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Warren Buffett is often quoted that his favorite holding period is forever. However, his statement only applies to companies that have the ability to sustainably increase their earnings power and pay solid dividends, while thwarting competitors through insurmountable economic moats.

In this article, I have analyzed the key companies in the market that have potential to be “buy and hold” dividend stocks in your portfolio for the next decade. Through my analysis I have concluded that these nine represent better bets than other large cap dividend payers, including their sector peers, due to their revenue growth prospects and return on equity, which I use as a proxy for return on invested capital. As always, use this analysis as a starting point for your own research.

PepsiCo Inc (NYSE:PEP)

Pepsi is a global food and snack company that has its eyes on Latin America, having made an offer for a controlling stake in Marilan Alimentos SA (Marilan) for $320 to $426 million. Pepsi's flagship products include non-alcoholic carbonated beverages under the Pepsi name, water, salty snacks (under Frito-Lay), and juices. The company is diversified globally with a presence in over 200 countries and by net revenue it is the second largest food and beverage company in the world.

Over the last five years, Pepsi has average revenue growth rate of 11.07%, and during the same period its dividend has increased by an average of 11% annually, with annual revenue in the last financial year at $43 billion. Pepsi has a payout ratio of 51%, which gives management room to increase the payout ratio in the near future. In my opinion, Pepsi is in a unique situation to both raise its dividend and continue investing due to its operating cash flow of $8.5 billion.

Pepsi’s current dividend yield is 3.20% with the last 5 yrs averaging 2.55%. Pepsi’s share price of $65 implies a P/E multiple of 16. Pepsi has a high return on invested capital, around 15% and ROE of 33.07%. On the debt front, the company has very high interest coverage of 10.1 and debt/equity of 0.94.

Over the last few years PEP has been very aggressive with mergers and acquisitions, especially into healthy food and snacks segments and promoting healthy lifestyle, which is improving the brand image of PepsiCo. With a healthy balance sheet and visionary management, PEP is looking forward to returning cash to shareholders. PEP is in as good of a position for increased dividends, as is Coca-Cola (NYSE:KO), due to their significant free cash flow and building cash horde.

Waste Management Inc (NYSE:WM)

WM is a dominant, North American provider of waste management services ranging from collecting, transfer, recycling and disposal services. It is also in the business of waste to energy and landfill gas to energy services, which, in my opinion, could be a unique growth area for the company.

WM has a market capitalization of $15.2 billion. WM has a current dividend yield of 4.2% and five year average of 3.56%. During the same period, WM has raised its dividend at a rate of 9.09% per annum, from $0.22 to $0.34. The dividend payout ratio stands at 64%. In a stable business, protected by landfill contracts and county and state licenses, WM's payout ratio is on the low end of its potential range. In my opinion, the company could be comfortable returning 80% of earnings to shareholders, equating to a 5.5% dividend yield.

WM is trading around $33 with a P/E of 16. However, with a fiscal year 2012 EPS expected to be $2.55 WM is trading at a discount of 15% to fair value. Waste Management has an ROE of 15.27% and debt/equity of 1.46. The company has ample interest coverage, at 4.3.

With Waste Management services, regardless of the economy and consumers' generosity in generating trash, the company will be able to sustain substantial dividends in the future. While Republic is a fierce competitor in many of WM's markets, economies of scale weigh in the favor of WM.

The Hershey Company (NYSE:HSY)

This is one name that needs no introduction. Hershey is in the business of producing chocolate and sugar confectionery products. It is present in over 60 countries and has market capitalization of $13 billion.

Hershey’s, over the last 5 years, has increased its dividend at a 5% rate per annum. The company has a dividend payout ratio of 0.58, leaving it with enough opportunity to increase the payout ratio, given the stability of its cash flows. Its current dividend yield is 2.40% and the last 5 years' average yield has been 2.74%.

Hershey’s is in a very strong financial position. The company has interest coverage of 9.4 and debt/equity of 2.09. Hershey's ROE is staggering 59% and ROA of 12.5%. The company is able to leverage debt over a strongly branded business. In fact, Hershey's is the company with its brand name representing the most equity value.

Over the last five years, the company’s earnings grew at a rate of 2.70% and is expected to grow at 7.50% over the next five years, mostly due to international sales growth. HSY has a P/E of 21.

With the increasing disposable income in emerging markets and the consumption of chocolates and sugar products increasing, Hershey’s investors should do well. Hershey's appears to be a better bet than Kraft (KFT) in the confectionery space, due to its growth prospects.

Vodafone Group Plc. (NASDAQ:VOD)

Vodafone is a global telecom company with a market cap of $142 billion. It currently has an estimated $84 billion in revenues, implying a growth of 18.70% for the year. Analysts expect earnings per share of $2.71 this year, +6.51% increase year on year. At the current price around $28, the company’s earnings are priced at only 11 times. Shares also have a dividend yield of 7.30%. These levels suggest that the market believes that earnings growth will be flat in the coming years. This appears inexpensive compared to its peer companies. For one, Verizon Communications (NYSE:VZ) is valued at 16 times earnings and carries a dividend yield of 5.4%. It appears that U.S. telecommunications are valued higher, given the current situation in Europe. To demonstrate this, another European telecom, France Telecom (FTE) trades at 8 times earnings and has a dividend yield of 8%.

However, valuing VOD as a European telecom is a mistake. It has presence in over 30 countries and with over 40 partner markets across the globe. Vodafone also maintains a 45% stake in Verizon Wireless. Investors can be assured that the management is doing its job as good capital allocators. It has exited unprofitable ventures and reinvested its profits in regions in which it has significant advantage. Over time, investors will be handsomely rewarded with modest capital gains and dividend income.

Johnson & Johnson (NYSE:JNJ)

Johnson & Johnson is in the healthcare business. The company has operations in over 57 countries, a market capitalization of $178 billion and is trading around $65 with P/E of 15.

JNJ is one of the dividend aristocrats. It has raised dividends for 47 straight years, and during the last five years it has raised it by 8.7% annually. JNJ has a dividend payout ratio of 0.44 which is likely to be increased in the future as the company continues to mature. JNJ’s current yield is 3.50% and has averaged 3.04% during last 5 years.

JNJ has a very high interest cover of 33, and very low debt/equity of 0.30, further increasing probability of hike in the payout ratio, as the organization has huge amount of assets in cash. JNJ has increased its revenue by 3.31% and net income by 4.81% during the last five years. Also JNJ is frequently involved in share buybacks.

For a company of JNJ’s size and exposure its balance sheet is highly conservative. Overall, with global presence and a diverse product portfolio JNJ is undervalued.

Altria Group (NYSE:MO)

Altria Group is a holding company with an operating interest in tobacco, cigars, wine and financial services. The business segment for cigarettes accounts for majority of its income and also for the majority of its risk. The investment appeal of these businesses is in their steady cash flow and relatively low capital spending requirements. The company has generated around $3 billion in run rate operating cash flow. This easily covers the dividends for the year.

At $29, shares imply a price earnings ratio of 17 times. It also has a dividend yield of 6.10%. Similar tobacco sellers, like Lorillard, Inc. (NYSE:LO), trade at 13 times earnings and carry a dividend yield of 4.70%. Reynolds American Inc (NYSE:RAI) is valued at 14 times earnings and has a dividend yield of 5.6%. One key risk to the company is that amid competition and higher taxes levied on its cigarette business, Philip Morris (NYSE:PM) could implement a price cut to maintain market share. This would result in lower margins and profitability. The margin of safety comes from the fact that consumers will not stop consuming its products even in times of a recession. Despite flat earnings, the company will still manage to pay its dividends. The upside is that the management has been aggressively buying back shares. This will reduce share count and increase earnings per share on an accounting basis in the future.

Procter and Gamble (NYSE:PG)

Procter and Gamble is a global consumer company with a market cap of $182 billion. For the past five years, it has grown its sales by 5.09% and earnings per share by 9.95%. This seems respectable considering that the industry growth was lower. Industry revenues grew less than 1% and earnings flat at 1.16%. In turn, it has rewarded its shareholders by increasing its dividends by 11.37% a year. The steady growth is attributed to the consumer brands that the company carries. It also has strong distribution system to complement its portfolio of brands.

For this year, analysts expect earnings per share of $4.19, an increase of 6% over the previous year. These expectations appear in line with historical growth profile of the company. This also implies that the stock is trading at 15 times earnings. It also has a dividend yield of 3.30%. This is lower than the valuations of Colgate-Palmolive Co. (NYSE:CL) but higher than Johnson and Johnson. CL trades at 18 times earnings and carries a dividend yield of 2.50% and JNJ is valued at 15 times and has a dividend yield of 3.50%. While growth rates are not as spectacular as other sectors, this name will give investors steady income for the long haul.

Pfizer Inc. (NYSE:PFE)

Pfizer Inc. is a $165 billion pharmaceutical company. Investors who want a defensive stock with modest dividend yield should buy this stock. The investment thesis of pharmaceutical industry is simple. As the quality of lives improves, people would want to have the best healthcare services. PFE is the largest global research based biopharmaceutical company. It is at the forefront of innovation in the industry. It has a solid drug pipeline, which gives investors assurance of a strong revenue visibility in the future.

At these levels, the stock is trading at 15 times next year’s earnings and carries a dividend yield of 4.40%. These valuations seem low for a global pharmaceutical leader. Historically, the stock trades at around 14 to 19 times earnings. This is also how pharmaceuticals are historically valued. Most pharmaceuticals have higher valuations. For instance, Merck & Co. (NYSE:MRK) trades at 28 times earnings and has a dividend yield of 4.70% and GlaxoSmithKline Plc. (NYSE:GSK) is valued at 46 times earnings and carries a 5% dividend yield. Assuming PFE is valued at its historical price earnings multiple of 20 times, the stock could trade at $26 a share. This is a 25% from current price levels and in line with most analyst targets.

McDonald’s Corp. (NYSE:MCD)

This is the stock to buy as the recession lingers. Consumers will line up for cheaper, quick service restaurants to save on money and time. Given its strong global foot print, MCD investors will be comfortable holding this stock knowing that emerging markets have strong consumer base. For the last five years, the company has grown its revenues by 4.72% and earnings per share by 17%. On a trailing basis, revenue growth has improved at 16% and earnings per share at 19%. This is despite lower annual capital spending growth at 5%.

Analysts expect that the company will post earnings per share of $5.73 next year. This implies a 9% growth on a year on year basis. At the current price around $100, the stock trades at 20 times earnings and has a dividend yield of 2.80%. Similar companies trade at higher multiples. Yum! Brands Inc (NYSE:YUM) is valued at 24 times earnings and carries a 2% dividend yield, and The Wendy’s Company (NASDAQ:WEN) is posting break-even earnings. Although MCD does not look cheap, it’s not overpriced either. It is currently trading at the lower range of its historical earnings band. Investors should wait for the share price to pull back before taking the plunge.

Source: 9 Dividend Stocks To Buy And Hold For The Next Decade