There is no better feeling than receiving a dividend in your bank account. These dividends represent a source of passive income that can help supplement your earned income. They also represent a tangible return on your investment not affected by stock price fluctuations. The slow accumulation of dividend-paying stocks can allow you to generate a passive income stream that could better prepare you for retirement.
Fortunately, you can find a good number of stocks that not only have great dividend track records but are also well-positioned to continue paying out higher dividends in the foreseeable future. Such businesses are usually leaders in their field, own a strong portfolio of brands, and generate copious amounts of free cash flow to fund their dividend payments. Such characteristics make them ideal passive income candidates to own long term.
Here are two solid dividend stocks you can consider buying and holding forever.
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Colgate-Palmolive
Colgate-Palmolive (CL 1.93%) is a consumer products company with a portfolio of products in the oral, personal, home, and pet care segments. Some of the company's trusted brands include Colgate, Palmolive, Sanex, and Ajax. The popularity of Colgate-Palmolive's brands has enabled the company to report steadily increased sales over the past three years, with revenue rising from $16.5 billion in 2020 to $18 billion in 2022.
Net income, however, was impacted by higher costs from inflation along with impairment charges. Despite this, the company continued to generate healthy positive free cash flow of $2.6 billion per year on average.
Colgate-Palmolive has carried on this momentum in the first nine months of 2023, with free cash flow jumping 49% year over year to $2.1 billion. This strong performance should allow the consumer goods company to easily continue raising its dividend payments, which it has done over the past six decades without fail.
The business has historically generated robust organic sales growth, with just one-quarter of negative organic sales growth in the past 22 quarters.
Colgate-Palmolive is well-known for its science-led innovation that enabled it to garner 900 global patents in 2022, where it published more than 100 research clinical studies. The company regularly releases new products that are well-received in the markets it operates in, creating customer loyalty and increasing stickiness.
In addition, effective marketing and promotional efforts help reinforce Colgate-Palmolive's brand image and keep its products at the top of consumers' minds. Advanced analytics enable management to drill down to product-level economics to aid scenario planning and to price products to capture better margins and market share.
2022's global productivity initiative helped the company deliver sales of $90 million to $110 million annually, reducing operating overhead as a proportion of sales. These attributes make Colgate-Palmolive an excellent dividend stock to own for the long run.
Emerson Electric
Emerson Electric (EMR 0.27%) is an industrial company that manufactures and sells actuators, valves, and professional tools. The business, which has a Sept. 30 fiscal year-end, has seen consistent growth over the years. Emerson Electric's sales grew from $12.9 billion in fiscal 2021 to $15.2 billion in fiscal 2023, with earnings from its core operations jumping from $1.4 billion to $2.2 billion over the same period.
The business also generated positive free cash flow for all three fiscal years. These results have allowed Emerson Electric to increase its dividend for over 68 consecutive years.
The company also released encouraging guidance for fiscal 2024, with projected sales growth of 13% to 15.5% and earnings per share of $3.82 to $4.02, higher than fiscal 2023's diluted earnings per share of $3.72.
Importantly, Emerson Electric expects to generate free cash flow of around $2.7 billion for the current fiscal year, which should allow it to continue its uninterrupted streak of dividend increases. The company is also known for its regular bolt-on acquisitions to help strengthen its automation portfolio and garner more customers within the markets it operates in.
Some examples of acquisitions carried out in fiscal 2023 include the purchase of Swiss company Afag to expand Emerson Electric's factory automation-served market by $9 billion and the purchase of German company Flexim, a leader in ultrasonic flow measurement for liquids, gases, and steam.
The business is also venturing into new technologies, such as disruptive measurement technologies and self-optimizing asset software, to help grow its revenue streams and open more opportunities. Emerson Electric's backlog stood at $6.6 billion at the end of fiscal 2023, up 12% year over year, and management sees a potential project pipeline of $10 billion in the future.
The company's innovative culture, savvy bolt-on acquisitions, and consistent free-cash-flow generation make it a great target for income investors who appreciate its steadily rising dividends.
