If you’re looking for dividend stocks to buy and hold forever, a good place to start is companies that have done an excellent job increasing their dividends and are expected to keep doing so in the future.
While the first place to look would be the S&P 500 Dividend Aristocrats, I’m going to widen the search to the S&P 1500. This gives you 3x the chance to find that special dividend stock that delivers income and capital appreciation.
From Dec. 31, 1999, to Dec. 31, 2018, the average S&P 1500 stock yielded 1.8%.
A stock must yield 3% or higher to make the cut, easily beating the index’s average. In addition, I’ll be looking for companies with a strong return on assets and reasonably strong balance sheets.
Of the 1500 stocks in the S&P 1500, approximately 621 yield more than 1.8%, while 377 yield 3% or more.
I’m confident you’ll be able to take these seven dividend stocks, shove them in a drawer and count your profits in five years.
Dividend Stocks to Buy and Hold: Buckle (BKE)
Buckle (NYSE:BKE) stock has been on fire for the past six months, up more than 46%. Even more impressive, it’s up 63% since hitting a 52-week low of $26.50 on July 14. As a result, its dividend yield has fallen considerably. It now yields a respectable 3.2%.
However, Buckle has a history of paying special dividends as an additional way to reward shareholders. I wrote about this back in 2012.
“By my calculation, Buckle has achieved an annualized total return of 26.6% since the end of 2007 through Nov. 23, with 11.6 percentage points from dividends (76% of the special variety) and 15 percentage points from capital appreciation,” I wrote on Nov. 29, 2012.
The apparel, footwear, and accessories retailer recently announced it would pay a special dividend of $2.65 a share on Jan. 27. If you bought BKE shares at the beginning of 2022, you would have received $4.05 in dividends over 13 months. Based on its current share price, you’re looking at a 9.4% dividend yield, not 3.2%.
Buckle reported Q3 2022 results on Nov. 18. They were more than adequate with same-store sales growth of 3.0%, $332.3 million in net revenue, online sales grew 8.8%, and net income was $61.4 million, slightly lower year-over-year due to higher costs.
BKE stock is the dividend stock that keeps on giving.
InvestorPlace contributor Chris Lau recently named Medifast (NASDAQ:MED) a ridiculously cheap dividend stock yielding more than 5%. To be precise, it’s yielding 5.74%, considerably higher than the 1.8% yield for the S&P 1500.
Medifast reported its Q3 2022 results on Nov. 3. It finished the quarter with 66,200 active coaches earning an average of $5,897 in revenue from its Optavia health and wellness products and programs. Revenue in the quarter was down 5.6% to $390.4 million on a 12.9% reduction in average revenue per active Optavia coach.
Its asset-light business model ensures that it’s always generating decent free cash flow. In the trailing 12 months ended Sept. 30, it was $116.1 million. Based on a market capitalization of $1.25 billion, it has an FCF yield of 9.3%. I consider anything 8% or higher to be in value territory.
Over the past 10 years, it’s got an annualized total return of 15.95%, that’s 363 basis points higher than the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), and 443 basis points better than Johnson & Johnson (NYSE:JNJ).
Down 47% year-to-date, now is an excellent time to consider this high-yield dividend growth stock.
Dividend Stocks to Buy and Hold: Diamondback Energy (FANG)
Diamondback Energy (NASDAQ:FANG) was added to the Nasdaq 100 index on Dec. 12. The index consists of 100 of the largest non-financial companies trading on Nasdaq. It is the first energy exploration and producer added to the index.
When you consider that Diamondback was a small-cap producer when it went public a decade ago, it’s now valued at over $24 billion, and providing investors with a healthy base-plus-variable dividend.
The company paid a base dividend of 75 cents a share in the third quarter. On an annualized basis, that’s a yield of 2.2%, below my 3% minimum. However, the variable dividend of $1.51 brings the annualized dividend to $9.04, good for a 6.7% yield.
Diamondback plans to allocate 75% of its quarterly free cash flow to shareholders through dividends and share repurchases. YTD, the company bought back $782 million of its stock to go along with $1.2 billion in dividend payments. It has $2.8 billion left on its current share repurchase program.
Over the past month, Diamondback’s share price has retreated by more than 10%. Based on its $3.23 billion trailing 12-month FCF and a market cap of $23.8 billion, it has an FCF yield of 13.6%.
Of the 32 analysts covering its stock, 27 rate it overweight or an outright buy with a target price of $181.90, 35% higher than where it’s currently trading.
T. Rowe Price (TROW)
Of the 64 financial stocks in the S&P 500 with a market capitalization greater than $10 billion, T. Rowe Price (NASDAQ:TROW) has the third-worst performance in 2022. Down nearly 44%, investors are staying away from the Baltimore-based asset manager.
That’s a mistake because it’s yielding a healthy 4.4% at the moment. Get paid to wait for markets to recover.
The company raised its dividend by 11.1% with the March 2022 payment of $1.20 a share. In July 2021, T. Rowe Price paid out a $3-a-share special dividend. T. Rowe Price has increased its dividend for 35 consecutive years. Over the past decade, its average yearly dividend increase has been a respectable 13%.
Asset managers like T. Rowe Price have seen their assets under management (AUM) drop considerably in 2022. At the end of 2021, TROW had an AUM of $1.69 trillion. At the end of October, AUM had dropped by 24,3% to $1.28 trillion, almost all of it from the current bear market. However, thanks to the November rally, its AUM for the penultimate month of the year actually increased by 4.7%.
Hurray for small victories.
There’s not much T. Rowe Price can do when the markets are in correction mode. When you’re an asset manager in down times, you can only hope that the markets turn higher at some point.
The 16 analysts covering TROW expect it to earn $7.93 in 2022. That’s less than 14x earnings. It hasn’t been valued this low since 2018. Its trailing 12-month FCF is $2.62 billion [Key Ratios]. Based on its market cap of $24.5 billion, its FCF yield is a high 10.7%.
This could be the best long-term value play in financial services.
Dividend Stocks to Buy and Hold: Watsco (WSO)
Writing about stocks, I’ve learned about so many interesting businesses over the years. Surprisingly, Watsco (NYSE:WSO) has never been one of my recommendations.
Watsco is the largest distributor of air conditioning, heating and refrigeration products in the Americas. Over the past 30 years, Watsco’s delivered a 21% annual total shareholder return. In 2021, it generated record sales and earnings.
On Nov. 20, it reported a record-breaking quarter with 14% sales growth and 13% earnings growth. Its HVAC equipment sales in the quarter, which accounted for 69% of revenue, increased 13% YOY, while its other sales also increased by double digits.
On the same day it announced earnings, Watsco increased the January 2023 dividend payment by 11% to $2.45 a share a quarter ($9.80 annually). Its stock now yields 3.5%. The company has paid dividends for 48 consecutive years.
An interesting point from its Q3 2022 results: Its e-commerce business grew 22% in the third quarter to $651.2 million, according to Digital Commerce 360. E-commerce sales now account for 32% of its revenue.
It’s a well-oiled machine with a stock worth owning as the world deals with ongoing climate change.
Watsco’s shares are currently valued at 1.24x sales, its cheapest multiple since 2018. As for its price-to-forward earnings ratio, it is 19.46, considerably lower than its five-year average of 26.24.
The company’s shares provide an excellent combination of income and capital appreciation.
Gilead Sciences (GILD)
If you’ve held shares in Gilead Sciences (NASDAQ:GILD) for the past five years, it must have been really difficult. While the index was grooving along, up more than 42%, the biopharmaceutical company’s shares limped along, gaining just 16.6% — a compound annual growth rate of 3.1% — over the same period.
Thankfully, due to Gilead’s healthy dividend, its annualized total return, including dividends, was a more respectable 5.8%.
However, in 2022, it appears to have gone on a roll that should continue into 2023. Up nearly 17% YTD, it’s outperforming the S&P 500’s healthcare sector by more than 18% on a relative basis through Dec. 12.
Gilead is a dividend stock to buy because it has solid results — projected revenue growth of 5-6% in 2022 with non-GAAP earnings per share of at least $6.15.
In addition, it has excellent capital allocation. In Q3 2022, it paid out $928 million in dividends, repurchased $180 million in stock, and repaid $1 billion in debt, reaching its 2022 debt repayment target of $1.5 billion a quarter early.
With a collection of drugs for HIV/AIDS, liver disease, oncology, and hematology, you’re getting a healthy dividend-payer that currently is reasonably cheap at 11.8x free cash flow ($106.3 billion market cap divided by $9.0 billion FCF).
Dividend Stocks to Buy and Hold: LyondellBasell Industries (LYB)
Although higher interest rates have made the 5% plus dividend yield not nearly as attractive, the fact LyondellBasell Industries’ (NYSE:LYB) stock yields 5.9% is a very good thing.
Like Gilead, long-time shareholders have had to rely on dividends to make any gains over the past five years. Down nearly 27%, its five-year annualized total return of negative 0.5% makes the opportunity cost a little more palatable.
So, what’s happening at the manufacturer of ethylene, propylene, and many other chemical derivatives, that would indicate reversion to the mean was about to set in?
My InvestorPlace colleague, Chris Lau, whose thoughts on Medifast I mentioned earlier, believes that the company’s business in China will step up in 2023, helping mitigate any downturn in its home base in Europe.
The 28 analysts that cover LYB stock are conflicted in their support for the company. Only eight rate it an outright buy, while six think it’s underweight or an outright sell, with half the 28 on the fence at hold.
In its Q3 2022 results, the company stressed that the changes to its organizational structure should deliver $750 million in additional recurring annual EBITDA by 2025, a 15-20% bump.
In the meantime, enjoy the healthy dividends, which included a $5.20 a share special dividend in June 2022.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.