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3 Dividend Stocks to Buy and Hold for the Long Term

By Lou Whiteman, Rich Smith, and John Rosevear - May 15, 2021 at 7:00AM

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Three great options for income-focused investors.

It has been a tough few years for income-focused investors. With interest rates near zero and a lot of companies prioritizing growth while figuring out what to do with their cash, there aren't a lot of options out there for investors who need their portfolios to generate a meaningful amount of cash.

Dividends may be somewhat out of style, but there are still a lot of strong companies paying decent yields. Here's why three Motley Fool contributors believe General Dynamics (GD 0.10%), Ford Motor (F 0.67%), and Pfizer (PFE 0.22%) are solid picks for investors looking for dividend stocks they can hold for the long term.

A seedling grows out of a jar of coins.

Image source: Getty Images.

This General is ready for battle

Lou Whiteman (General Dynamics): General Dynamics (GD) has flown through turbulence in recent years. Its military franchises are strong, but some of its most important programs, like the new Columbia submarine, are in the early stages of development. Young programs tend to be more cost intensive and less profitable, which has weighed on earnings.

Unfortunately for GD shareholders, the company's massive Gulfstream aerospace arm has been little help through this period. Business-jet sales have lagged since the 2009 recession. General Dynamics had few units generating outside margins, and the stock trailed other large defense contractors over the past five years.

The cycle is starting to turn, however, and General Dynamics looks like a bargain. Corporate America's fleet of business jets is starting to age, and Gulfstream is seeing strong demand for its new planes, with deliveries expected to ramp up in the second half of 2021 and into 2022. The bulk of the submarine development work is now done, with the Columbia design 83% complete at last check-in.

General Dynamics also has a massive information-technology (IT) business that should benefit from President Joe Biden's focus on modernizing federal IT infrastructure. The trend inside the Pentagon is to award large, consolidated contracts to big vendors instead of doling out money in small chunks.

After years of investment in the business, General Dynamics expects to generate cash flow equal to or higher than earnings in the next few years. The company currently pays a dividend yield of more than 2.3%, and General Dynamics should have upwards of $8 billion to return to shareholders through 2023 in the form of dividends and buybacks.

After a period of transition, General Dynamics is set up well to benefit from the investments it has made. Income-focused investors will reap the benefits.

This company's generous dividend is on hiatus, but not for long

John Rosevear (Ford Motor Company): At the moment, Ford doesn't pay a dividend. So why am I suggesting it as a long-term dividend stock? 

The answer is that up until the COVID-19 outbreak early last year, Ford paid a very good dividend -- $0.15 per quarter -- and it said this past week that it plans to reinstate that dividend as soon as possible. 

Ford's dividend was set at that steady rate because it was thought to be sustainable, even through a moderate recession. Of course, nobody expected Ford to sustain it through last spring's crisis, when most of the company's factories around the world were completely shut down for several weeks. But I expect it to be reinstated pretty soon, maybe by the end of 2021.

An orange Ford Mustang Mach-E, an electric performance crossover SUV.

Ford's electric Mustang Mach-E has only been on sale for a few months, but it's already a bona fide Tesla-fighting hit. Next up: the much-anticipated electric F-150 Lightning pickup, which Ford will reveal on Wednesday night. Image source: Ford Motor Company.

Why am I so confident? Because the dividend is really important to the Ford family, which still controls the company. Here's what executive chairman Bill Ford said about the dividend at Ford's annual shareholders' meeting this past Thursday. 

We've had a ton of questions on the dividend. And so let me just read again a representative one, which is simply, "When will the quarterly dividends be reinstated? " 

I looked, and actually that's not from a Ford family member. So -- but we're all keenly tuned into this issue. And I guess I would answer this by saying as soon as possible. As [CEO Jim Farley] just mentioned, we're fighting through a global chip shortage, which is really affecting us in the first half of this year and really will affect us through the year, but it starts to get better as we go through the year. 

So it's something that's very much on our radar screen. We'd like to do it as soon as possible, and we will do it as soon as possible. But we also want to make sure that when we do it, that we can sustain it. So you have our word that it's very, very high on our to-do list, but we want to make sure when we do it, that it's the right time. 

There are lots of good reasons to buy Ford's stock now and hold it for the long term, aside from the likely return of the dividend. But I'll leave you with this thought: At $0.15 per quarter, Ford's dividend yield would be about 5.1% right now. 

Pfizer's vaccines could power its growth for years

Rich Smith (Pfizer):After the great dividend rollback of 2020, it's slim pickings for dividend investors in the stock market right now. Even with the economy starting to pick back up, not many name-brand stocks that used to pay dividends but cut or canceled them to survive the recession have resumed making payouts.

But "not many" isn't the same as "none."

I surveyed the stock market and screened to find "relative" value stocks that:

  • Trade below the S&P 500's average valuation of 43 times trailing earnings
  • Are estimated to grow at least as fast as the S&P's anticipated 13% long-term growth rate
  • Pay a dividend yield superior to the 1.5% average on the index

I found one name that stands out from the rest: Pfizer.   

It feels wrong to call the coronavirus pandemic "good" for any company, but if there's one for which the pandemic was "less bad," it's Pfizer. Creating a vaccine in record time to prevent COVID-19 infections and stifle the pandemic, Pfizer fortuitously found itself in possession of a new vaccine franchise.

In Q1 2021, the BNT162b2 vaccine contributed $3.5 billion to Pfizer's revenue stream, helping to grow sales 42%. By the time 2021 is finished, Pfizer expects BNT162b2 to tally $26 billion in sales for the year.

And that's just in Year 1. As first-round shots continue rolling out around the globe and booster shots are recommended in the U.S. and elsewhere, Pfizer's coronavirus vaccine could continue powering its sales for years to come. Then, after the pandemic is over, Pfizer can turn its attention to using its newfound mRNA technology to develop new vaccines for new diseases, extending its growth trend. 

Pfizer stock trades for 19.7 times trailing earnings today, less than half the average price-to-earnings ratio of the S&P 500. Its five-year projected earnings growth rate of 14% (according to finviz.com) similarly outclasses the competition. Best of all for dividend investors, Pfizer pays a generous 4% yield -- more than twice the average on the S&P. 

I think it's the dividend stock to own for the long term.

John Rosevear owns shares of Ford. Lou Whiteman owns shares of Ford and General Dynamics. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$49.86 (0.22%) $0.11
Ford Motor Company Stock Quote
Ford Motor Company
F
$16.43 (0.67%) $0.11
General Dynamics Corporation Stock Quote
General Dynamics Corporation
GD
$241.48 (0.10%) $0.23

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

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