A quarter-century is a long time in the business world. Only the strongest of businesses can survive and prosper for so long a period, and the ones that do often generate outsized returns for their investors.
The challenge with investing in such competitively advantaged businesses is that they often trade at a premium. Sometimes, however, a stock-market downturn can present investors with the opportunity to buy these top stocks at bargain prices. With that in mind, we asked five Motley Fool contributors to name their favorite dividend stocks that are strong enough to be bought during a market crash and held for the next 25 years. Here's what they had to say.
Joe Tenebruso, Starbucks (SBUX 0.04%): Starbucks has delivered outstanding returns to investors in the more than two decades since it went public in 1992. More important to investors today, however, is that the coffee king appears poised to deliver handsome profits -- and a steadily rising stream of dividend payouts -- to its shareholders for years, and potentially even decades, to come.
Coffee is rapidly becoming a global beverage, with consumption in massive emerging markets like China and India expected to rise sharply in the years ahead. In fact, worldwide demand for coffee is forecast to jump by nearly 25% during the next half-decade, according to the International Coffee Organization.
To capitalize on this trend, Starbucks is expanding aggressively in Asia. In the next five years, the company plans to nearly double its store count in its China Asia Pacific (CAP) segment from 5,200 to 10,000, and triple its CAP revenue and operating income to $3 billion and $1 billion, respectively.
Considering China's and India's massive populations, the fact that coffee drinking is still in its nascent stage in many areas in Asia, and Starbucks' relatively low store counts in these countries -- Starbucks has only 1,700 cafes in China compared to more than 11,000 in the U.S. -- it's clear that Asia will be a powerful growth driver for Starbucks for many years to come. Should a significant market pullback present the opportunity to buy Starbucks stock at a discount, investors may wish to order up a cup of this still steaming growth story.
So when I have to consider where I'd leave my money for 25 years without touching it, there are a couple of things I'm looking for. I want to invest in a simple business that's not ripe for disruption. And I concurrently want a company with very strong brands to help it continue to prosper and earn higher premiums over time.
I believe that Colgate-Palmolive fits that bill. The company owns some of the most powerful names in household products. Beyond its namesake brands, Speed Stick, Soft Soap, and Hill's Pet Food all fall under the company's larger umbrella. That kind of name recognition is crucial, as it allows Colgate-Palmolive to enjoy a pricing power that leads to wider margins.
On the dividend front, the company is also in a good position. It has increased its dividend for 52 consecutive years, and during the past 10 years, Colgate averaged 10% growth per year in its payout.
The trend is likely to continue. That's because last year, Colgate brought in $2.4 billion in free cash flow, but only used about $1.5 billion -- or 63% -- to pay out its dividend. The dividend is not only safe, but has lots of room for growth moving forward. That's what I like to see if I'm investing with a 25-year time horizon.
Bob Ciura, Kimberly-Clark (KMB 0.83%): Consumer staples giant Kimberly-Clark is a great dividend stock that an investor can hold for a very long time, even 25 years or longer. That kind of a statement should not be made lightly, but this company has stood the test of time, and has rewarded its patient shareholders for decades.
Kimberly-Clark has paid dividends for 81 years in a row, and has increased its dividend for 43 consecutive years. Kimberly-Clark stock offers a hefty 3.3% yield.
Kimberly-Clark's impressive dividend track record is a direct result of its strong consumer brands, which include Kleenex and Huggies, among many others. Its excellent brand portfolio helped the company increase organic revenue, which excludes the effects of foreign exchange, by 4% last quarter. Kimberly-Clark's adjusted earnings per share were up 6%.
The company has a bright future, with plenty of growth potential, thanks to the emerging markets. Kimberly-Clark realized 10% organic sales growth from the emerging markets last quarter. Diapers are selling extremely well in underdeveloped nations. For example, excluding currency effects, diaper sales grew 30% in Eastern Europe thanks to price increases. In Brazil, diaper sales rose 5% in constant currency.
While not spectacular, this kind of slow-and-steady growth is more than enough to keep those dividends growing each year for the foreseeable future.
Jason Hall, VF Corp. (VFC -1.80%): Most people looking for nice dividends wouldn't look twice at a stock paying a less than 2% yield, but that's probably a bad call with VF Corp. This is especially true if you're looking for long-term dividend growth.
Yes... VF Corp does have a lot of exposure to a weak economic environment, but the strength of the company's many brands, and its rock-solid balance sheet, position it to weather any short-term cyclical storm. Furthermore, if a crash occurs, any shock to the company's stock price would create a fantastic opportunity to buy this dividend growth dynamo.
During the past decade, VF Corp has grown its dividend by 374%, and management is committed to continuing increases in years ahead. Considering the company paid out less than half of last year's earnings in dividends -- even after doubling the payout in the past five years -- there's room to grow it further, and still leave plenty of room to fund growth.
And growth has been good, as management focused on international and online expansion. Revenue is up 75% since 2010, while earnings per share have increased 135%.
The bottom line is this: VF Corp is a great buy today for long-term dividend seekers, but would probably be an absolute steal in a market crash, especially for investors looking years and years ahead.
Dan Caplinger, PepsiCo (PEP 2.09%): One stock I'd be comfortable with buying at a bargain price is PepsiCo. The company is named after its carbonated beverage, but the real driver of PepsiCo's growth lately has been its snack business. With key brands like Frito-Lay and Quaker helping to drive snack sales, PepsiCo's diversification has helped it avoid some of the increasing controversy about the health impact of sugary and diet drinks.
It's true that PepsiCo isn't cheap, with its 3% dividend yield helping to drive its valuation up above 20 times trailing earnings. Yet PepsiCo offers not only the stability of a consumer-staples company, but also the growth opportunities from its vast exposure to untapped emerging markets that are hungry for a wider range of consumer products.
The company has also worked internally to shore up its cost-containment strategies, and to try to keep its margins as wide as possible. That more than anything should help PepsiCo take advantage of available growth and keep delivering more capital back to shareholders in the future through increased dividends.
With a 43-year track record of making dividend increases each and every year, PepsiCo already has a strong reputation as a dividend stock, and the company is likely to continue treating shareholders well far into the future.