Please ensure Javascript is enabled for purposes of website accessibility

2 Dividend Stocks That Will Pay You for Life

By Kody Kester – Sep 14, 2021 at 8:30AM

Key Points

  • For the sake of a stable retirement, income investors should own shares of the highest quality companies that provide vital goods or services to their customers.
  • The large-cap food and beverage company PepsiCo is poised to benefit from continued population growth and strong brand power.
  • Essential Utilities will grow due to the steady and increasing demand for water and natural gas services.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Are you looking for steady dividends to stand the test of time? Here are a couple of stocks to consider buying.

A common goal of income investors is to use dividends to cover a portion of or all of their expenses in retirement. That's why they should pick dividend stocks that provide indispensable products with few or no available substitutes.

Two dividend stocks that I believe fit these criteria are PepsiCo (PEP -0.52%) and Essential Utilities (WTRG 0.77%).

Two people raise their glasses filled with iced soda

Image source: Getty Images.

1. PepsiCo

PepsiCo is a large-cap consumer staples company selling food and beverages in more than 200 countries and territories around the world. It boasted 23 brands that generated at least $1 billion each in estimated retail sales last year with household names, including Pepsi, Lipton Tea, Lay's, and Doritos.

The company's steady innovation and receptiveness to evolving consumer preferences are what make it a leader in North America in both the snacks and liquid refreshment beverage (LRB) categories.

And despite a 9% retail share in the $570 billion global beverages market and a 7% share in the $550 billion global snack foods market, PepsiCo believes it can increase its share by expanding its presence in emerging markets. Both categories are also expected to grow 4% to 5% annually through 2025.

Analysts expect PepsiCo's annual earnings growth will accelerate from 5.3% annually in the previous five years to 9.8% over the next five years, which should be enough to fuel the company's mid-single-digit dividend increases well into the future.

Supporting that possibility is PepsiCo's reasonable payout ratio of 69%. As of 2021, this Dividend Aristocrat has raised its payout for 49 consecutive years. Assuming the company raises its dividend again next year, it will attain the even more prestigious title of Dividend King.

Trading at 25 times expected 2021 earnings, PepsiCo is reasonably priced, and shares yield 2.8% as of this writing. Income investors can add the stock to their portfolios for another few decades of steady dividends and growth.

Water flows out of a faucet and down the drain.

Image source: Getty Images.

2. Essential Utilities

The second pick for investors looking for reliable and growing dividends is the water and natural gas utility, Essential Utilities. The company provides its services to an estimated five million people in nine U.S. states throughout the Midwest and East Coast, as well as Texas.

In the first half of 2021, Essential Utilities generated 49% of its $981 million of revenue from the regulated water segment, which includes water and wastewater services. Another 49% of the top line came from the regulated natural gas segment, which heats homes and businesses during the colder months of the year.

Besides the staying power of major utilities like water and natural gas, another thing investors should like about this company's business model is the fact nearly all of its revenue in that same period was regulated by government entities. This dynamic is what allows the company to steadily grow its revenue and earnings.

And with Essential Utilities planning to invest $3 billion through 2023 to expand and improve its water and natural gas infrastructure, the company expects that it will be able to generate 5% to 7% annual earnings growth during that time.

And as the company's current payout ratio of 58% is actually below management's long-term target of 60% to 65%, the company should be able to continue growing its dividend in the years ahead. Its latest payout increase of 7% extended its dividend growth streak to 30 years.

Although Essential Utilities isn't exactly a bargain at 29 times this year's expected earnings, investors can still rest easy with this stock in their portfolios as they collect a dividend currently yielding 2.2%.

Kody Kester owns shares of Essential Utilities, Inc. and PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Essential Utilities, Inc. Stock Quote
Essential Utilities, Inc.
$48.67 (0.77%) $0.37
PepsiCo Inc. Stock Quote
PepsiCo Inc.
$184.11 (-0.52%) $0.97

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.