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2 Top Dividend Stocks to Buy and Hold Forever

By Will Ebiefung – Aug 27, 2021 at 8:00AM

Key Points

  • Dividends are a great way to earn passive income in the stock market.
  • McDonald's boasts a blue chip brand and over six decades of success in the restaurant industry.
  • Philip Morris enjoys massive pricing power and a convincing pivot to reduced-risk tobacco products.

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These exciting stocks boast yields of 2.2% and 4.8%.

Few companies have what it takes to deliver sustainable returns over decades. It usually comes down to a rock-solid brand -- or a competitive advantage rivals can't replicate. Let's explore the reasons why legendary restaurant chain McDonald's (MCD 0.02%) and international tobacco giant Philip Morris (PM 0.16%) fit the bill and could potentially maintain their dividend payouts long into the future. 

1. McDonald's 

Known globally for its iconic golden arches and cheap hamburgers, few restaurant brands are as recognizable as McDonald's. And that's important for investors who want long-term staying power. The company is also quickly adapting to social media-driven market trends, which should help it solidify its appeal among younger consumers. 

Gold stopwatch resting on coins.

Image source: Getty Images.

Blue chip stocks are shares in well-established market leaders with business models that have succeeded for decades. With 66 years of operation, McDonald's fits the bill. Sporting a menu that includes low-priced and (arguably) delicious food, it is also recession resistant. While the coronavirus pandemic has been a challenge for brick-and-mortar restaurants, McDonald's has quickly bounced back -- turning the crisis into an opportunity to modernize its strategy. 

Second-quarter revenue grew 57% year over year to $5.9 billion, helped by favorable comps against the pandemic lockdowns this time last year. And the company's digital sales are soaring -- up 70% to almost $8 billion in its top six markets. But McDonald's isn't limiting its digital push to online ordering -- it is also leveraging social media trends to stay relevant. In August, the company collaborated with multi-platinum rapper Saweetie to promote a meal based on her favorite orders.

This deal follows a similar promotion with artist Travis Scott in 2020, which was so popular that some McDonald's locations ran out of ingredients. 

McDonald's returns value to investors through its dividend, which currently boasts a yield of 2.2%, and it has increased its payout for 12 consecutive years. The stock's forward price-to-earnings (P/E) ratio of 28 isn't dirt cheap. But it is a more value-oriented pick compared to restaurant brands like Chipotle or Dominos Pizza, which trade for forward P/Es of 77 and 38, respectively. 

2. Philip Morris International 

Sustainable dividends come from sustainable earnings, which are a function of revenue and profit margins. Philip Morris has an edge because its core product, nicotine, is addictive, giving it loyal customers and pricing power. The company's investments in safer, reduced-risk products will also help it appeal to increasingly health-conscious consumers.

Unlike its U.S. counterpart Altria (the two companies split in 2008), Philip Morris focuses on international markets, which can help reduce its exposure to political and regulatory headwinds in any specific country. It has also done a great job of diversifying its business model outside of traditional cigarettes. Smoke-free products (which include its IQOS tobacco heating system, vaporizers, and oral tobacco) now represent 29% of revenue, and management aims to boost that to 50% by 2025.

Philip Morris is also investing in healthcare, which could help support growth for decades into the future. In August, the company purchased a 23% stake in inhalant medication company Vectura, which synergizes with its efforts to create safer ways to administer nicotine. 

Management expects earnings per share of between $5.79 and $5.89 in 2021 (up 12%-14% over last year). And those profits will help sustain Philip Morris's dividend, which currently boasts a yield of 4.8%. With a P/E multiple of just 17, the stock looks seriously cheap considering its solid profits and roadmap for continued success. 

What is your strategy?

With yields of 2.2% and 4.8%, respectively, McDonald's and Philip Morris are excellent picks for dividend lovers. Philip Morris is better for investors who prioritize a massive payout and a dirt cheap valuation. McDonald's, on the other hand, has a higher valuation. But as one of the most iconic blue chip brands in the world, it's worth the price tag -- especially as the company evolves its marketing strategy to stay relevant. 


Will Ebiefung 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

McDonald's Stock Quote
$271.41 (0.02%) $0.06
Philip Morris International Stock Quote
Philip Morris International
$97.79 (0.16%) $0.16

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