Long-term investors who like to hold stocks for decades need to pay extra attention to the companies they're buying. Focusing on stocks that have proven themselves over time via a steadily increasing dividend is a good first step.
If those companies also happen to be industry leaders, all the better. Here are three such companies that, when they go on sale, you should probably consider adding to your portfolio.
1. Procter & Gamble is a retailer's best friend
Procter & Gamble (PG 1.23%) has a market cap of over $340 billion, making it one of the largest consumer staples companies on the planet. It has the scale to invest heavily in advertising, distribution, and -- perhaps most important -- research and development.
It tends to be a leader in the industry when it comes to launching new and improved versions of products like toothpaste, toilet paper, and deodorant. Consumers love the words new and improved, and retailers love that such products draw customers into their stores, which makes P&G a valuable supplier.
NYSE: PG
Key Data Points
Procter & Gamble has increased its dividend annually for 67 years. The average annual increase over the past decade was around 5%, which isn't huge but is more than enough to keep the buying power of its dividend growing faster than inflation.
The problem is that the yield is around 2.5%, which is the middle of the road for P&G. This suggests that the stock isn't cheap today, which is not a shock, given its industry-leading position in the consumer staples space because many of its brands sit at the high end of the price spectrum. However, if the stock price were to take a notable dip, even the most conservative investors should consider adding P&G to their portfolios.
2. Nucor is big and diversified
Nucor (NUE +1.02%) is one of the largest steel makers in North America. It also has one of the most diversified product portfolios in the industry. Add in a structural advantage because it uses more modern electric arc mini-mills that can be more easily ramped up and down with demand than older blast furnaces, and there's a lot to like about this company.
It also has a vertically integrated business model and great relations with its employees, who are largely non-union. Still, investors need to remember a very simple fact: Steel is a highly cyclical industry.
NYSE: NUE
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That just makes the company's status as a Dividend King, with 50 years of annual dividend increases, all the more impressive. The average annual dividend increase over the past decade was 3%, which is roughly in line with inflation.
This is one of the reasons why investors will want to wait until the stock takes a sizable dip before buying. The dividend yield today is around 1.2%, which is pretty modest. Given the cyclical nature of the steel sector, however, patient long-term investors should wait and only buy this industry leader when Wall Street is throwing the baby out with the bathwater in an economic downturn.
3. Exxon is ready to ride the energy wave
Compared to oil and natural gas, steel looks like a calm sea. Supply and demand, geopolitical tensions, government interventions, and the OPEC oil cartel can all rattle the energy sector in a swift and dramatic fashion.
This is why ExxonMobil's (XOM 0.28%) 41 consecutive annual dividend increases are so impressive. The average increase over the past decade was a bit over 4%.
NYSE: XOM
Key Data Points
One of the keys to ExxonMobil's dividend consistency is the company's strong balance sheet, with a very modest debt-to-equity ratio of 0.2 times. When oil prices are weak, ExxonMobil adds debt so it can keep paying the dividend and invest in its business. When oil prices recover, as they have always done historically, it pays off that debt.
It's been a winning formula for dividend investors. The yield today is around 3.7%, which is the most attractive on this list. However, during oil downturns, it can get much, much higher.
Stick with the best
There's no one right way to pick a stock, but if you're a conservative income-focused investor, going with industry-leading stocks is a good starting point. If they also happen to have decades of annual dividend increases behind them, all the better.
The problem is that such stocks, which include P&G, Nucor, and ExxonMobil, don't go on sale all that often. This is why you want to prepare ahead of time by putting these companies on your wish list, just in case their stocks take a big dip. That way, instead of being paralyzed by fear, you'll be ready to pounce.
