The stocks that have richly rewarded their shareholders for several decades have some qualities in common. In particular, they offer products and services that people and businesses can hardly do without. There are certain everyday things that people are reluctant to spend less on, even in times of financial distress.
Investors can use history as a guide: The stocks that will be around to reward investors down the line probably share the qualities that allowed them to reward shareholders in the past -- namely, strong brands, reliable cash flows, and a history of making dividend payments.
Pepsi's namesake soda, as well as its many other consumer brands, can be found in nearly every home across America. Pepsi has taken steps to diversify its product portfolio outside of carbonated beverages, and its stable of offerings now includes Frito-Lay, Gatorade, and Quaker Oats. In all, Pepsi holds 22 brands that bring in at least $1 billion each in annual sales.
Pepsi's diverse product portfolio contributed to 17% growth in second-quarter core earnings per share, along with 4% organic growth.
Johnson & Johnson, meanwhile, is one of the most recognizable companies in existence. Its operations are diversified between medical devices, pharmaceuticals, and consumer products. Some of its universally known consumer brands include Band-Aids and Listerine.
This helped J&J post 8.5% sales growth in the second quarter -- nearly $18 billion.
3M is an industrial giant and offers products to a wide range of industries, including transportation, health care, and technology. Its well-known products include Post-it and Scotch tape. 3M grew sales 3% year over year in the second quarter.
As a testament to the reliability of their respective businesses, each of these stocks has richly rewarded its investors with regular dividend payments. Even better, each of these stocks has been able to increase its payouts on a regular basis, too.
Pepsi has increased its dividend for 41 years in a row. J&J does even better, having boosted its payout for an incredible 50 years in a row. Meanwhile, 3M is no slouch: This year marks the 55th consecutive year that 3M has increased its dividend, and it has paid uninterrupted dividends to shareholders for an amazing 96 years in a row.
Recent dip serves as an opportunity
As these stocks have dipped in tandem with the broader market, investors have the chance to buy them at more attractive prices.
Pepsi, J&J, and 3M are all down over the past month, with Pepsi losing 7% over that time frame. It's true that these stocks are still up strongly to begin 2013, but investors looking for a pullback to get into these high-quality names have their opportunity.
As a result of their recent declines, Pepsi, J&J, and 3M exchange hands for between 18 and 20 times their trailing earnings per share. Admittedly, these stocks are far from being bargains, but 18 or 20 times EPS is close to the broader market's P/E, which stands in the mid to high teens.
And as the saying goes, premium businesses command premium valuations. Because these stocks hold such great track records, it's no surprise that investors would (and should) pay an above-average price.
Another benefit of lower prices is that their dividend yields are now at higher levels for new investors. These stocks yield between 2% and 3% annually. 3M offers the lowest yield, but its 2.2% yield still matches the yield on the S&P 500. Pepsi and J&J yield 2.8% and 3.1%, respectively, which handily beats the yield on the broader market.
The Foolish conclusion
These stocks have paid rich rewards to investors over many years, made possible because of their strong brands and the fact that their products and services are purchased every day, in a good economy or bad. And these steady dividend-payers have come off their recent highs, meaning investors can buy shares at more attractive prices. Long-term investors should hang on to these stocks with confidence, and new investors should consider buying in at these levels.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends 3M, Johnson & Johnson, and PepsiCo. The Motley Fool owns shares of Johnson & Johnson and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.