Residual income is a much more valuable asset to a long term investment strategy than gains that occur only once. After a single investment yields regular returns, you are able to strengthen your position at no additional cost by placing the returns back into the company. Companies with valuable dividend stock provide regular returns without a loss of stock value and consistent revenue to support the dividend. The ability to support sustained growth over a long period of time shows just how frequently a stock can pay out and how lucrative its payout will be. In this article, I analyze five stocks that, in my opinion, have the durable competitive advantages to succeed over the long run. Of course, this analysis should serve as a starting point for your own due diligence.
Altria (MO) is a potential buy candidate due to its resilience in a difficult market as the leading tobacco producer in the United States. Despite regulations, a decline in smokers and public anti-tobacco sentiments the company has continued to make over $3 billion a year in profits each year. It has persisted despite the major threat imposed on it from regulation and a public drive to move consumers away from cigarettes. Altria pays out quarterly dividends at a $1.64 rate annually and provides a yield of just under 6%. Its dividend grew in 2011 from $0.38 per share to $0.41 and its stock almost doubled from $16 to $28 per share in only three years, making this a stock that you should own. The payout ratio is 93%.
Procter and Gamble (PG) is a dividend stock that you will want to hold onto for life. Proctor and Gamble owns a very extensive line of consumer brands that range from household products to hygiene and fashion. Not only is the company extremely profitable with reported profits of $13.4 billion in 2009, $12.7 billion in 2010 and $11.7 billion in 2011, but it pays out generous quarterly dividends of $0.52 per share with a payout ratio of just over 50%. For long term income investors, this stock is a potential addition to one's portfolio.
McDonald's (MCD) has cemented its place in the restaurant industry as the world's #1 fast food chain and has insulated itself from its competition, making it the perfect long term buy. The company is the perfect example of consistency- pulling in an average of $4.5 billion in profits each year and never missing a quarterly dividend payout. In 2011, McDonald's boosted its dividend from $0.61 per share to $0.70 which gives it a payout ratio of 48% and a 3% yield. With a solid market presence and consistent profits, this stock is perfect for dividend reinvestment.
Verizon (VZ) is another certain buy as the leader in the cellular industry and owner of a 55% to 45% joint venture with Vodafone (VOD) which is one of the leading telecoms in the world. Its dividend currently pays out quarterly at a payout ratio of 231% and $0.50 per share which makes it ideal for income investors interested in dividend reinvestment. Verizon's net revenues average $1.5 billion per quarter and its latest dividend totaled $1 billion paid out to its investors, signaling that the company pays a lion share of its income to its shareholders.
General Electric (GE) is another worthy dividend stock that should be bought if you have the room for it in your portfolio. The company produces energy infrastructure, home appliances and participates in the development of new energy efficient technologies. General Electric consistently exceeds $10 billion in profit every year but only pays out dividends of $0.17 per share at a ratio of 50% which is expected to increase as the company secures its place in the power infrastructure market. I expect this investment to become more lucrative over time as General Electric finds itself with more money to distribute to its shareholders.
Each of these stocks is the perfect addition to any income investor's portfolio as they all provide consistent returns, security, and consistency. Taking a position in any of these companies will ensure long term results that grow more lucrative as time passes by and you reinvest your returns into a larger share of the company. Each company pays a handsome dividend and shows the prospect of a growing dividend over time. General Electric is beginning to show signs that its dividend is on the rise as well, making it a worthwhile investment for the long haul.