If you love dividends, then you need to consider forever dividend stocks for your portfolio. These are stocks we believe you can buy and hold for the long haul.
In this report, we’ll uncover our six favorite dividend stocks that have been hand-selected from our Compound Income Portfolio – a foundational portfolio of The Oxford Income Letter. (We have more details on this income-focused newsletter below.)
The Compound Income Portfolio is a perfect retirement portfolio.
It’s designed for wealth seekers and those looking to collect oversized income. This portfolio uses the immense power of dividend reinvestment plans (DRIPs) to compound dividends and grow wealth in a conservative manner.
The concept is very simple:
If you buy 1,000 shares of a $10 stock and receive a 4% yield, and that $400 (4% on $10,000) is reinvested… at the end of one year, you’ll have 1,040 shares. Those extra 40 shares also generate dividends.
- If the dividend grows 10% per year, after five years you’ll have 1,227 shares.
- After 10 years you’ll own 1,544 shares. Keep in mind that all those shares are generating more and more dividends every year as the dividend goes higher. After that, the compounding math is a wonder to behold…
- After 10 years (presuming average market returns), your original $10,000 is worth $31,777. The annual yield on your DRIP is 14.1%.
- After 15 years, you have $58,993 (and a yield of 29.3%).
- In 20 years, you’re looking at $113,019… and an astounding annual yield of 62.9%!
- If the dividend grows 10% per year, after five years you’ll have 1,227 shares.
The easiest way to reinvest your dividends is to simply tell your broker you want your dividends reinvested. Most brokers offer this service free of charge. So you can buy a stock once, pay one commission and hold it for years without paying another dime as the nest egg grows.
One thing to remember: If the stocks are in a taxable account, you will owe taxes on the dividends even if you are reinvesting them and not collecting the cash. So be sure to have enough cash set aside to pay your taxes every year.
Now that we have covered the power of compounding, let’s get to the picks…
Forever Dividend Stock No. 1: Enterprise Product Partners (NYSE: EPD)
Our first pick is a leading North American provider of midstream energy services. They are an integrated provider of processing and transportation services to producers of Natural Gas Liquids (NGLs) and consumers of NGL products.
Enterprise Product Partners generates most of its revenue from connecting producers of natural gas and NGL products with domestic and international consumers.
It has increased its annual dividend payout every year since its initial dividend. It has grown its annualized dividend by 55.8% over the past 10 years, and it currently distributes a quarterly dividend of $0.45.
Enterprise Products has consistently grown its free cash flow over the last five years from $1.1 billion in 2016 to $2.8 billion in 2020. Even throughout the 2020 global pandemic, Enterprise Products increased its cash by more than $700 million year –over –year. Its ability to generate increasing free cash flow is a good sign for investors looking to earn dividends.
Enterprise Products currently has a forward annual dividend yield of 8.05%.
Forever Dividend Stock No. 2: Lazard (NYSE: LAZ)
Our second pick is a company that pays a 3.91% yield, raises its dividend every year and has been thriving since James Polk was U.S. president.
Lazard is an asset manager and an investment bank that’s been around since 1848. It operates in 24 cities across 17 countries. Lazard is widely considered the top boutique investment bank. It even generates more investment banking revenue than some of its larger peers.
Lazard has been in the asset management business since 1953. It has $254.1 billion under management. Lazard operates 33 mutual funds and one closed-end fund, in addition to offering alternative investments.
Lazard has raised its dividend every year since 2011. It currently pays $0.47 per share quarterly, which comes out to $1.88 per year.
That gives us a yield of 3.91%. That’s not bad considering the company has boosted its dividend by an average of 5.30% each year.
The company has three-year annualized dividend growth of 16.77% and five-year dividend growth of 39.26%.
Forever Dividend Stock No. 3: Texas Instruments (Nasdaq: TXN)
Our next pick is one of the world’s leading chipmakers.
Founded in 1930 and headquartered in Dallas, Texas, Texas Instruments designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide.
The company has a 2.14% yield, and it has been growing its dividend every year for over the last 20 years. Its five-year annualized dividend growth is 165.71%.
In the last 12 months, it paid out 55.23% of its free cash flow in dividends, and it has plenty of room to continue sending more cash to shareholders.
Texas Instruments recently paid its quarterly dividend of $1.02 to shareholders on August 9 and will pay an annual amount of $4.08.
Forever Dividend Stock No. 4: AbbVie (NYSE: ABBV)
AbbVie is another long-term dividend pick.
The company is a worldwide pharmaceutical developer and manufacturer. Two of its most promising drugs are Imbruvica and Humira.
Imbruvica treats chronic lymphocytic leukemia, mantle cell lymphoma and Waldenström’s macroglobulinemia, another form of lymphoma. Imbruvica is also being studied in other cancers and is expected to become one of the bestselling cancer drugs ever.
In 2020, Imbruvica generated $5.314 billion in revenues. By 2021, Imbruvica is projected to generate approximately $6 billion in revenue annually.
And Humira is already one of the most lucrative medicines on the market.
The drug, which treats rheumatoid arthritis, psoriasis and Crohn’s disease, logged $19.8 billion in sales last year and should hit about $20 billion this year.
Between its current portfolio of drugs and its pipeline, AbbVie is expected to have the second-fastest growth rate in the industry – not bad for a $202.75 billion company (That’s big, by the way). Among large cap pharma dividend payers, it is first.
The tremendous growth from Humira, Imbruvica and the rest of AbbVie’s portfolio is projected to raise earnings by more than 35% over the next three years. Free cash flow is forecast to grow more than 30% in 2021. The company recently raised its dividend by 10.25%.
It pays a solid 4.56% yield and is growing its dividend by more than 22.50% per year.
The company has three-year annualized dividend growth of 84.37% and five-year dividend growth of 133.66%.
Forever Dividend Stock No. 5: Raytheon Technologies (NYSE: RTX)
Raytheon provides a wide range of defense products and services, from electronics systems to missile systems. It manufactures the same kind of forward-looking infrared imaging technology that Boston authorities used to apprehend the Boston Marathon bombers.
Raytheon’s biggest customer by far is the United States government. But its international business has been growing. The company has a $2.4 billion contract to provide Qatar with Patriot Air and Missile Defense Systems.
Sequestration or a smaller U.S. defense budget could cause revenue growth to slow. But with its growing international business and the plethora of lunatics parading as leaders of nations, Raytheon should have no problem remaining strong enough to continue generating gobs of cash.
And as income investors, that’s what we’re most interested in.
In the last 12 months, Raytheon has generated more than $5 billion in cash flow from continuing operations. Free cash flow generated in this ‘last 12-month period – a more conservative gauge of cash flow because it considers capital expenditures – was more than $3 billion.
With a yield of 2.34%, it fits in perfectly within the Forever Dividend Stock System.
Raytheon slightly increases its annual dividend every year and has done so for 28 consecutive years.
Forever Dividend Stock No. 6: Eaton Corp. (NYSE: ETN)
With a 1.86% dividend yield that we expect to grow 12% over the next several years, Eaton is the perfect setup for income seekers. Eaton produces equipment that helps customers manage power more efficiently. It’s a huge business, with more than 96,000 employees across 60 countries and customers in 175 countries.
It makes flight control systems, beverage distribution tubing, switches for keypads and thousands of other products.
Over the last 12 months, Eaton generated $2.3 billion in free cash flow and paid out $1.196 billion in dividends.
The company is increasing its dividend by an average of 6.76% each year. Eaton pays out 63.54% of its earnings as a dividend.
That payout ratio is slightly below our target of 75%. And free cash flow is expected to improve substantially in the future.
Over the next two years, free cash flow is projected to grow an average of 1.5% year over year.
That should be more than enough to pay the rising dividend each year.
The company has raised its dividend 15 times in the past 17 years, including every year since 2010. It has paid a dividend every year since 1923.
Eaton has increased its dividend for 11 consecutive years, including raising it by 32.73% over the last five years.
Considering the company’s cash flow growth estimates, we expect Eaton to continue increasing its dividend for the next several years.
And its dividend involves a special tax treatment…
Eaton is based in Dublin, Ireland. Typically, U.S. investors would have foreign taxes withheld from their dividend payments and then apply for the foreign tax credit from the Internal Revenue Service (IRS).
However, Eaton’s dividend does not have foreign tax withheld from it if you live in the U.S.
Additionally – and this is a very attractive feature – Eaton’s dividend is mostly considered return of capital, despite the fact that it is not a partnership, such as a master limited partnership.
Because the dividend is considered a return of capital, most investors will not be taxed on it. Instead, it will lower their tax basis.
Because the dividend is not taxed, we suggest you keep Eaton in your taxable accounts. That way, you’re not taking up room in your tax-deferred accounts.
You can reinvest the dividend and let it grow tax-deferred for many years or until your cost basis is zero.
Then you’ll have to start paying taxes on it. But we’re likely looking at 12 years before that happens.
The Cure for Stock Market Volatility
We believe forever dividend stocks are the cure for stock market fear and volatility. While most investors bite their nails worrying what the market will do days, weeks, or months from now, you can sit back and collect your dividends with little worry except what you are going to do with all this income (a problem anyone would like to have).
The six stocks mentioned above have an average yield over 3.4%, average dividend growth rate of 9.25%, and have raised their dividends every year for an average of 10 years. And as we mentioned before, the powers of reinvesting your income and compounding dividends will boost your annual dividend yield even higher.
Remember, these are not short-term picks, they are long-term holds, and all of them should be able to maintain high dividend payments over the long haul.
I’m confident that these Forever Dividends Stocks will help you create the wealthy retirement you’ve always dreamed of.
Good investing,
Marc Lichtenfeld
Chief Income Strategist, The Oxford Club
P.S. I’ve been working for months on a secret income project, and I just hit a breakthrough.
“Since publishing my book, Get Rich with Dividends, I’ve helped thousands of people achieve their retirement goals.
And today, I’m going to share with you perhaps one of the most astonishing income strategies I’ve ever uncovered from our trusted partner, Alexander Green – Chief Investment Strategist at The Oxford Club.
Check out Alex’s presentation on what he’s calling “The Single-Stock Retirement Plan”
This may just end the retirement crisis in America.
Hoping these Forever Dividend Stocks help you, and looking forward to hearing from you soon,
Marc Lichtenfeld
Chief Income Strategist, The Oxford Club
Updated 8/17/21