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3 Dividend Aristocrats to Buy and Hold Forever

By Neha Chamaria - Updated Apr 1, 2021 at 8:13AM

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These proven dividend stocks are primed for bigger things ahead.

Dividend Aristocrats have a massive fan following among income investors, and for good reason: These are the only 65 stocks to have increased their dividends every year for at least 25 consecutive years. That's no small feat, as paying out a bigger dividend year after year, regardless of economic cycles, is the ultimate display of stability, resiliency, and shareholder commitment.

Then again, not all Dividend Aristocrats are worth your money, but those that are could help you build great amounts of wealth if you patiently hang on to them. Here are three such best-in-class Dividend Aristocrats to buy and hold forever.

The tide is turning in its favor

3M's (MMM 1.68%) tiny 1% dividend increase earlier this year was a huge turnoff for investors, but you should be happy about that raise nonetheless if you're a long-term investor. The thing is, 3M hit two targets with one arrow.

Even with that tiny dividend raise, 3M ensured it maintained its Dividend Aristocrat -- rather, its Dividend King -- status, as it was 3M's 63rd consecutive annual dividend increase. At the same time, management chose to use cash to pare down debt rather than pay a bigger dividend or repurchase shares during a global pandemic that hit 3M's business hard. I think this was a very smart move because a stronger balance sheet can go a long way in helping a cyclical company ride out the worst storms.

A rising stack of coins beside green shoots in soil.

Dividend Aristocrats are an incredible source of passive income. Image source: Getty Images.

Things are already looking up for 3M -- management is projecting 5% to 8% growth in 2021 sales. In the longer run, 3M's recent restructuring and focus on higher-margin and futuristic businesses should bolster growth. Healthcare, for example, is one lucrative market in which 3M is expanding. E-commerce, personal safety, home improvement, and automotive electrification are just some of the other growth areas management is looking at.

For income investors, it eventually all boils down to whether 3M will be able to grow its dividend. There's little reason to doubt it won't, given how firmly committed management is to dividends. Pair that with a dividend yield of 3%, and 3M is a no-brainer Dividend Aristocrat to own for patient investors.

Best new Dividend Aristocrat entrant

Realty Income (O 1.88%), which joined the Dividend Aristocrats list in 2020, is one of the best new entrants to the group. I say this for two key reasons: It pays a dividend every month and is among the highest-yielding Dividend Aristocrats.

Some investors were miffed with Realty Income's latest dividend increase of 0.2% in March. However, a savvy income investor will appreciate that a raise, regardless of size, is always better than a dividend freeze or cut, which several companies have resorted to in the past year or so.

In fact, Realty Income weathered an exceptionally challenging year like 2020 well. For example, theaters and health and fitness centers, which bring in roughly 12% of the company's annual rent, were shut for most of 2020. Yet Realty Income ended 2020 with 11% higher revenue and 10% funds from operations.

While acquisitions helped, a diversified portfolio also meant that Realty Income could collect 93.6% of its total contractual rent in the last quarter of 2020. Convenience stores are its largest industry and contributed 12% to its rental revenue last year.

Realty Income expects to spend $3.25 billion on acquisitions this year, which should help keep its dividend streak alive. As the company's income rises, so should dividends, given its real estate investment trust (REIT) structure.

Realty Income has increased its dividend every year since going public in 1994 and yields a solid 4.4%. This makes it a great dividend stock to buy and hold. 

The healthcare dividend-growth beast

Johnson & Johnson (JNJ 0.91%) is a top blue chip Dividend Aristocrat to buy and forget -- more so after the company proved itself (yet again) during the COVID-19 pandemic. With hospitals suspending elective procedures in the wake of the coronavirus outbreak, demand for medical devices plunged. Johnson & Johnson's medical-devices sales slumped 11.6% in 2020.

But here's the surprising part: Given that the medical-devices segment accounted for nearly 32% of the company's total sales in 2019, one would have expected a big hit to its top and bottom lines. Johnson & Johnson, however, reported 0.6% growth in revenue and only a 2.7% drop in net income in 2020. Its pharmaceutical segment was the star performer, reporting double-digit growth in sales for eight products in Q4, including drugs for immunology, infectious diseases, and oncology.

Those numbers highlight the most important yet often-overlooked aspect of Johnson & Johnson: It's hugely diversified and much more than just the consumer health company (think Band-Aid, Listerine, Nicorette) that many believe it to be. That's one reason why Johnson & Johnson makes for such a great dividend stock. In fact, investors who've held on to the stock and reinvested dividends patiently over the decades have become multimillionaires.

JNJ Chart

JNJ data by YCharts.

With an incredible biotech pipeline, manageable debt, and strong cash flows, Johnson & Johnson's dividend should only grow bigger in the coming years. It needn't prove itself anyway: The stock's a Dividend King, with a track record of 58 consecutive years of dividend increases.

With Johnson & Johnson also proving its innovative capabilities, yet again, with its single-dose COVID-19 vaccine, it's a dividend stock for keeps.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$181.09 (0.91%) $1.63
3M Company Stock Quote
3M Company
$149.51 (1.68%) $2.47
Realty Income Corporation Stock Quote
Realty Income Corporation
$69.35 (1.88%) $1.28

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

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