What will the economy of 2050 look like? Flying cars, carbon neutrality, robots doing our work for us? Who knows? What we do know is that certainty and reliability are two core attributes of top-tier dividend stocks. And that dividend stocks can be a great way to generate income throughout ups and downs in the market cycle.
We asked three of our contributors an ultra-long-term question: If you could buy and hold only one dividend stock till at least 2050, what would it be? They hit the drawing board and selected United Parcel Service (UPS -3.35%), Norfolk Southern (NSC -1.93%), and Brookfield Renewable (BEPC -5.31%) (BEP -5.29%). Here's what makes each a great buy now.
Positioned to deliver great returns for decades to come
Daniel Foelber (United Parcel Service): For a stock to be a good long-term buy, it helps to think of some of the best winners over the last 30 years. Starbucks, Disney, and even Procter & Gamble are all easy-to-understand businesses that have produced superb returns for decades.
One stock that could continue raising its dividend and beat the market over the long term is UPS. It's one of the largest industrial stocks by market cap, has been growing its dividend for about 20 years, and is an industry-leading package delivery company.
The most obvious sector tailwind benefiting UPS is e-commerce. Even before the pandemic, UPS was investing heavily in e-commerce by providing tools for small and medium-sized businesses to have the same advantages as their larger competitors.
FedEx's latest earnings report showcased challenges in the real economy, proving that managing an international shipping and logistics company isn't easy when there are supply chain challenges and a labor shortage. Even if Amazon and other e-commerce companies continue to expand their own fleets, there should be plenty of space for UPS to enjoy stable growth over the long term. The company generates gobs of free cash flow and returns a good chunk of it to shareholders through its dividend -- which currently yields 2.2%.
This train can keep on running
Lee Samaha (Norfolk Southern): If you commit to a dividend stock for the long term, you need to be sure that the stock will be around in the decades to come. Outside of a takeover, it's highly likely that East Coast-focused railroad Norfolk Southern will be still around and paying dividends too.
Operating as an effective duopoly on the East Coast (CSX is its primary competitor), the Class 1 railroad offers long-term dividend investors three things. First, the stability of its market position. Railroads tend to own their infrastructure, and as long as there's a need to ship physical goods around the U.S., there will be a railroad to do it.
Second, all the major listed North American railroads are implementing precision scheduled railroading (PSR) initiatives to improve long-term profitability. So far, all the evidence points to PSR working, so investors can look forward to more improvements to come. Third, Norfolk Southern has a superb record of increasing its dividend. Even if its current 1.8% dividend yield isn't much to write home about, the transportation stock will increase its payout over time.
All told, the railroad stock is an excellent addition to an income-seeking investor's portfolio.
Carbon neutrality can be positively powerful for generating passive income
Scott Levine (Brookfield Renewable): When I'm looking for dividend stocks that I can park in my portfolio for the next 30 years, I'm looking for two critical things: a business flush with growth opportunities and a management team committed to shareholders. Fortunately, Brookfield Renewable meets both criteria. It's not easy to find stocks like this, but when I do, I'm happy to pick up shares, believing that it will be one of my core holdings for the next few decades.
A global leader in renewable energy, Brookfield Renewable operates a portfolio of solar, wind, energy storage, and other clean energy assets that total 20 gigawatts -- not that it's expected to stay that size for long. The company also has more than 31 gigawatts of projects in development. With local municipalities, states, nations, and corporations looking to reduce their carbon footprints, I'm confident that Brookfield Renewable's portfolio will grow even more robust in the coming years -- and decades. The year 2050, however, represents something particularly significant as many nations -- more than 120 -- have targeted that as the year by which they achieve carbon neutrality. Additionally, this makes Brookfield Renewable a stock that should not only draw the attention of dividend-minded investors but ESG investors as well.
With regards to returning cash to shareholders, Brookfield Renewable has demonstrated a consistent interest in rewarding its investors. From 2010 to 2021, for example, the company has grown its distribution at a compound annual rate of 6%, and it maintains a target of continuing to grow its distribution at a 5% to 9% annual rate for the foreseeable future. For skeptics who question whether management's dedication to the distribution is jeopardizing the company's financial health, a brief glance at the company's cash flow growth should allay their concerns. From 2010 through 2020, the company's funds from operations rose at a compound annual growth rate of 10%, outpacing the growth of the distribution -- a rate that management foresees achieving over the next five years as well.