Most people love the idea of buying an outstanding stock and holding it forever — one great decision that builds wealth for you for decades without any additional action needed. But the reality is that finding individual stocks capable of such hands-free maintenance is extremely hard.
My idea of a forever company would have to meet some important criteria. For example:
- It sells products people buy frequently and without a second thought.
- A recession-proof business, meaning it thrives in good times and bad.
- Has a long history of growing profits and sharing them with investors.
A group of stocks called Dividend Kings fit this mold. These companies have paid and raised dividends for at least 50 consecutive years. That means thriving despite recessions, wars, pandemics, and more.
Here are five such companies with winning formulas, poised to continue paying growing dividends to you for the foreseeable future.
1. Coca-Cola
In a world of over 8 billion people, there’s a good chance every person will try a Coca-Cola (KO -0.72%) product at some point in their lifetime. Coke’s offerings range from bottled water to fountain sodas like Coca-Cola and Sprite, to hundreds of brands and products sold worldwide. The company has grown from its flagship soda product in the late 1800s to a beverage conglomerate with an unmatched global distribution network that will continue to quench the world’s thirst.
Coca-Cola is a money-printing machine. It produces the concentrates for its products and outsources the bottling to keep the business slim. People constantly drink beverages, and Coca-Cola products are virtually everywhere. The result is a cash-flow-rich business that always performs.
The company’s 76% dividend payout ratio is a little high but still leaves breathing room for future increases, which management has done for 61 consecutive years. Investors buying today can enjoy a 3% yield that should continue growing well into the future.
2. Procter & Gamble
Consumers might tighten spending during tough times, but few people stop buying toilet paper, toothpaste, or diapers. That’s how Procter & Gamble (PG -0.69%) has continued to grow for generations. The conglomerate owns dozens of brands, selling products worldwide to an estimated 5 billion worldwide consumers. Such a diverse product line of essential household goods is an excellent formula for long-term staying power.
Procter & Gamble’s product portfolio can produce value in multiple ways. The company can create or acquire a new brand, grow it, and ultimately choose to sell it or another asset to raise money. The company has also flexed its pricing power in the face of inflation.
Sustained success has fueled 67 straight annual dividend increases, and its 57% payout ratio leaves tons of room for more. The dividend yield is 2.4% today.
3. PepsiCo
Food and beverage giant PepsiCo (PEP -0.43%) might not quite have the beverage dominance that Coca-Cola does, although it’s a clear runner-up. However, the company’s salty snacks business gives it a growth engine that Coca-Cola can’t copy.
PepsiCo owns many household food brands, including Quaker and Frito-Lay (Doritos, Lay’s, Ruffles, and Cheetos). That combination gives PepsiCo unique leverage in grocery stores, virtually ensuring that millions of people buy its products every time they stock their cupboards.
Salty snacks have a unique, comforting appeal to many people, especially when they’re stressed, making PepsiCo a very resilient business. The company has paid and raised its dividend for 51 years in a row. The payout ratio is high today at 94%, but investors should look for that to come down because PepsiCo is enjoying strong growth.
There is also a fortress-like balance sheet with $10 billion in cash and an investment-grade credit rating from Moody’s for additional peace of mind.
4. Lowe’s
Residential real estate is a pillar of America’s economy, the American Dream, and the most significant purchase consumers will ever make. But homes require constant maintenance and upgrades, and there is seemingly an endless housing shortage.
Lowe’s Companies (LOW -0.34%) is the country’s second-largest home improvement retailer, selling materials, tools, appliances, and services online and at over 1,800 stores. Lowe’s size means it can sell for less than most competitors, and the bulkiness of home goods has helped it resist disruption from e-commerce. In fact, Lowe’s has leveraged its stores as fulfillment centers to make e-commerce an opportunity.
The company has paid and raised its dividend for 61 straight years. Management’s policy to keep a conservative payout ratio (currently just 47%) makes it a dividend shareholders can feel confident will continue to grow and show up year after year. The stock yields 2% today.
5. Colgate-Palmolive
It doesn’t always take a complex or innovative business model to excel. Colgate-Palmolive (CL -1.74%) is a consumer goods company that sells various product brands, but it has made its name as the leading global toothpaste brand. That’s a product consumers buy routinely and hardly think about because Colgate is such a well-known name. Colgate holds more than a 40% worldwide market share in toothpaste, meaning that billions of people use its products daily.
Colgate’s steady and recurrent global sales make it a dividend superstar, with 60 years of dividend growth. Plus, the company’s payout ratio is still very well managed at 57%, so investors can buy the stock at a 2.3% starting dividend yield and potentially enjoy annual increases for many years.
