There are a lot of investment strategies that can help you build wealth over time, but few have delivered sustained success quite like buying dividend stocks.
Companies that regularly pay a dividend to their shareholders (be it monthly, quarterly, semiannually, or annually) are usually profitable, have transparent long-term growth outlooks, and have demonstrated their ability to navigate challenging economic environments.
Even more important is the fact that dividend stocks have historically outperformed nonpaying stocks over long periods. A 2013 report from JPMorgan Asset Management found that companies initiating and growing their payouts over a 40-year stretch (1972-2012) produced an average annual return of 9.5%. By comparison, stocks that didn't dole out a dividend trudged their way to an annualized return of 1.6% between 1972 and 2012.
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Although no two dividend stocks are created equally, some income stocks are truly in a class of their own. Here are five top dividend stocks that investors can buy and never sell.
Johnson & Johnson: 2.64% yield
The first top-tier income stock investors can buy and never worry about selling is healthcare giant Johnson & Johnson (JNJ -1.15%). While its 2.6% yield might appear pedestrian, consider that J&J has increased its base annual payout for 60 consecutive years. Only a handful of publicly traded companies can claim a longer active streak.
Helping Johnson & Johnson deliver for its long-term shareholders are both macro and company-specific factors. In terms of the former, the healthcare sector is a basic necessity. No matter how dire things might seem for the U.S. economy or stock market, people don't stop getting sick or requiring preventative care. This provides steady profits and operating cash flow for a healthcare company the size of J&J.
On an operating basis, Johnson & Johnson is built like a fine wine. Its pharmaceutical segment packs the higher margins and growth needed to move the needle now, while its medical technologies segment is well positioned to provide lasting organic opportunities as the domestic and global population ages.
If you need one more good reason to hang on to J&J, consider this: It has a higher credit rating than the U.S. federal government.
U.S. Bancorp: 4.48% yield
A second top dividend stock that can be bought and held in perpetuity is U.S. Bancorp (USB -1.49%), the parent of well-known U.S. Bank. Even though bank stocks are cyclical, and therefore exposed to the ebbs and flows of the U.S. economy, U.S. Bancorp has two traits that make it a surefire dividend payer.
First, U.S. Bancorp's leadership has done an excellent job of steering this regional bank away from potential financial potholes. Whereas most money-center banks were lured by riskier derivative investments prior to the financial crisis (2007-2009), U.S. Bancorp has largely avoided these riskier bets. By focusing on growing its loans and deposits, U.S. Bancorp has consistently delivered above-average return on assets among big banks.
The other factor working in U.S. Bancorp's favor is digital engagement trends. Arguably, no big bank has been more successful at getting its users to bank online or via mobile app. There's a big cost difference between in-person or phone-based interactions and digital sales. As more customer transactions shift online, U.S. Bancorp is able to consolidate some of its physical branches and grow more efficient from an operating perspective.
Banks are known for their robust capital-return programs, and U.S. Bancorp's 4.5% yield doesn't disappoint.
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Philip Morris International: 5.65% yield
The third top dividend stock investors should never have to sell is tobacco stock Philip Morris International (PM -2.96%). Though educating consumers about the dangers of smoking/using tobacco products has challenged the traditional tobacco operating model, Philip Morris has catalysts in its sails that keep the needle moving in the right direction.
The biggest advantage this company brings to the table is its geographic diversity. The company's products, which includes the premium Marlboro brand outside the U.S., are for sale in more than 180 countries. If tobacco regulations tighten in one developed market, there's likely an emerging market offsetting this weakness.
To add to this point, tobacco products contain nicotine, an addictive chemical. The addictive nature of tobacco products allows Philip Morris to pass along price increases that outpace whatever volume declines it might be dealing with.
Philip Morris is also investing in its future. The ongoing rollout of its IQOS heated tobacco system provides a new, fast-growing revenue source that can offset declines in traditional cigarette shipments.
York Water: 1.75% yield
A fourth top-notch dividend stock to buy and never sell is water utility York Water (YORW -0.45%). While its 1.75% yield might not be much to look at on the surface, I promise that this company makes up for it in other ways.
The beauty of utility stocks is that they provide a basic-need service. Regardless of whether you own or rent, you'll need water and wastewater services. Further, your choice of utility provider is often limited to one or two companies. The key point here is that York Water can accurately forecast annual operating cash flow because water and wastewater demand doesn't change much from one year to the next in the 51 municipalities it serves in South-Central Pennsylvania.
Additionally, York Water is a regulated utility. This means it needs the OK from the Pennsylvania Public Utility Commission to raise rates on its customers. While not being able to raise rates anytime it wants might sound like bad news on the surface, it's quite the opposite. Regulated utilities avoid the uncertainties of wholesale pricing on the underlying commodity they deal with.
And did I mention that this little-known water utility has the longest active consecutive dividend payout streak in the U.S. among publicly traded companies? York has paid consecutive dividends since 1816 -- that's 206 years (and counting).
Enterprise Products Partners: 7.62% yield
The fifth and final dividend stock investors should never sell is oil and gas company Enterprise Products Partners (EPD -0.41%). Enterprise Products' 7.6% yield is the high point on this list, and the company has increased its base annual distribution in each of the past 24 years.
Though some of you might be leery of putting your money to work in an oil stock after seeing what happened to the industry in 2020, Enterprise Products Partners mostly avoided the perils that affected drillers. That's because it's a midstream company. It operates transmission pipeline, storage tanks, and processing facilities that move and store energy commodities.
The reason Enterprise has been such a long-term success is its contracts. Midstream companies rely on long-term fixed-fee or volume-based deals that produce exceptionally predictable cash flow. Even if crude oil and natural gas prices vacillate wildly, Enterprise can accurately forecast its operating cash flow in a given year. That's important, because midstream companies have to outlay capital for new infrastructure projects, acquisitions, and their distribution to shareholders.
With demand for energy infrastructure expected to grow in the coming years and decades, Enterprise Products Partners finds itself in the growth sweet spot within the energy sector.
