By N.J. McGee
Investing in stocks can sometimes seem like investing in relationships. There are the stocks that knock you off your feet (like Google Inc. (GOOG)), the stocks you have a crush on but can never buy (like Berkshire Hathaway Inc. (BRK-A)), the stocks that will likely remain your friends forever (like Visa Inc. (V)), and those you want to take vows to keep (see our list below). When you enter into relationships with these stocks, they let you know they care through quarterly payments based on your level of commitment. Before you walk down the aisle of Wall Street, check out these five dividend paying stocks you should buy now and hold forever:
H&R Block Inc. (HRB):
You know what they say about taxes, right? They're not going anywhere. As one of the largest tax preparation companies in the world, H&R Block will continue to have a steady stream of clients needing help with tax preparation online or at one of the company's 1,300 locations. It may not be love at first sight: its payout ratio is high—at 65.00%—a rate that may not be sustainable. On the positive side, it has a forward P/E of 8.98, meaning the payout ratio is declining sharply. It has a healthy yield of 5.01% and hasn't lowered its dividend in over a decade.
In previous years, the company paid a quarterly dividend of $0.15 per share. Over the past two quarters, the dividend per share rose 33% to $0.20. Even though there are times when the company's dividend has remained static, historic payouts show something slow and steady—a solid foundation for holding the stock long term; or at least until we stop paying taxes. Value investor David Abrams had more than $200 million invested in H&R Block at the end of March.
JPMorgan Chase & Co. (JPM):
Despite the $2 billion debacle that rattled the company earlier this year, JPMorgan's stock price has steadied and is slowly rising. This financial institution may be too big to fail; however, it's been around, in some form or fashion, since 1823, so a bigger question is why would it fail? A company 11 years away from its bicentennial makes you take notice.
JPMorgan may be the perfect match for investors looking for a strong company with a solid history of paying quarterly dividends. It did reduce dividends after the financial crisis of 2008, but after eight quarters of low payouts, its dividend rose an astounding 400% (from $0.05 in January 2011 to $0.25 in April 2011). JPMorgan's most recent dividend of $0.30 per share represents a 500% increase from its 2008 lows. Its current yield is 3.34%. Though the world financial markets are somewhat volatile, for better or worse, JPMorgan should be around. The company is one of the 10 most popular stocks among hedge funds (see the entire list here).
Johnson & Johnson (JNJ):
If you bathe, shave, rinse with mouthwash, or take pain medicine, you've most likely used a Johnson & Johnson product. Why not make that relationship more permanent? The company manufacturers a wide range of healthcare products and prescription medications. It's also a company with staying power; the New Jersey-based corporation was founded in 1886. Johnson &Johnson's payouts show yearly average increases of 7% per share for at least 15 years. With its long-standing history, yield of 3.59% and P/E of 18.63, Johnson & Johnson may also be the cure to your investment woes. Warren Buffett had nearly $2 billion invested in this solid dividend yielder.
McDonald's Corporation (MCD):
Recently, a friend told me a story about a business class. A professor asked his students: "Have any of you have ever seen a McDonald's close?" After a few moments, a hand rose and a student responded, "I did see one close; but it opened up again two blocks down the same street." There are reasons investors are "lovin'" Mickey D's. Individual and family consumers flock to the corporation's 33,510 franchised and company-owned restaurants.
In terms of payout, a relationship with McDonald's can have its ups and downs. In 2007, it paid a dividend of $1.50 per share before nose-diving 75% the following quarter to $0.375. Since 2008, it has increased steadily to its most recent payout of $0.70, a growth of 87%. With the introduction of menu items such as oatmeal, and the expansion of its fruit smoothie offerings, McDonald's is posed to have greater profits, which should lead to increased dividends for investors.
Wal-Mart Stores Inc. (WMT):
Wal-Mart is a corporation some people love to hate. Despite its reputation, the company is a consistent performer currently enjoying yearly stock price highs. The ticker price may turn some investors away, but implementing a long-term strategy when purchasing Wal-Mart stock can help you take advantage of its highs and lows. Although its dividend and yield (2.25%) aren't as high as some of the other stocks listed, it has a decent payout ratio of 35.00%.
Since 1996, its quarterly payout per share has increased 1430% ($0.026 to $0.398). Let's see that again: 1430%. Wal-Mart has been offering low prices at its retail locations since 1945 and will continue to do so well into the future as it expands into emerging markets. It may be time to buy Wal-Mart a ring. Warren Buffett has a $2.8 billion position in this solid dividend yielder as well (Warren Buffett's other dividend picks).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.