There is no one-size-fits-all when it comes to stock recommendations. In fact, an investor's time horizon alone often makes or breaks an investment. Fortunately, the exceptionally Foolish, long-term investor has the unique privilege of being able to focus on excellent businesses, and not having to bow to the unpredictable ups and downs that characterize the markets in the short term. Why? Because over the long haul, the market price typically follows business fundamentals. If you count yourself among the Foolishly patient, here are two excellent dividend stocks for the next half-decade.
Wells Fargo (WFC -1.40%)
Wells Fargo, one of the few strong banks with an attractive dividend yield post-recession, is serving up investors a nice 3.28% yield after a recent boost to its dividend.
Wells Fargo is somewhat of an outlier among its peers -- perhaps even "the best bank in the country," according to Morningstar's Josh Peters. He points to the bank's economies of scale and excellent management as two essential ingredients working positively for the company.
Wells Fargo also benefits from regulated conservatism that has inevitably made U.S. banks safer investments than in the past. For instance, companies are limited to pay out no more than 30% of earnings in dividends. This action may discourage many income investors from investing in banks, but it undoubtedly increases the sustainability of the company's dividend. Furthermore, with less leverage, greater capital, and certainly more oversight of their activities, U.S. banks are more prepped than ever to handle troublesome times.
Wells Fargo offers long-term investors a way to jump in on the rebound of U.S. banks and collect nice income while they are at it. If you decide to add Wells Fargo to your portfolio, you'll find yourself in the company of the world's greatest investor, Warren Buffett; the bank now holds the top spot in Berkshire Hathaway's equity portfolio.
Apple (AAPL 2.11%)
Apple clearly holds a dominant position among its peers, grabbing 72% of worldwide handset profits, according to Canaccord Genuity. The company is able to do this on the strength of its unparalleled profitability; in the trailing 12 months, Apple managed to convert $0.28 of every dollar into free cash flow.
Though its dividend yield may currently stand at a paltry 2.5%, it is likely to get a substantial boost in the very near future. Why?
- A recent statement from Apple asserted that the board of directors is actively discussing how to return more cash to shareholders.
- Apple is generating far more cash than it can spend or pay out, adding to its already enormous $100-billion-plus cash hoard.
The best dividend stocks don't always have high yields
It's tempting for income investors to emphasize high yields in their search for the best dividend stocks, but that's not always the best way to maximize payouts. A little bit of patience allows income investors to invest in premium-priced, first-class companies that might not have attractive dividend yields today, but are likely to have handsome yields in the future. Great companies with excellent economics enable these companies to repeatedly boost their dividends, often turning a once-small dividend yield into a handsome payout for investors who hold for the long haul.
So if you are looking for the best dividend stocks to hold in your portfolio for five years or more, count Wells Fargo and Apple among your options.