Owning companies that pay out a steady dividend is a good step toward preparing for your retirement. The goal, however, is to search for stocks that can pay out dividends over the long term. Such businesses usually have several defining characteristics. They possess a recognizable and trusted brand, have a great track record of increasing dividends over the years, and generate copious amounts of free cash flow.
By accumulating a portfolio of dividend stocks, you can enjoy a steady stream of dividends that can go on in perpetuity. It's important to hold such stocks through good times and bad -- and add to them whenever you have spare cash. By doing so, you can enjoy a twofold benefit. The higher number of shares will produce a greater amount of dividends while a rising dividend per share provides a further boost to your passive income.
Here are three dividend stocks that are poised to pay you for the rest of your life.
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Tractor Supply
Tractor Supply (TSCO 0.85%) is the largest rural-lifestyle retailer in the U.S., operating a total of 2,003 stores in 49 states at the end of 2021. The pandemic has been a catalyst for the company, pushing more people to focus on their homes and farms, and helping to raise the company's results to new highs. Net sales jumped from $8.3 billion to $12.7 billion from 2019 to 2021, and net income increased by 77% over the same period to $997.1 million.
Tractor Supply has a history of paying out quarterly dividends since 2010 and, in fact, increasing it 11 consecutive years from $0.04 to $0.52. For 2022, management has committed to a stunning 77% year-over-year increase in its quarterly dividend to $0.92 as the retailer expresses confidence in its long-term growth.
Meanwhile, its loyalty program, Neighbor's Club, now boasts 23.6 million members, and the company reports record retention and spending rates. Tractor Supply is confident not just in its 2022 outlook but has also raised its long-term store target from 2,500 to 2,700 as it identifies opportunities for deeper penetration.
The company has identified a total addressable market of $180 billion that represents significant room for further growth, and it recently announced a partnership with Robert Bosch Tool to add two famous brands of power tools to its growing portfolio of products. All in all, there are plenty of reasons for investors to be optimistic.
3M
From lawn and gardening tools, we turn to the inventor of Post-it Notes, 3M (MMM -1.05%). The Minnesota-based manufacturing giant makes a wide range of products from adhesives, tapes, and ceramics to filtration systems and stationery products. 3M thrives on innovation and spends 5% to 6% of its sales on research and development to sustain its pipeline of new product flow.
At the same time, the company has paid out dividends without fail for more than a century and has sustained dividend increases for an impressive 64 years, putting the industrial company into the league of Dividend Kings.
There are strong reasons to believe that this track record can continue. 3M reported increases in net sales from 2019 to 2021, a period when the pandemic was raging around the world. Operating income increased from $6.2 billion to $7.4 billion during this period, while net income jumped from $4.5 billion to $5.9 billion.
The business also generated consistent free cash flow over these three years, more than demonstrating its ability to maintain and grow its dividend payments. 3M estimates organic sales growth of between 2% and 5% for this year, along with close to 100% free cash flow conversion.
3M estimates that its total addressable market for such sectors as home improvement, manufacturing, healthcare IT, wound care, automotive, and electronic materials to be around $300 billion, giving the company ample opportunities for growth with its current $35.4 billion revenue.
Clorox
Clorox (CLX 1.24%) is practically a household name with its various cleaning products that include such well-recognized brands as Clorox, Glad, Kingsford, and Pine-Sol. The company saw net sales rising from $6.2 billion in 2019 to $7.3 billion in 2021 as the pandemic caused demand for cleaning solutions to surge.
With its healthy, free cash flow generation, Clorox has also been paying out an annual dividend for more than five decades and has increased it for close to 20 years without fail.
Clorox is confident of further growth with its "IGNITE" strategy that involves the delivery of cost savings and tapping on technology and data-driven insights to better understand consumer behavior and buying patterns. Through this data-mining process, Clorox hopes to evolve its product portfolio to cater to changing demands and keep up with consumer trends and preferences.
The company has revised its long-term sales growth target to between 3% and 5%, up from the original 2% to 4% range. It's also targeting a 0.25% to 0.5% improvement to its operating profit margin along with around a 12% free cash flow margin. Investors should keep faith that Clorox can continue to drive top- and bottom-line growth with its IGNITE strategy and continue to pay increasing dividends at the same time.
