Forever is a long time, but some stocks have earned that kind of dedication from investors. In my portfolio, Realty Income (O 0.25%) and Procter & Gamble (PG +0.36%) stand out as stocks I plan to pass on to my heirs. If you are a dividend-focused investor, here's why you might put them in the "forever hold" category, too.
Size has its benefits
Realty Income is a net lease real estate investment trust (REIT). That means it owns single-tenant properties in which its lessees are responsible for most of an asset's operating costs. Across a large portfolio it's a pretty low-risk investment approach. Realty Income is one of the largest net lease landlords, with over 11,000 properties in its portfolio.
It is heavily focused on retail assets (78% of rent), where properties are generic and relatively easy to re-tenant or sell. The rest of rent comes largely from industrial assets, while about 10% of the total rent pie comes from Europe. Both add a little diversification to the mix.
Image source: Getty Images.
The big story here, however, is the company's scale, which has historically afforded it important benefits. For example, it can make large acquisitions without upending its portfolio makeup or disrupting its top tenant exposures. Size and a conservative financial culture also provide Realty Income with easy access to debt financing, buttressed by an investment-grade-rated balance sheet.
Being big and conservative has also led investors to historically assign a premium price to the shares relative to peers, which means easier access to equity capital, too. All in, Realty Income is well-positioned to keep growing its portfolio in advantageous ways.
Then there's the dividend. Right now the yield is around 5.1%, which is higher than it has been since the 2020 bear market. Though perhaps not super cheap, it appears attractively priced today for long-term dividend investors. And that dividend has been increased annually for 27 consecutive years, making Realty Income a Dividend Aristocrat.
This is a slow and steady performer that is worth a deep dive now that Wall Street is in the dumps again.
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The "Tide" is turning
Procter & Gamble is one of the world's largest consumer staples makers, with ionic brands like Tide and Bounty. With a $300 billion market cap, it has the heft to differentiate itself via research and development, advertising, and distribution.
Stores view the company as a vital and strong supplier. And given the regular cash flows created by consumers buying its products on a frequent basis, Procter & Gamble has been able to increase its dividend annually for over six decades, making it a highly elite Dividend King.
So far, the company has adeptly handled inflationary pressures, which have pushed up its salary, ingredient, and transportation costs. The key has been the ability to push price increases on to consumers. However, when Procter & Gamble reported fiscal first-quarter 2023 results, it warned that full-year earnings will be toward the low end of its previous guidance range of flat to up 4%.
To be fair, the strong dollar is part of the issue, but the company also saw consumers reduce purchases across virtually all of its product categories in the face of continued price increases. That's a notable change from fiscal 2022 when price increases were accepted by consumers much more readily.
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But inflation is a short-term headwind that is pretty typical in the consumer staples space. Higher prices will eventually work their way through the system and companies and their customers will adjust. Procter & Gamble has been through this before over the past 60 years and managed to survive while still increasing its dividend.
Presently, the dividend yield is 2.8%, which isn't exactly huge by historical standards. So Procter & Gamble isn't a screaming buy, but nor is it a stock I'm going to sell just because inflation is causing some near-term turbulence in the financial picture.
Thinking long-term
Wall Street has a bad habit of thinking in days when it should be thinking in decades. You don't have to get caught up in that short-term thinking. It appears to have pushed Realty Income's shares down to attractive levels for dividend investors.
Procter & Gamble has fallen in the bear market, too. And while it's far from cheap, if you prize dividend consistency, it might still be worth a look (in case investors get irrationally negative). Both, however, are stocks that you should probably keep owning if they are already in your portfolio.
