3 dividend aristocrats to buy and keep forever
Have you ever wanted to take a step back and spend a little less time thinking about stocks and keeping an eye on the market? If so, you are not alone and you are not crazy. Many investors find that they make more money by being less active, letting time and dividends do the heavy lifting.
With that as a backdrop, here are three top-notch dividend-paying stocks that you could easily step into with the intention of holding them forever. All three have already proven their payoff prowess, calling themselves dividend aristocrats (S&P 500 companies that have increased their annual dividends every year for at least 25 years).
1. McDonald’s has the right to be a difficult owner
Dividend yield: 2.2%
It’s generally revered as a restaurant stock, but that’s not what Mcdonalds (NYSE: MCD) is at all. The ironic categorization of the business as a real estate owner is actually pretty accurate.
Of the 39,160 McDonald’s establishments in operation at the end of March, less than 7% of them are owned by the parent company. The remaining 93% of these stores are owned and operated by franchisees. This is not unusual in the restaurant business. What is so unusual for McDonald’s franchisees, however, is that many are required to pay rent to the franchisor – not at a fixed monthly fee, but as a percentage of the sales of each of their stores. This variable cost penalizes operators in certain respects for their good conduct and the growth of their activity.
Unsurprisingly, this agreement is a source of friction between the company’s franchised restaurateurs and its management. Fanning the flames of this tension is also necessary for the expenses the company charges franchisees for things like store renovations, technology upgrades, and branded supplies that can only be purchased from the parent organization. at non-negotiable prices.
At the end of this proverbial day, however, most franchisees willingly pay the required rent, as McDonald’s is the most successful (and recognizable) restaurant brand in the world. Much of these rent payments are reliably passed on to investors in the form of dividends.
2. Clorox is no longer just bleach
Dividend yield: 2.5%
There is the Clorox (NYSE: CLX) you know: bleach, disinfectant wipes and all kinds of cleaning sprays. These consumer products, however, are only a small part of the entire Clorox Company portfolio. Liquid-Plumr, Kingsford Charcoal, Fresh Step Cat Litter and Glad Trash Bags are just a small sample of the many brands that are part of the Clorox family.
This diverse lineup is a big part of why this company has been able to increase their payouts for 52 straight years now – they always have something to sell to someone as consumers routinely run out of products such as disinfectant wipes and garbage bags.
This forward progression isn’t likely to slow down anytime soon, either. The IGNITE initiative unveiled in 2019 not only calls for new products aimed at developing megatrends, but also seeks to build brands with a broader goal, like sustainability. Last year, for example, Clorox unveiled Glad-branded garbage bags made from 50% recycled plastic.
There is also a clear tax advantage to this type of social stewardship. According to public relations firm Edelman, more than four-fifths of consumers need to be confident that a brand is doing “the right thing” to purchase that company’s products. In this vein, and taking into account the key principles of IGNITE, Clorox’s future goals of net sales growth between 2% and 4% and an EBIT (earnings before interest and tax) margin growth of 25 and 50 points. basic are more than achievable; the stretch target is a plausible 175 basis points.
Regardless of the specifics, this is a business being rebuilt to last.
3. Consolidated Edison is a picture of consistency for good reason
Dividend yield: 4%
Finally, add a utilitarian outfit Consolidated Edison (NYSE: ED) to your list of dividend aristocrats to buy and hold forever.
The bullish argument for owning New York’s top electricity supplier isn’t complicated. Keeping the lights on isn’t usually optional for most people, so they make a point of paying their electric bills. ConEd simply transfers a good chunk of those payments to shareholders. About 70% of the company’s profits are returned as dividends, which is generous, but still leaves Consolidated Edison with financial leeway if something unexpected happens.
Yes, this is the same utility company that apparently was not prepared to deal with all of the power outages caused by Hurricane Isaias in August 2020. It was a blunder that revealed operational and preparedness gaps which, in turn, will lead to acceleration. current and future preventive spending.
The point is, however, that the company is reliably allowed to increase their rates as much as necessary to support their service. As a result, he has 47 uninterrupted annual dividend increases to his credit.
And that streak isn’t likely to end until 2023, either.
Despite being largely buried in the noise of the pandemic, early last year the New York State Civil Service Commission approved a 4.2% rate hike for 2020 and a 4.7% price increase this year, which will be followed by another 4% price increase next year. The company has previously said those rate hikes will be used to fund infrastructure improvements, leaving the rest of the revenue behind to support dividend payments.
More of the same is a good thing in this case, especially when the current yield is at a healthy 4%.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.