Most of the time, making a decision about a particular stock is best done through a "forever" lens. That's especially true for dividend stocks, which require their underlying companies to boast cash flows with clear longevity.
Every now and then though, a dividend stock surfaces that's compelling but not necessarily built to be a permanent addition to your portfolio. Think of it as leasing rather than buying a car, or renting rather than purchasing a home. Sometimes, this short-term choice makes the most financial sense in the long run.
With that as the backdrop, here's a rundown of three dividend stocks to buy with plans to only hold them for the next 10 years, at which time you'll want to reassess whether or not you want to stick with any of them.
Image source: Getty Images.
1. Altria Group
There's no denying that the tobacco business is dying thanks to successful smoking-cessation efforts. But it's not dying nearly as quickly as you might think. A 2024 outlook from the World Health Organization suggests the total number of worldwide tobacco users is only expected to fall from 2000's 1.36 billion to just under 1.2 billion by 2030; global population growth is helping the industry remain afloat.
The tobacco business's eventual end is still inevitable, of course. But there's good money to be made in it now and into the foreseeable future.
Enter Altria Group (MO +2.92%), parent to Philip Morris USA, which owns popular cigarette brands like Marlboro, Virginia Slims, and of course its namesake brand Philip Morris. Although its revenue has been slowly dwindling since 2021, profits haven't, and that's the metric that income-minded investors are far more concerned about. After all, profits ultimately support its dividend payment, which currently translates into a forward-looking yield of nearly 7.8%. You'd be hard-pressed to find better from a blue chip company with a similar risk profile. Indeed, that's better than most bond yields at this time, without requiring a great deal more risk.
NYSE: MO
Key Data Points
But why just 10 years? Given the World Health Organization's projections, can't Altria keep itself -- and its dividend -- on life support well beyond 2036? Possibly. Maybe even probably.
Ten years from now, however, the inevitable end of the tobacco business as we know it is likely to be undeniable. That could start taking a toll on the stock's value that no longer makes its sizable dividend yield worth it. A proactive early exit should be part of the investing strategy.
2. ExxonMobil
Like the tobacco business, the oil and gas industry is facing an eventual end. Also like the tobacco business, the oil and gas industry's end is much further down the road than most people seem to realize.
An updated outlook from the International Energy Agency (IEA) puts things in perspective. As of November, the IEA now believes the world won't experience "peak oil" -- the point at which daily consumption begins to fall forever -- until 2050, jibing with an outlook from industry giant ExxonMobil (XOM +1.38%).
NYSE: XOM
Key Data Points
The consumption of crude won't just suddenly stop. It will only start to dwindle very slowly. The world will still need plenty of crude for at least the next few decades following that pivot. The industry isn't just going to start giving it away then either. Indeed, it's conceivable oil prices could be even higher then than they are now, making the business even more profitable despite less total volume.
The aforementioned ExxonMobil is a solid way to turn this dynamic into income in the meantime while the stock's forward-looking dividend yield stands at a healthy 3.4%.
As was the case with the tobacco business, just remember this is a scenario where you're better off proactively making an early exit rather than sticking around to see if you can get out at the exact peak. The odds of doing so are pretty low, and the price-penalty for missing that window of opportunity could be steep.
3. Merck
Finally, add Merck (MRK 0.41%) to your list of dividend stocks to buy and hold for the next 10 years -- just for a slightly different reason than you are with ExxonMobil and Altria. Although Merck's forward-looking dividend yield is a respectable 3.1% and its streak of 15 consecutive annual increases in its per-share payout isn't apt to end anytime soon, the chief reason to step into this ticker now is the brewing revenue growth of several newly developed and acquired drugs.
Like so many other pharmaceutical companies have in their pasts, Merck's smashing success with its cancer-fighting Keytruda -- which accounts for roughly 40% of its sales -- arguably made the company a bit complacent on the pipeline development front. Now, with the wonder drug's U.S. patent protection starting to end in 2028 with its overseas protection set to expire shortly thereafter, this complacency has become increasingly evident by virtue of the limited number of new drugs the company is bringing to the market in the near future.
NYSE: MRK
Key Data Points
Look a little further down the road and the picture turns quite promising again. Merck contends its current pipeline holds enough potential blockbusters to collectively produce $50 billion worth of new annual revenue by the mid-2030s. For perspective, Merck expects to report about $65 billion worth of business for recently ended fiscal 2025.
No, there's no single replacement for Keytruda in sight, and Merck could certainly be overstating the potential of its current developmental pipeline and recent acquisitions. Priced at less than 15 times this year's expected per-share earnings of $7.64 though, this stock is still a long-term bargain even if the company's revenue isn't quite where it's expected to be by 2036.
