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3 Dividend Aristocrats to Buy and Hold Forever

By Neha Chamaria - Updated Jan 30, 2021 at 8:03AM

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These proven income investments are primed for growth in the coming years.

Whether you're a seasoned income investor or just starting out, the Dividend Aristocrats list is a great place to find top-notch stocks. To earn a place among that elite group, an S&P 500 company must increase its dividend annually for 25 consecutive years, and to stay on the list, it has to keep the streak going. That type of track record of payout reliability is something every income investor would want from the stocks they own. At the moment, only 65 companies have it.

However, all Dividend Aristocrats are not created equal. Based on their histories, recent numbers, and growth potential, here are three stocks from among them that you could buy now and hold practically forever, reaping rich returns along the way.

A consumer products giant with a long shelf life

Procter & Gamble (PG 1.53%) has been a long-time favorite among income investors, and for good reason: The consumer staples giant has paid a dividend for 130 consecutive years, and increased it annually in each of the past 64. That's resiliency and dividend stability at its best.

Plant shoots growing on stacks of coins, depicting income growth.

Image source: Getty Images.

P&G recently reported 8% growth in organic sales for its fiscal 2021 second quarter, which ended Dec. 31. The COVID-19 pandemic proved a tailwind as consumers stayed home and stocked up on cleaning and grooming supplies, boosting sales for an array of P&G's products.

Most of the company's brands, after all, are among the global leaders in their niches -- Tide, Charmin, Gillette, Dawn, and Mr. Clean, just to name a few. In fact, based on current business conditions, P&G just raised its outlook for a second time for the fiscal year ending in June. It now expects organic sales to grow by 5% to 6% and earnings to increase by 8% to 10% in its fiscal 2021.

Here's the thing: P&G's organic sales have consistently grown at rates in mid-to-high single-digit percentages in the past couple of years. Those results are proof that its strategy of chopping the low-margin brands out of its portfolio has been a success. Its latest numbers and guidance should put to rest any concerns that P&G's growth is at risk of decelerating after its blockbuster fiscal 2020.

In fact, P&G's market-beating earnings forecast should ensure continued dividend hikes. The company last raised its payout by 6% in April, and the stock currently yields a respectable 2.5%.

An underrated stock with strong potential

Stanley Black & Decker's (SWK 0.40%) businesses are as boring as they can get. And that's fine: Handheld tools, security systems, fasteners, and lawnmowers aren't supposed to be exciting. Yet the stock has earned multibagger returns for investors who have held it long enough. Note the huge differences between the stock's price performance and its total returns in the chart below. That's where dividends come into play. Although Stanley yields a mere 1.6% at today's share prices, it has been a great dividend growth stock, with a track record of 53 years of consecutive payout increases -- the most recent in July.

SWK Chart

SWK data by YCharts

Stanley Black & Decker just reported a bumper fourth quarter, with revenue surging 19% year over year as the COVID-19 pandemic continued to fuel demand for home and garden products. More importantly, Stanley ended 2020 with record free cash flow (FCF) of $1.7 billion. That's music to the ears of income investors, as companies usually use FCF to cover their dividends.

Management is excited about 2021 and expects to earn between $9.15 and $9.85 per share, compared to the $9.04 per share it earned in 2020. Also, Stanley Black & Decker will likely acquire MTD, a private manufacturer of outdoor equipment such as mowers, tractors, and utility vehicles, in the second half of the year. Management expects that acquisition to add nearly $3 billion to the top line in 2022. Stanley Black & Decker has made a habit of growing via acquisitions, and that theme should continue to play out in the coming years, ensuring that its dividend payouts keep rising.

Watch out for this upcoming dividend raise

3M (MMM 1.68%) is a fantastic buy now for two reasons: The stock is trading at a cheap level, and its dividend streak remains one of the longest among all publicly listed companies.

Investors may be miffed that 3M shares barely budged in 2020 even as the broader market rallied. But that stagnancy has pushed 3M into the value stock territory, which when combined with its dividend yield of 3.3%, makes it a compelling buy.

3M recently reported 5.5% growth in organic sales for the fourth quarter, with sales growing across all its segments -- safety and industrial, healthcare, transportation and electronics, and consumer. Importantly, 3M pared down its debt by $1.5 billion and generated adjusted FCF of nearly $2.1 billion during the quarter. These factors reflect one reason why I really like 3M as a dividend stock: Its strong balance sheet is one of the major reasons why it has been able to boost its payouts annually for 62 consecutive years now.

I expect 3M to announce its next dividend hike in the coming weeks. Also, with green shoots appearing in its end markets, management expects 3M sales to grow in 2021 by 5% to 8% and EPS by roughly 5% at the higher end of its guidance range. That encouraging outlook should give income investors yet another reason to consider adding this diversified manufacturer of 60,000 products to their portfolios.

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Stocks Mentioned

3M Company Stock Quote
3M Company
$149.51 (1.68%) $2.47
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$148.72 (1.53%) $2.24
Stanley Black & Decker, Inc. Stock Quote
Stanley Black & Decker, Inc.
$119.68 (0.40%) $0.48

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

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