These 3 Stocks Are Buy-and-Hold Dividend Machines

Many companies pay dividends. However, some stand out for their dividend-paying ability. They pay attractive dividends that they've steadily increased over time. That makes them excellent options for investors seeking a steady passive income stream that can withstand the test of time. 

Three dividend-paying machines are Federal Realty Investment Trust (FRT 0.63%), Realty Income (O 0.95%), and American Tower (AMT -0.11%). Here's why three Fool.com contributors think they'd make a great addition to any dividend-focused portfolio. 

Federal Realty Investment Trust is a Dividend King likely to keep the streak going

Marc Rapport (Federal Realty Investment Trust): I typically write about stocks I own, but in this case, let's look at one I'm considering buying. I'm an income investor, looking for reliable dividend payers to supplement my fixed income streams, and Federal Realty Investment Trust provides a strong case for consideration.

This real estate investment trust (REIT) is a Dividend King, with 55 straight years of payout increases that now has the yield at a respectable 4.2%. Shares are trading at about $103 and analysts give it a consensus target price of $124.20 and rank it a "moderate buy." 

So, why all this upside for what's basically an owner of shopping centers, the type of brick-and-mortar retail that was already being hammered by e-commerce long before the pandemic even arrived?

Well, Federal currently owns 105 properties with about 3,100 commercial tenants and 3,400 residential units focused on upscale areas in the San Francisco, Los Angeles, Boston, Phoenix, and Washington, D.C., markets. These are neighborhoods that are likely to weather a recession particularly well.

Then there's the experience at the top. Three of the top four officers in the C-suite have been with Federal for at least 20 years each, and the fourth arrived six years ago from another prominent REIT. They've all helped manage this kind of real estate through multiple ups and downs.

Federal is coming off a quarter that saw new records in both funds from operations (FFO) and lease signings, but its share price is now 25% off year to date. The signs point to Federal Realty Investment Trust being a classic buy-and-hold. I may do just that soon.

One of the best at producing dividend income

Matt DiLallo (Realty Income): Realty Income built its business to deliver a dependable dividend to shareholders. The REIT has made 626 consecutive monthly dividend payments throughout its over 50-year operating history. 

Realty Income doesn't pay a static dividend. The REIT has increased its payment 116 times since its public listing in 1994, including in each of the last 99 straight quarters. It has grown its dividend payment at a 4.4% annual rate during that time frame, including by 5.1% over the past year. 

The REIT has delivered that consistent dividend growth by owning a durable real estate portfolio backed by a rock-solid financial profile. Realty Income owns nearly 11,500 income-producing properties leased to high-quality tenants in industries resistant to the threat of commerce and economic downturns. Its long-term leases deliver steadily rising rental income backed by annual escalation clauses. That steadily growing rental income stream helps support its dividend. 

Realty Income also has a top-notch financial profile. It has a reasonable dividend payout ratio of around 75% of its adjusted funds from operations, enabling it to retain earnings to finance new investments. Meanwhile, it's one of only seven REITs with A-rated credit from at least two rating agencies. That enables it to borrow money at lower rates, giving it the financial flexibility to continue acquiring income-producing real estate even when market conditions deteriorate. 

Realty Income expects to buy over $6 billion of income-producing properties this year. That's a tiny sliver of the $12 trillion market opportunity it sees for owner-occupied real estate in its core U.S. and European markets. With ample financial flexibility and a vast opportunity, Realty Income should have no problem growing its dividend for years to come.

Worried about a recession? Demand for mobile data will continue to grow

Brent Nyitray (American Tower): With the Federal Reserve hiking interest rates in order to stamp out inflation, recessionary fears are growing. Both first- and second-quarter GDP growth came in negative, so the evidence is piling up that the economy is either in (or close to being in) a recession. Investing during a recession involves a different playbook, and companies that are less sensitive to the economic cycle tend to outperform. Historically, these more defensive stocks have been stodgy consumer non-discretionary companies that manufacture things like laundry detergent. These companies are mature and generally grow about as fast as the economy. 

That said, finding both growth and defensiveness can be daunting. American Tower fits the bill. American Tower is a cellphone tower REIT that is building out a data REIT business as well. The company builds cellphone towers and then leases out capacity to mobile phone companies, cable companies, and governments. Increasing use of mobile data is a long-term trend that will continue as 5G gets rolled out and more people consume video via their phone. According to some studies, the average mobile data usage will grow from 15GB at the end of 2022 to 40GB by the end of 2027. 

American Tower participates in an industry that is highly concentrated, which means it is hard for new entrants. The best locations for towers have already been taken. American Tower is upgrading some of its towers to be able to handle more data. American Tower is a growth stock with an interesting dividend story. The company has hiked its quarterly dividend every single quarter over the past 10 years. At current levels, the stock has a 2.3% dividend yield.