3 Dividend Stocks You’ll Give to Your Kids Someday

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Warren Buffett’s preferred holding period for stocks is forever. Hey, if that stock happens to be in a well-run large-cap that plugs along with consistent growth and dependable, rising dividends, why not?

Those are the types of dividend stocks you’ll give to your kids someday — and they to theirs.

dollar arrow dividend stocksDividends are a critical component of any stock you’d want to pass down through generations. Sure, price appreciation is a lot more exciting, but over long periods, the bulk of gains come from dividends. Indeed, since 1926, more than half of the S&P 500’s total return comes from dividends.

Take compound interest, add in dividends, and the result can be greatly amplified performance.

Take Procter & Gamble (PG) as an example. Over the past 10 years PG is up 54% on a price basis. Add in the dividends, however, and the total return comes to 100%. Without dividends, PG wouldn’t have come close to doubling your money over that span.

Of course, in order to get those kind of dividend-juiced returns you need a company that’s going to stay in business and pay dividends like clockwork for decades and decades. That’s where big companies with solid balance sheets and a long history of regular, rising dividend payments come in.

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No, these are not the sexiest names — but that’s good. If you’re looking for stocks to hand off to your kids, boring is beautiful.

With that in mind, here are three dividend stocks you’ll give your kids someday:

Dividend Stocks Forever: Colgate-Palmolive (CL)

Colgate-Palmolive (CL) is a dividend champion, of that there is no doubt. The company has paid uninterrupted dividends since 1895. Through the Great Depression, two world wars and the Great Recession, Colgate never once missed a payment.

At the same time, CL has been an excellent long-term holding. Over the past 20 years CL generated a total return of 1,200%. The S&P 500’s total return over the same period is just 538%.

Additionally, Colgate will let you — and future generations — sleep well at night. With a beta of 0.34, CL is far less volatile than the S&P 500. True, CL will tend to lag when stocks are going up, but it will also hold up better when everything is going down.

The current yield on Colgate’s dividend is only 2.2%. That’s not an income stream you’re going to live on. Reinvested, however, it’s more than enough to produce long-term outperformance.

Dividend Stocks Forever: 3M (MMM)

3M (MMM) is kind of the forgotten member of the Dow Jones Industrial Average, yet this venerable and vaunted conglomerate has paid uninterrupted dividends since 1916. That’s a payout you can count on.

Like other dividend stocks you would hold forever, 3M has been an outstanding performer measured over long periods of time. Indeed, 3M generated a total return of nearly 800% over the last 20 years, beating the S&P 500’s total return by 234 percentage points.

With a beta of 1.2, 3M can be thought of as 20% more volatile than the S&P 500, but that doesn’t make it exciting. MMM isn’t going to make you or future generations bite their nails.

What is exciting is that 3M has enough cash and a low enough payout ratio to hike its dividend year after year after year.

Dividend Stocks Forever: Johnson & Johnson (JNJ)

Johnson & Johnson (JNJ), another Dow stock, is about as classically defensive as you can get. JNJ has paid uninterrupted — and rising — dividends since 1944. Distributions have increased 145% over the last 10 years.

JNJ might have fallen out of favor over the past year or two, but taking a longer view reveals it to be a keeper. JNJ generated a total return of 1,300% over the last two decades vs. 538% for the S&P 500.

Again, the dividend yield of 2.8% isn’t particularly flashy — but it’s good enough to drive wide outperformance in JNJ stock when held long enough. And there’s little doubt that JNJ will stick around.

For one thing, JNJ doesn’t have a beta of 0.5 for being reckless. More important, as InvestorPlace editor Jeff Reeves notes, JNJ is a healthcare stock, “which means rock-solid stability even in times of trouble.” After all, healthcare is one of the last things folks will cut back on when times are tough.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/3-dividend-stocks-youll-give-kids-someday/.

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