Long-term income investors shouldn’t be traders. That means they should look for great companies with large, lasting businesses, and long histories of returning value to shareholders. Three near 3% yielders that fit the bill today are McDonald’s Corporation (NYSE:MCD), The Procter & Gamble Company (NYSE:PG), and Johnson & Johnson (NYSE:JNJ).
Size Matters
It is a leader in most of the categories in which it competes and it has the resources to invest heavily in product development. It has actually created some of the categories it now leads. Sales dipped during the 2007 to 2009 recession, but are again higher than before that economic soft patch. After peaking in the middle of 2009, however, earnings have been heading lower for a few years.
Part of the problem was an ill advised pivot toward emerging markets. Although there’s more growth in those countries, The Procter & Gamble Company (NYSE:PG)’s product line tends to sit at the high end of the industry. That makes its products a hard sell in relatively poor nations—for now.
That mistep led to the old CEO returning to the helm. That should help stabilize things. With a yield around 3%, a portfolio filled with leading brands, and over a decade of annual dividend increases, The Procter & Gamble Company (NYSE:PG) is a good choice for long-term income investors.
Cheap and Big
The Procter & Gamble Company (NYSE:PG) has plenty of time to work into emerging markets with cheaper products or it can just wait until those nations can afford its wares. McDonald’s Corporation (NYSE:MCD), however, is in emerging markets now with low-cost products that fill a basic human need. And the scale of the company’s operation is breathtaking, with over 30,000 locations in around 120 countries.
The fast food giant has been dealing with tough competition in the mature domestic and European markets, which has been a drag on the shares even though it’s still posting solid results overall. And, despite the market share fights it faces, the company is holding its own against upstarts in the fast-casual segment.
Sales have been on a steady climb for the last decade, including right through the recession. Earnings dipped in 2007 but have otherwise been on a steady climb, going from $1.15 a share in 2003 to over $5.30 last year. And the dividend has been increased on an annual basis for more than a decade.
Yielding around 3.1%, $100 billion market cap McDonald’s Corporation (NYSE:MCD) is a solid option for income oriented investors looking for a stock to own forever.
Medical Giant
Johnson & Johnson (NYSE:JNJ) is a $250 billion market cap health care giant. It has operations in the consumer products, medical devices, and pharmaceutical sectors and is a leader in each. The company’s shares yield around 3% today, largely because of recent weakness in its consumer products and drug businesses.
It appears that the company is getting past those issues, having fixed manufacturing and recall problems on the consumer side and offering up a pipeline of solid new drugs. Indeed, after stagnating coming out of the recession, sales have headed higher in each of the past two years. The bottom-line, meanwhile, is below where it was in 2010, but has headed higher in each of the last two years.
Johnson & Johnson (NYSE:JNJ)’s dividend has been increased annually for decades. Income investors looking for a one-stop health care company should look no further than this industry giant with a yield of around 2.8%.
Building a Core
Long-term income investors should have a core portfolio of great companies. Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), and McDonald’s Corporation (NYSE:MCD) all offer investors decent yields, long histories of returning value to shareholders, and massive and lasting businesses. With dividends hovering around 3%, now is a good time to start building positions in each. More patient types, however, might add them to a watch list for a market sell-off and yields closer to 4%.
Dividend stocks can make you rich. It’s as simple as that. While they don’t garner the notoriety of high-flying growth stocks, they’re also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine.
The article Dividend Stocks to Own Forever originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson, McDonald’s, and Procter & Gamble. The Motley Fool owns shares of Johnson & Johnson and McDonald’s. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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