Investing can require a lot of time researching stocks and monitoring the performance of the businesses they represent. Some people who don't want to put that time in might find index funds appealing. But if you're looking to own individual stocks, there are some businesses that you can buy and hold without having to watch their every move.
No investor should ever buy and forget, but these two stocks require about as little hand-holding as you'll find, and you can build a solid starter position in both of them for just a $1,000 initial investment. Did I mention they both pay dividends that increase every year? They can be a part of any diversified portfolio, so keep these two blue-chip stocks on your radar.
1. This company is everywhere in tech
Technology is constantly changing, so tech companies aren't typically the first place most investors look for dividend stocks. But Microsoft Corporation (MSFT 1.82%) has built a worthy resume. Not only has the company evolved from the early days of the computer in the 1970s, but it's expanded over time to become a prominent player in cloud computing, video gaming, and business software. Microsoft Windows was one of its earliest products, yet the operating software still runs on three-quarters of the world's desktop computers today.
Microsoft has grown into one of the world's largest companies; annual revenue has surpassed $200 billion, and high profit margins convert more than 32% of that to free cash flow. The company has paid and raised its dividend for 19 consecutive years; not the longest track record, but the financials point to years of upcoming increases. The dividend payout ratio is just 29% of cash profits, and Microsoft's shown the ability to continue growing despite its increasingly larger size:
MSFT Revenue (TTM) data by YCharts.
If you're looking for all-weather dividend toughness, look no further. Hypothetically imagine a scenario where Microsoft's business implodes. If the company stopped making money overnight, Microsoft's $58 billion in net cash (total cash minus debt) would be enough to pay the entire dividend for roughly three years. Then you can look at Microsoft's smooth growth over the years in the chart above and realize its balance sheet is a great safety net it'll probably never need. It's hard to find as much of a sure bet for continued dividend growth as Microsoft. Splitting your $1,000 investment into two stocks would mean grabbing two shares at Microsoft's current share price.
2. This company is everywhere in your home
Consumer goods companies often make great dividend stocks because people tend to buy the soaps, detergents, cleaners, and other household goods they like, regardless of what the economy is doing. And the Procter & Gamble Company (PG -0.78%) has arguably the most significant footprint in consumer households of any company. Procter & Gamble's history traces back to the early 1800s and amounts to more than $80 billion in annual revenue today. The company's 10 major product categories span household names from Tide to Tampax; check your closet and bathroom for product labels, and you'll likely find something made by Procter & Gamble.
Procter & Gamble makes its money selling millions of goods that sell for a few dollars, so growth isn't very robust; the company relies on price increases and slow population growth to drive sales higher over time. But what it lacks in growth, it makes up for in dependability. Procter & Gamble is a Dividend King, an S&P 500 member that's raised its dividend for 50 consecutive years, or 66 in Procter & Gamble's case.
PG Dividend data by YCharts.
A company can't raise a cash expense like a dividend for decades without growth, and Procter & Gamble's financials back the dividend's legitimacy. After all these years of dividend raises, the payout ratio is still manageable at 67% of free cash flow. Procter & Gamble doesn't have the net cash on its books that Microsoft has. Still, the company's modest leverage ratio at 1.5 times debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) gives the company tons of flexibility if things were ever to get rocky. A 66-year dividend growth streak means the dividend is part of the culture at Procter & Gamble, and investors should feel confident that the company has the tools to keep growing the dividend for years to come. You can buy three shares of Procter & Gamble for less than $500, making it an outstanding dividend stock to pair with Microsoft. These companies will give any long-term investor a great start to any diversified portfolio.
