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Investors looking for long-term opportunities should look closer at passive income stocks. Generally, these are dividend stocks that an investor can buy and hold forever. They have proven durable over long periods while retaining the potential to grow their dividends.

While the S&P 500 Index has an average yield of just 1.6% right now, this article will examine 3 Dividend Champions that have increased their dividends for at least 25 years and can be held for the long term.

Dividend Stocks to Buy and Hold Forever

The Procter & Gamble Company (PG)

Procter & Gamble is a consumer products giant selling its brands in over 180 countries. It is our first dividend stock to buy and hold forever. Important brands include Pampers, Luvs, Tide, Gain, Bounty, Charmin, Puffs, Gillette, Head & Shoulders, Old Spice, Dawn, Febreze, Swiffer, Crest, Oral-B, Scope, Olay, etc. The company had $82 billion in sales in fiscal 2023. 

In late January, Procter & Gamble reported (1/23/24) financial results for the second quarter of fiscal 2024. Its fiscal year ends June 30th. It grew its sales and organic sales by 3% and 4%, respectively, over last year’s quarter. Organic sales growth resulted from 4% price hikes, offsetting a marginal volume decrease. Despite the headwind of input cost inflation, earnings-per-share grew 16% thanks to price hikes, from $1.59 to $1.84, beating the analysts’ consensus by $0.14.

Firm sales amid steady price hikes are a testament to the strength of Procter & Gamble’s brands. The company reiterated its guidance for 4% – 5% organic sales growth in fiscal 2024 and improved its guidance for earnings-per-share growth to 8% – 9%. 

Thanks to its strong brands, Procter & Gamble has significant competitive advantages. The company has several category-leading brands, such as Crest, Tide, Gillette, Bounty, Febreze, Old Spice, Pampers, and many more. These brands offer Procter & Gamble pricing power and consistent profits, in good times or bad. 

Procter & Gamble’s dividend payout ratio has ranged between 50% and 75% in the last decade, with the current mark at 59%. This is somewhat high for your typical company but well within a reasonable range for such a high-quality firm. As a result, Procter & Gamble has distributed a dividend for 133 years and has raised its dividend for 67 straight years – one of the longest active streaks of any company. Hence, the firm is on the list of Dividend Kings.

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Source: Portfolio Insight

McDonald’s Corporation (MCD)

McDonald’s is the world’s leading restaurant chain, with 40,275 locations in about 119 countries at the end of 2022. The highest store counts are in the United States (13,444), China (4,978), Japan (2,968), France (1,536), and Canada (1,462). Approximately 95% of the stores are franchised, and the rest are company-owned. However, the company owns about 55% of the real estate and 80% of the buildings in its network. 

On February 5th, McDonald’s reported Q4 2023 results. For the quarter, total revenue came in at $6.4 billion, a +8% increase from Q4 2022 on a 6% rise in systemwide sales, adjusting for currency headwinds. Revenue climbed 12% at company-owned stores, while revenue increased 6% at franchised restaurants. Diluted earnings climbed 8% to $2.80 per share compared to $2.59 per share in comparable periods on higher sales offset by pre-tax charges and impairments. For the year, revenue rose 10% to $25.5B from $23.2B, while diluted EPS was up 38% to $11.56.

McDonald’s has a long and successful history when it comes to earnings per share growth. In the past ten years, sales grew at just over 10% per year. One significant strategic shift was McDonald’s decision to refranchise many of its restaurants. The company generates lower revenue now, sales peaked at $28 billion in 2013, but its costs are lower, increasing margins. McDonald’s is now asset-light and low-cost, collecting franchise and real estate fees from thousands of restaurants. This strategy has been successful, with earnings per share growing at a robust pace.

McDonald’s continues to perform better than many of its peers when it comes to generating rising revenues from existing restaurants. Earnings per share growth should be driven by higher sales, declining operating costs, new restaurants, and share repurchases.

McDonald’s competitive advantage lies in its global scale, cost advantages, immense network of restaurants, well-known brand, and real estate assets. The company has one of the most renowned brands in the world and has successfully replicated its business model globally. Next, McDonald’s often owns prime real estate, which makes it challenging for competitors to gain traction.

MCD has increased its dividend for 49 consecutive years, making it a Dividend Champion. Currently, the stock yields 2.3%.

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Source: Portfolio Insight

Pentair plc (PNR)

Pentair operates as a pure–play water stock with three segments: Aquatic Systems, Filtration Solutions, and Flow Technologies. Founded in 1966, Pentair has increased its dividend for over 40 years in a row when adjusted for spinoffs. It is on the list of Dividend Aristocrats. Pentair is our third dividend stock to buy and hold forever.

Pentair reported its fourth-quarter earnings results on January 30th. The company generated revenues of $990 million during the quarter, which was 2% less than the previous year’s quarter. However, the company’s results still easily beat estimates. 

Core sales, which remove the impact of currency rate movements, acquisitions, and dispossessions, were also down 2% year over year, which was better than the core revenue growth rate during the prior quarter when core sales had declined by 7%. Pentair recorded earnings-per-share of $0.87 in the fourth quarter, up 6% year over year.

Pentair’s earnings-per-share beat the analyst consensus by $0.01. During the earnings report, Pentair announced its guidance for the current year. For fiscal 2024, Pentair forecasts earnings-per-share of around $4.20, indicating a substantial profit increase versus 2023.

The company should be able to achieve long-term growth through a combination of rising revenues due to organic growth and acquisitions and tailwinds from margin expansion and share repurchases. PNR has a projected dividend payout ratio of approximately 22% for 2024. The payout ratio could be much higher, making us believe the dividend looks quite safe.

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Source: Portfolio Insight

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