There is much to love about dividend stocks beyond their passive-income potential. Companies that distribute regular and consistent dividends tend to have rock-solid businesses that can survive in the most challenging environment. Also, opting for dividend reinvestment can substantially boost returns over the long run.
Consider that the S&P 500's total return over the past few decades, including dividends reinvested, is much higher than its return without those reinvested payouts. That makes dividend stocks excellent targets for long-term investors.
With that said, let's look at two solid dividend-paying companies to buy and hold for good: Bristol Myers Squibb (BMY +0.22%) and Microsoft (MSFT 1.57%).
1. Bristol Myers Squibb
Pharmaceutical giants like Bristol Myers can be excellent "forever" stocks since the medicines they offer will never run out of style. But to stay competitive in this industry, it's important to continue innovating and developing new drugs.
Bristol Myers has proved its ability to do just that. Last year alone, the drugmaker earned several important approvals, including for plaque psoriasis treatment Sotyktu; cancer drug Opdualag; and Camzyos, which treats a heart-related disease.
Bristol Myers has more than 50 clinical compounds in development and several dozen ongoing clinical trials, so brand-new approvals and label expansions will continue to roll in. That will allow the company to generate solid revenue and earnings consistently, despite having to deal with important patent cliffs. Last year, Bristol Myers' cancer medicine Revlimid -- one of the best-selling of the bunch -- started facing generic competition.
Patent-related headwinds aren't that rare for pharmaceutical companies the size of Bristol Myers, and as long as they continue to innovate, they are generally fine.
NYSE: BMY
Key Data Points
By 2025, Bristol Myers is on track to deliver between $10 billion and $13 billion in revenue from its new products, including those that were approved last year and as far back as 2019. And these medicines will continue to generate growing revenue for years after that before running into patent cliffs.
So investors can remain confident that the company will continue to produce solid financial results, helping it reward shareholders through dividend increases. Bristol Myers has raised its payouts by 42.5% in the past five years. It currently offers a yield of 3.15% -- compared to the S&P 500's 1.74% -- and a cash payout ratio of 36.1%.
In short, Bristol Myers has many of the characteristics of an excellent dividend-paying stock worth holding forever.
2. Microsoft
Microsoft is perhaps best known for its computer operating system (OS), where it's the runaway leader. Of course, it's not alone in computer operating systems because of the rise of competitors like Apple. Still, as of June 2022, it had a 76% market share.
This factor practically ensures Microsoft's longevity. The company's products -- including its OS and productivity tools like Teams, Outlook, Excel, and others -- are so much a part of everyday life for individuals and businesses that it's hard to see competitors completely kicking it off its pedestal.
And that means Microsoft has high switching costs, a powerful competitive edge, along with a brand name that is one of the most valuable in the world. The company is also making headway in cloud computing with its Azure platform, one of its fastest-growing segments.
NASDAQ: MSFT
Key Data Points
In its 2023 second quarter, ended on Dec. 31, company-wide revenue increased by only 2% year over year, while Azure's revenue soared by 31%. In constant-currency terms, total revenue was up 7% and Azure rose 38%.
Microsoft is a cash-generating machine with $59.6 billion in free cash flow. That allows it to pour money into profitable opportunities, such as the cloud computing industry, which will continue growing at a good clip, as well as artificial intelligence. It also allows Microsoft to raise its dividends regularly -- the company has hiked its payout by nearly 62% in the past five years.
Although its dividend yield of 1.12% is lower than the average for the S&P 500, investors need to look beyond that as the company's rock-solid business, competitive advantages, growth opportunities, and a reasonable cash payout ratio of 31.8% ensure that it will remain successful and won't reduce or suspend its payout anytime soon.
