What's better than a stock that pays dividends? A stock with growing dividends and a business that's built for long-term success.
Three Motley Fool contributors identified stocks they think fit the bill. Here's why they believe that AbbVie (ABBV 0.19%), Eli Lilly (LLY 0.80%), and Johnson & Johnson (JNJ +0.48%) are dividend growth stocks that you can buy and hold forever.
A stellar dividend track record
Keith Speights (AbbVie): You'll have a hard time finding many stocks with a stellar dividend track record like AbbVie's. The big biopharmaceutical company has increased its dividend for 51 consecutive years, including the time that it was part of Abbott Labs. That puts AbbVie in the prestigious group of stocks known as Dividend Kings.
NYSE: ABBV
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But where AbbVie really shines is in the amount of dividend growth. Since its spin-off from Abbott in 2013, the company's dividend has increased by 270%. AbbVie's dividend yield currently stands at 4%, making it a high-yield dividend stock by nearly any definition of the term.
Some investors might be skeptical that AbbVie is a "forever" stock to own. After all, its top-selling drug, Humira, now faces biosimilar competition in the U.S. and in other countries. Its sales are sinking, dragging down AbbVie's total revenue and profits. As a result, AbbVie's share price has fallen year to date while the overall market has risen.
My response to this view is that AbbVie's strategy for Humira's twilight years underscores what a great long-term business model the company actually has built. Sure, 2023 and 2024 will be bumpy. However, AbbVie expects to return to growth by 2025. How? For one thing, the drugmaker already has two successors to Humira on the market (Rinvoq and Skyrizi) that should together surpass Humira's peak annual sales within the next few years.
In addition, AbbVie's product lineup features other drugs that are rising stars. Antipsychotic drug Vralyar and migraine drugs Qulipta and Ubrelvy rank high on the list. The company's pipeline includes more than 90 programs in development as well, with over 50 of them in mid- or late-stage testing.
Don't let this low yield trick you, Eli Lilly is a great dividend stock
David Jagielski (Eli Lilly): Not many stocks can say that they have been paying dividends since the 1800s, but Eli Lilly can. It hasn't increased dividend payments for 50 years in a row, but it could have if not for the Great Recession. Lilly's streak was sitting at 40+ years before the company had to break it in 2010.
NYSE: LLY
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But that's arguably also a good sign of smart management, focusing on economics and what makes sense for the business rather than increasing the dividend for the sole purpose of keeping a streak going. Eli Lilly also returned to raising its payouts again. This year, the company raised its dividend by 15% -- the fifth consecutive year that it has increased its payouts by that much. That more than makes up not making dividend increases every year, in my view.
The other knock on the stock may be that it offers a low yield. At 0.8%, Lilly's yield is well below the S&P 500 average of 1.6%. Investors may scoff at that type of yield. However, it's the result of the stock's amazing success. This year, Eli Lilly's shares are up over 50%. If the stock were trading around $360, which is where it started the year, the yield would be around 1.3%. Investors have a wonderful problem in that the fast-growing dividend can't keep up with the even faster-growing stock price.
For long-term investors, this is an easy stock to justify buying. Eli Lilly has a broad pharmaceutical business with not one but two exciting drugs. Mounjaro is a diabetes medication that has shown it can also be a highly effective weight-loss drug. At its peak, it could generate tens of billions of dollars in revenue for the business. Donanemab is an Alzheimer's treatment that could be another multibillion-dollar drug for Lilly.
If the company's top and bottom lines continue soaring (as they appear likely to do), the dividend should rise as well. Eli Lilly is a great dividend growth stock for investors to buy and hold for decades.
Dividend hikes for 61 years and counting
Prosper Junior Bakiny (Johnson & Johnson): In terms of dividend growth, it is difficult to beat Johnson & Johnson's track record. The company increased its payouts for 61 years in a row. Yes, that makes Johnson & Johnson a Dividend King, the most exclusive group of dividend payers on the market, composed of companies that have hiked their payouts for at least 50 years.
NYSE: JNJ
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Here's what that says about Johnson & Johnson. First, the healthcare giant is an innovative company. Although medical care is always in demand, the industry changes and evolves rapidly. Johnson & Johnson has remained a leader for decades by breaking new ground within its pharmaceutical and medical devices segments.
Second, Johnson & Johnson's financial results and fundamentals have been solid and consistent, even amid economic and market challenges, recessions, depressions, pandemics, etc. Third, and perhaps most importantly, Johnson & Johnson's track record says a lot about the quality of the leaders it has had. A corporation's leadership is arguably the single most important determinant of its success.
In its 126-year history, Johnson & Johnson has had just seven CEOs. The culture the company has built, centered around innovation and strong leadership, should allow the company to reproduce its past success despite the legal troubles it is facing. That goes for Johnson & Johnson's dividend growth potential, too.
Failing to increase its payouts would mean starting over and hopefully joining the clique of Dividend Kings again in another 50 years. Johnson & Johnson won't risk doing that outside of some borderline catastrophic turn of events for the company. That's why investors can add this dividend stock to their portfolios for good.
