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6 Long-Term Dividend Stocks At Attractive Prices

When building a dividend-growth portfolio, finding high-quality companies that will continue paying larger and larger dividends for decades rather than just the next few years is important. The longer you can hold onto shares of a company, the lower your trading costs and taxes will be compared to if you trade often. But this is only a good strategy if the companies you hold onto continue growing shareholder value.

So the key is to look for companies that, among other things:
a) Have a large and sustainable competitive advantage.
b) Are in an industry that is timeless, or nearly so.
c) Are in a solid financial position.

Here are six sample companies. There’s no guarantee that they’ll remain good investments for the long-term, but all of them are at least well-positioned for solid performance.

Johnson and Johnson (JNJ)

Johnson and Johnson, the health care juggernaut, has had some bad publicity lately, and for good reason. For investors, this has meant lackluster stock performance. But for those seeking long-term dividend growth and stock performance from a blue chip with a huge moat, JNJ offers a viable option. The company has consecutively grown dividends for decades, offers a huge set of products in several different segments including medicine, medical devices, and consumer health and well-being products.
Full JNJ Analysis

Dividend Yield: 3.55%
P/E: 12.7
Latest Dividend Increase: 10%
Moat: patent shield, scale, brand strength
LT Debt/Equity: 0.16
Market Cap: $166 billion

Lowe’s (LOW)

Lowe’s is one of the top home improvement retailers in the world. It has competition from the larger Home Depot, but both of these companies have strong moats and are positioned for success for the foreseeable future. Other, more general retailers don’t have the resources to offer this collection of quality home improvement products and knowledgeable sales staff. Their relationship with manufacturers leads to manufacturers competing to get products on Lowe’s shelves. The yield is a bit low, and the P/E is a bit high, but the forward P/E is rather appealing.
Full LOW Analysis

Dividend Yield: 1.71%
P/E: 18.2
Latest Dividend Increase: 22%
Moat: scale, brand strength
LT Debt/Equity: 0.29
Market Cap: $35 billion

McDonald’s (MCD)

McDonald’s has been extremely successful in spreading around the entire world. Their margins are significantly better than their competitors, and the company is much larger. With a streamlined business and shareholder friendly corporate culture, McDonald’s offers investors a good long-term option. Their business is highly scalable, meaning that even as they grow larger and larger, their growing cash flow allows them to open more and more locations around the world.
Full MCD Analysis

Dividend Yield: 3.27%
P/E: 16.3
Latest Dividend Increase: 11%
Moat: scale, brand strength
LT Debt/Equity: 0.79
Market Cap: $78 billion

Walmart (WMT)

Walmart, the titan of retail, has scale that extends far beyond its competitors. Being so large means it is able to lock in extremely good prices on products it buys from manufacturers, and therefore undercut its competition. The company has a lot of saturation in the US market, but is beginning to utilize smaller store designs to reach locations they haven’t before, and they’re experiencing quick international expansion as well. The company continually buys back some of its attractively priced shares, and so combined with organic growth and growth from acquisitions, offers investors EPS that grows almost like clockwork.
Full WMT Analysis

Dividend Yield: 2.33%
P/E: 12.4
Latest Dividend Increase: 11%
Moat: scale
LT Debt/Equity: 0.62
Market Cap: $185 billion

Medtronic (MDT)

Medtronic, a top maker of medical devices, has seen its stock beaten down lately due to uncertainty regarding regulation. But the company makes products that are perpetually necessary, has demonstrated strong international growth, and pays a growing dividend. The balance sheet is mediocre, with a bit more goodwill than I like to see, but overall it’s a solid company.
Full MDT Analysis

Dividend Yield: 2.34%
P/E: 12.8
Latest Dividend Increase: 10%
Moat: patent shield, scale
LT Debt/Equity: 0.48
Market Cap: $41 billion

Chevron (CVX)

Chevron is one of the largest oil majors, has one of the strongest balance sheets among them, and is trading at a discount. The company is vulnerable to changes in oil prices, but for decades the company has grown its dividend, grown its EPS, grown its book value, grown its sales, and so forth, even as it experiences setbacks from time to time. Chevron has also shown a willingness to devote resources to alternative energy. The vast majority of their assets are involved with fossil fuels, but compared to other oil majors, Chevron has shown a willingness to face change, and so their ability to survive for decades in the face of changing energy conditions is solid. Chevron isn’t nearly as cheap as it was several months ago, but continuing to dollar-cost-average into the company at current prices should yield reasonable results.
Full CVX Analysis

Dividend Yield: 2.78%
P/E: 11
Latest Dividend Increase: 6%
Moat: scale
LT Debt/Equity: 0.10
Market Cap: $208 billion

Disclosure: At the time of this writing, I own shares of JNJ, MDT, and CVX.
You can see my full list of individual holdings here.

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Comments

  1. Nice post and would love to own them all, especially CVX.

    Surprised you didn’t have KO in this list? Hard to pick only 6, then again, there might be only 20-some big blue-chips worth owning for the long haul.

    FYI – I gave you a shout-out on my blog recently:

    http://myownadvisor.blogspot.com/2011/02/as-consumer-and-investor-coke-is-it.html

    Keep up the great work Matt,
    Mark

  2. Good post, interesting names!

  3. Thanks Matt. Great companies and I own 4 of them. I bought WMT last year when I figured it was going to take off a little bit. It did and has since settled to near where I purchased it, although the recent big bump in the dividend is nice. LOW is attractive, but the entry yield leaves a lot to be desired. Even with a phenomenal dividend growth it would take a while to get to an acceptable YOC. I really like JNJ out of the whole bunch at today’s prices. CVX is a little pricey, but it is an exceptionally well run company.

  4. Hi Jason,

    Out of curiosity, based on what metrics/reasons do you find Chevron to be a little pricey?

  5. Hey Matt,

    I hope I didn’t offend by my comment. I love your blog! I should clarify a little bit. When I said I felt it was a little pricey, I simply meant compared to other undervalued stocks currently in the marketplace right now. I believe that CVX is a great stock to own, and probably not a bad deal at today’s prices….but with the Middle East crisis and oil prices shooting through the roof, oil is a hot sector right now. I believe that some of the other sectors not receiving as much attention hold more value picks out there. As Buffet says “Be fearful when others are greedy, and be greedy when others are fearful”. Morningstar has it at 3-stars and S&P has it at 5-stars, so obviously opinions are all over the place. Again, it’s a great stock…but one can only purchase so many companies per any given period and I think there are other sectors right now (namely finance and healthcare) that have some companies that haven’t moved at all in 12 months while CVX has shot through the moon. It’s at a lifetime high, which isn’t necessarily a bad thing, but you wonder how much upside there is. In the interest of full disclosure, I am long CVX. Again, I love your blog and visit almost every day. Keep up the great work!

  6. Hi Jason,

    Of course I’m not offended. I’m just interested in the exchange of ideas, so I was interested in hearing you elaborate on your statement. I agree that CVX has shot up, and that there is a lot of value in the health care sector.

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