diversified portfolio with solid footing in global markets, rock-solid balance sheet, and focus on growth.

Johnson & Johnson owns several multibillion-dollar brands, including Band-Aid, Nicorette, and Listerine, to name a few. But you'd be surprised to know that consumer health is the company's smallest segment -- it generated $13.9 billion in sales in 2019. Comparatively, sales from pharmaceuticals, which sells drugs for oncology, cardiovascular, metabolic, and infectious diseases, among others, amounted to a whopping $42.2 billion last year. Its third segment, medical devices, generated sales worth $26 billion in 2019.

Its solid foothold in the global healthcare market, topped with innovation and persistent spending on research and development, have been key drivers of Johnson & Johnson's cash flows and dividends: Nearly 25% of the company's annual sales consistently come from products launched in the previous five years. Meanwhile, strong financials have ensured timely growth moves -- its recent $6.5-billion cash acquisition of autoimmune disease drug-specialist Momenta Pharmaceuticals is one example.

Johnson & Johnson is among the frontrunners in the coronavirus vaccine race and boasts a strong biotech pipeline. With its management's capital allocation prioritizing dividends, this Dividend Aristocrat is one for keeps. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$162.94 (2.23%) $3.56
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$152.15 (1.51%) $2.27
3M Company Stock Quote
3M Company
$177.20 (2.67%) $4.61

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

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