5 Dividend Stocks To Consider for the Long-Run
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are many effective short term and long term investment strategies that all require different types of stock in order to be successful. Some stocks are cyclical and must be watched closely to determine the best entry and exit points, others allow investors to benefit from a loss in value by shorting the stock and others still require very little maintenance as they grow steadily over a long period. Four of the five following companies have shown the ability to maintain growth while providing lucrative gains from dividends that may be reinvested in order to compound the return on investment to maximize long term benefits while the fifth may have potential in the future.
Altria (NYSE: MO) is often underestimated due to the impact that investors believe increased regulations and anti-smoking awareness campaigns will have on the sales of the largest tobacco provider in the United States. Despite all of the hurdles Altria needs to jump on a regular basis, the stock has grown from $12 per share to $28 over the past decade and it manages to continue to pull in an average profit of $4 billion per year. Its dividends grew last year from $0.38 per share to $0.41 at a payout ratio of 0.72 and a yield of nearly 6%.
I believe that Altria is a great buy for investors looking long term results and its dividends allow reinvestment in a growing company without any additional cost. I don’t believe that people will quit smoking in massive numbers anytime soon, so Altria is positioned well for years to come.
Kraft Foods (NASDAQ: KRFT) is one of the largest processed food producers in the world and has a far reach with a plethora of brands that include newly acquired Cadbury. It has gained $10 per share over the past three years to sit near $39 and pays a decent dividend of $0.29 per share that pays at a ratio of 0.56 and produces a 3% yield. I believe that there are more attractive investments but that Kraft offers less risk over the long term and is a buy, but I believe that there are some better stocks available on the market.
Exxon Mobil (NYSE: XOM) is an innovator in the energy industry as one of the few oil giants dedicated to the research and creation of cleaner and more efficient energy technologies and is also one of the world leaders in production of oil and natural gas. Its 2% yield on dividend growth isn’t impressive in the least but it exists in an industry that will only see rising prices over the next decades and is one of the most centered and stable companies in its market. I see this as a long term buy not on the merit of its dividend, but on the potential for oil prices and demand to continue to rise over time and on Exxon Mobil’s ability to exist at the top of the food chain.
The climb in value over ten years from $27 per share to where it sits at $98 today says it all for McDonald’s (NYSE: MCD). Since its IPO, McDonald’s stock has only seen one bearish period in its history (between 1999 and 2003) and it has doubled every five years since. It just raised its dividend from $0.61 per share to $0.70 last quarter and pays at a ratio of 0.49 with a yield of 3% that isn’t quite as impressive as the stock’s potential to grow in value over time. I view this as a buy, but I base my opinion on its history of growth and potential to continue doubling every five years for the next twenty years or beyond.
Merck (NYSE: MRK) is now standing at a crossroads after the acquisition of Schering-Plough in 2009, but I’m not sure if its ability to compete against Pfizer (PFE) and GlaxoSmithKline (GSK) is any greater as a result of the merger due to the possible failure of Schering’s biggest pending drug release. Merck is probably the most unpredictable of the stocks in the group and much of its success lies in how the company moves forward after acquiring Schering-Plough. I think it has potential but potential isn’t enough and I would watch to see if Vorapaxar receives approval before I make a final decision here.
Altria has the best dividend of the group and I believe it is a great buy, but it is trumped by the growth potential of Exxon Mobil and the consistent growth rate displayed by McDonald’s. I would diversify between the three and consider Kraft as well as a hedge or slow growth stock. Merck’s destiny is to be determined and I believe in the Schering-Plough purchase. The assimilation of Schering-Plough has the potential to fix many of the issues Merck has struggled with in the past.
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