10 Dividend Growth Stocks To Buy And Hold Forever

by: John DeFeo


Dividend stocks can provide a stable and growing income stream.

Diversification helps soften mistakes and reduce uncertainty in a portfolio.

The price you pay for a stock is the ultimate predictor of your return.

My goal is to buy shares of companies that I love, reinvest the dividends, and in a few decades, retire without having to sell a share of stock because my dividend income is reasonable enough to support me and my family. Sound crazy? It's not. Let me tell you a story:

I have a friend who paid $80K for a small building in the late 1970s; today, he collects $85K per year in rent. If you asked my friend what the building is worth, he couldn't tell you (it's worth about $2MM). He genuinely doesn't care. He funds his retirement with rental income and is happy knowing that his kids will inherit the property one day. My financial hero!

Now, I have no interest in being a landlord, but I have every interest in collecting a growing income stream. So, I set my sights on dividend stocks early in my investing career and I've never given up the habit. I've made a few mistakes along the way, too. Let me share them with you so (hopefully) you don't repeat them:

Selling. I only regret buying three companies out of more than 100 stocks that I've purchased; however, I regret selling dozens of stocks on which I "took profits." Don't buy companies for a good reason and sell them for an arbitrary one.

Waiting for an entry point that never came. If you find a great company selling for a fair price, buy it. It pains me to tell you how many times I've waited for a pullback as I watched a company's share price climb by multiples of itself.

Minding dividend yield more than dividend growth. A fast growing company with a modest dividend can quickly eclipse a slow growing company with a hefty yield. Also, you may find your dividends reclassified as "return of capital" at tax time if that juicy yield wasn't funded by earnings. Screen carefully.

Taking those lessons to heart, I put together a "forever fund" of 40 dividend stocks that I intend to hold through thick and thin. Some of those 40 stocks are bound to underperform, or maybe even go to zero (I hope not).

I'm not proud enough to say I know which ones will be the winners and the losers in the long run. I've held onto a stock that fell by 70%, then rebounded to +175% of the price I paid for it, by virtue of reinvesting dividends through those hard times. On the flip side, I watched another stock quickly appreciate by 90% and now it sits 60% lower than the price I paid for it. Nobody has a crystal ball.

On the other hand, I am confident to say that my dividend stock portfolio, as a whole, will perform solidly over time. The 10 stocks listed below are a portion of my "forever" portfolio. I'm not recommending them to you. I paid much less for these stocks than what they sell for now and what you pay for a stock is the ultimate predictor of your investment returns. Still, you may find something of interest here, especially if you build your own portfolio of dividend stocks to hold forever. To that end, I've calculated the dividend growth rates for each of these stocks, as well as a fair value estimate.* Happy investing!

Lancaster Colony Corporation (NASDAQ:LANC)

Lancaster Colony is a mid-cap food manufacturer that is notable for paying and increasing its dividend since 1963. The company's portfolio of brands is pretty eclectic, ranging from Marzetti salad dressings to Flatout flatbreads. Despite having few (if any) nationally recognized brands, the company has driven shareholder value by taking a deliberate and controlled approach to product releases. Lancaster Colony also serves the foodservice industry, providing diversification against the whims of supermarket shoppers.

  • Market Capitalization (approx.): $3.6B
  • 5-Year Dividend Growth Rate: 8.67%
  • Liability-Adjusted Cash Flow Yield: 3.25%
  • Implied Fair Value (per share): $152.00

Hasbro (HAS)

I chose Hasbro over Mattel years ago and I'm satisfied with that decision. Hasbro won Disney's Star Wars and Princess businesses, which is a big win, but I'm most interested in how Hasbro can license its own intellectual property. There are ample opportunities for Hasbro to collect royalties from licensing its brands to mobile game manufacturers. The company has barely scratched the surface of this opportunity (their one-size-fits-all Hasbro Arcade app is defunct as of March).

  • Market Capitalization (approx.): $10.5B
  • 5-Year Dividend Growth Rate: 11.20%
  • Liability-Adjusted Cash Flow Yield: 2.98%
  • Implied Fair Value (per share): $90.50


I favor Bard (and Becton Dickinson, also on this list) among healthcare stocks for two reasons. First, Bard hasn't had an earnings deficit in any of the prior 10 years. Second, the executive compensation at Bard is consistent and grows modestly. Healthcare spending is an ever-increasing percentage of national spending and I like the idea of owning stable companies that can ride that wave without getting themselves in the news for all the wrong reasons.

  • Market Capitalization (approx.): $16.1B
  • 5-Year Dividend Growth Rate: 6.47%
  • Liability-Adjusted Cash Flow Yield: 3.34%
  • Implied Fair Value (per share): $266.00

Becton Dickinson (NYSE:BDX)

Like Bard, Becton Dickinson is a medical equipment supplier with predictable earnings and stable executive compensation. The company is among the largest in its industry which is both a pro and a con. On one hand, the company's size allows for its reasonably predictable performance. Being big makes strategic acquisitions easier. The downside to being large, of course, is the law of large numbers: It will be harder for Becton Dickinson to deliver spectacular growth into the future because it is already quite large.

  • Market Capitalization (approx.): $35.8B
  • 5-Year Dividend Growth Rate: 9.99%
  • Liability-Adjusted Cash Flow Yield: 2.42%
  • Implied Fair Value (per share): $136.50

WD-40 Company (NASDAQ:WDFC)

WD-40 Company is one of my favorite companies, firstly, because its a perpetual dark horse. Most people assume that the iconic WD-40 brand is part of some big conglomerate. Nope! The company (originally called the Rocket Chemical Company) has been independently owned, and growing steadily, since 1953. Even now, WD-40's market capitalization is less than $2B, which leaves ample room for growth. The other reason I'm bullish on WD-40 is because I believe in their CEO, Garry Ridge. I once mailed Mr. Ridge some gimmicky marketing ideas. He wrote me back a handwritten letter explaining the company's growth strategy, and he also mailed me an autographed copy of his book: Helping People Win at Work. It's good reading for any manager or business leader.

  • Market Capitalization (approx.): $1.5B
  • 5-Year Dividend Growth Rate: 9.24%
  • Liability-Adjusted Cash Flow Yield: 2.59%
  • Implied Fair Value (per share): $97.50

J&J Snack Foods (NASDAQ:JJSF)

J&J Snack Foods, like WD-40, is another company for which I have a soft spot. I grew up with Superpretzels and ICEEs, and though I care deeply about eating healthy, I'm still happy to have one of J&J's treats on occasion. I'm also a big believer in J&J Snack Foods' CEO: Gerald B. Shreiber. I wrote Mr. Schreiber a letter once and he responded to me in less than a week. I appreciate Mr. Screiber's measured approach to running a business and I'm confident that J&J will branch into healthier foods when the opportunity is right.

  • Market Capitalization (approx.): $2.3B
  • 5-Year Dividend Growth Rate: 27.12%
  • Liability-Adjusted Cash Flow Yield: 2.36%
  • Implied Fair Value (per share): $102.30

Energizer Holdings (NYSE:ENR)

This St. Louis-based company, famous for its namesake batteries, is smaller and more focused since spinning-off its personal care division (Edgewell Personal Care Company). I own both companies because I was an Energizer shareholder prior to the split. My take on the battery business is that its a segment in decline; however, there is value to be had if the market is overly pessimistic on Energizer's future. The company is also small enough, and useful enough, to be a perpetual acquisition target for a larger company looking to integrate batteries into its manufacturing.

  • Market Capitalization (approx.): $2.9B
  • 5-Year Dividend Growth Rate: N/A (due to spinoff)
  • Liability-Adjusted Cash Flow Yield: 5.39%
  • Implied Fair Value (per share): $106.00

Matthews International (NASDAQ:MATW)

"Death care" stocks like Matthews and Hillenbrand (I own both) have been whipsawed by optimism and pessimism over the last decade. A lot of people believed that the inevitable deaths of the baby boomer generation would drive a multi-decade bull market in funerary products. Two things threw cold water on this thesis: First, cremation rates have risen dramatically in the U.S., meaning that less people are shelling out big bucks for coffins. Second, the coffin market has been disrupted by less expensive, international imports (you can buy a casket at Costco these days). Nevertheless, well run companies have a way of adapting to the times, and Matthews (and Hillenbrand for that matter) have industrial automation divisions that provide diversification and growth opportunities.

  • Market Capitalization (approx.): $1.9B
  • 5-Year Dividend Growth Rate: 13.40%
  • Liability-Adjusted Cash Flow Yield: 2.31%
  • Implied Fair Value (per share): $42.20

Illinois Tool Works (NYSE:ITW)

Illinois Tool Works is a diversified manufacturer with operations spanning from food equipment to polymers. It has the largest market capitalization of the companies in this list and is among the more attractively valued, despite having a big run upward in 2016. The company's welding segment has been a drag recently, but on the whole, Illinois Tool Works' divisions have performed solidly. What the company lacks in top line growth, it makes up for in operational improvements. Gross margin has crept upward steadily for the decade.

  • Market Capitalization (approx.): $40.6B
  • 5-Year Dividend Growth Rate: 12.54%
  • Liability-Adjusted Cash Flow Yield: 3.74%
  • Implied Fair Value (per share): $161.00

Church & Dwight (NYSE:CHD)

Church & Dwight owns a portfolio of recognizable brands like Arm & Hammer, Trojan, and OxiClean. I love when people talk about Church & Dwight as if it is a direct peer of Procter & Gamble. In reality, Church & Dwight is 95% smaller than P&G and in a better position to grow its dividend (and share price) over the coming decades. It's rare to find a mid-cap company with such a diverse portfolio of resilient well-known brands. It's rarer still to find one that has delivered such stable, consistent growth.

  • Market Capitalization (approx.): $12.6B
  • 5-Year Dividend Growth Rate: 15.87%
  • Liability-Adjusted Cash Flow Yield: 3.26%
  • Implied Fair Value (per share): $58.00

*Fair value is subjective. I used a formula called liability-adjusted cash flow yield as the basis for an estimate:

5-Year Avg. Free Cash Flow / ((Outstanding Shares x Per Share Price) + (Liabilities - Cash))

Basically, this formula tells you what kind of return you might expect if you bought an entire company outright. People buy companies, or shares of companies, because they expect a better return than that offered by bank deposits or government bonds. That's called a risk premium: When you take a risk, you want more in return.

In the examples above, the implied fair value is what a stock would have to sell for (per share) in order to give you an ownership yield that is 150% of what a 10-year U.S. government bond pays (1.85% at the time of this writing).

I believe in the math above, but you need to find a valuation method that makes sense for you. Like Warren Buffett said, "Beware of geeks bearing formulas."

Disclosure: I am/we are long LANC, HAS, BCR, BDX, WDFC, JJSF, ENR, MATW, ITW, CHD, EPC, HI, PG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.