11 Magnificent Dividend Growth Stocks to Buy and Hold Forever

In this article, we will take a detailed look at the 11 Magnificent Dividend Growth Stocks to Buy and Hold Forever. For a quick overview of such stocks, read our article 5 Magnificent Dividend Growth Stocks to Buy and Hold Forever.

Amid eye-popping growth of technology stocks, dividend investing has taken a backseat over the past few months. But this phenomenon is not a new one. Data shows that since the end of 2008, US stocks with dividend yields over 5% returned about 450%, compared to a 1200% return posted by non-dividend companies. However, many analysts believe this is about to change since the era of easy money where interest rates were almost zero is nearing its end. A Wall Street Journal report recently highlighted some trends in dividend investing shared by Daniel Peris in his book “The Ownership Dividend – The Coming Paradigm Shift in the U.S. Stock Market.” Peris argues that the pendulum might shift in favor of dividend stocks since the forces behind the almost 40-year period of low interest rates and buybacks seem to have exhausted and the market could return to the typical structure in which dividends had a lot of importance.

There was a time when investing in a company automatically meant you’d get dividends from it since markets were not fixated around short-term share price movements. As Benjamin Graham once said:

“The prime purpose of a business corporation is to pay dividends regularly and, presumably, to increase the rate as time goes on.”

From the 1870s to the 1950s, dividends accounted for about 80% of the total market returns, according to the WSJ report which cited economist Robert J. Shiller, Sterling Professor of Economics at Yale. This contribution to returns by dividends declined to 30% over the past decade. But could the tide really turn in the favor of dividends? Early signs are here. Meta Platforms surprised investors earlier this year when it announced a $0.50 a share dividend. Analysts believe as investor appetite for steady income and low volatility increases and markets begin to digest the possibility of the higher for longer scenario, dividend-paying stocks would see a renewed interest.

Methodology

For this article we first scanned through the list of dividend aristocrats — a group of S&P 500 stocks that have increased their dividends every year for at least 25 years. From this list we chose 11 companies with at least 50 years of consistent dividend increases and positive hedge fund sentiment. We preferred stocks with relatively low payout ratios (under 50%), wider moats and positive analyst ratings. The idea was to prefer dividend growth companies that are offering safe dividends and are deemed investment worthy by smart money managers. But why is it important to pay attention to hedge fund sentiment? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).

11. Nucor Corp (NYSE:NUE)

Number of Hedge Fund Investors: 40

Nucor Corp (NYSE:NUE) is one of the biggest steel companies in America, with about 50 years of consistent dividend increases. With a solid position in a market which is difficult to enter for new players and a payout ratio of just 12%, Nucor Corp (NYSE:NUE) is one of the safest dividend stocks.

A total of 40 hedge funds tracked by Insider Monkey had stakes in Nucor Corp (NYSE:NUE) as of the end of the fourth quarter of 2023. The biggest stake in Nucor Corp (NYSE:NUE) is owned by Citadel Investment Group of Ken Griffin which owns a $178 million stake in Nucor Corp (NYSE:NUE).

10. Colgate-Palmolive Company (NYSE:CL)

Number of Hedge Fund Investors: 54

With over 62 years of consistent dividend increases, Colgate-Palmolive Company (NYSE:CL) ranks 10th in our list of the magnificent dividend growth stocks to buy and hold forever. Earlier this month, Colgate-Palmolive Company (NYSE:CL) increased its quarterly dividend by 4.2%. The new dividend is payable May 15 to shareholders of record as of April 22.

Insider Monkey’s database of 943 hedge funds shows that 54 hedge funds had stakes in Colgate-Palmolive Company (NYSE:CL) as of the end of 2023.

9. Target Corp (NYSE:TGT)

Number of Hedge Fund Investors: 58

Target Corp (NYSE:TGT) has increased its dividends consistently over the past 55 years. The stock jumped last month following Target Corp’s (NYSE:TGT) earnings and its investor event where Target Corp (NYSE:TGT) announced strong guidance and a new subscription tier. Deutsche Bank recently upgraded the stock to Buy from Hold, citing improvement in traffic trends and margins expansion. HSBC also increased Target Corp’s (NYSE:TGT) rating to Buy from Hold.

Out of the 933 funds in Insider Monkey’s database, 58 hedge funds reported having stakes in Target Corp (NYSE:TGT) as of the end of the last quarter of 2023.

Diamond Hill Large Cap Strategy stated the following regarding Target Corporation (NYSE:TGT) in its fourth quarter 2023 investor letter:

Other top contributors in Q4 included Allstate, American International Group (AIG) and Target Corporation (NYSE:TGT). US-based mass retailer Target is capitalizing on cleaner inventory, lower freight costs and improved efficiency to improve profitability — and investors rewarded shares accordingly in Q4.

8. Becton Dickinson and Co (NYSE:BDX)

Number of Hedge Fund Investors: 60

Medical device company Becton Dickinson and Co (NYSE:BDX) is one of the magnificent dividend growth stocks to buy and hold forever. Becton Dickinson and Co (NYSE:BDX) has increased its dividend for 52 years without a break. In February it announced fiscal Q1 results according to which its adjusted EPS in the quarter came in at $2.68, beating estimates by $0.28. Becton Dickinson and Co (NYSE:BDX) also increased its full-year EPS guidance and midpoint of organic revenue growth guidance.

As of the end of the fourth quarter of 2023, 60 hedge funds in the database of Insider Monkey had stakes in Becton Dickinson and Co (NYSE:BDX).

Aristotle Atlantic Core Equity Strategy stated the following regarding Becton, Dickinson and Company (NYSE:BDX) in its fourth quarter 2023 investor letter:

“Becton, Dickinson and Company (NYSE:BDX) detracted from portfolio performance in the quarter, as the company announced lower-than-expected guidance for fiscal year 2024. The weaker guidance was mainly driven by adverse moves in foreign exchange markets; however, the guidance seemed to surprise investors, even though we believe the underlying business trends remain solid.”

7. Coca-Cola Co (NYSE:KO)

Number of Hedge Fund Investors: 62

Coca-Cola Co (NYSE:KO) is one of the all-time favorite dividend stocks of several billionaires and money managers, the most prominent of whom are Oracle of Omaha Warren Buffett, who had a $24 billion stake in Coca-Cola Co (NYSE:KO). Buffett has been holding a stake in the beverage giant, which has increased its dividend consistently for the past 62 years, since the last quarter of 2010. In February Coca-Cola Co (NYSE:KO) increased its dividend by 5.4%.

Hayden Capital made the following comment about The Coca-Cola Company (NYSE:KO) in its third 2023 investor letter:

“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, The Coca-Cola Company (NYSE:KO) trades at ~30x P/E despite having the same earnings as 10 years ago.

Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.

I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Coca-Cola is facing disruption risk from consumers shifting to new, heathier beverage brands.

But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.”

Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”

6. PepsiCo Inc (NASDAQ:PEP)

Number of Hedge Fund Investors: 64

PepsiCo Inc (NASDAQ:PEP) is a dividend king with 52 consecutive years of dividend increases. Wells Fargo analyst John Sheehan recently published a list of dividend stocks which the analyst believes have stood the test of time. PepsiCo Inc (NASDAQ:PEP) made it to the list.

“Our process considers long-term growth, the management team’s level of experience, return on invested capital, stability of revenues and earnings, stock price volatility, financial strength, debt ratings (if applicable), and any other characteristics that we deem significant, either overall or for a specific industry or sector, as well as the potential to maintain these characteristics,” Sheehan wrote.

Aristotle Atlantic Core Equity Strategy stated the following regarding PepsiCo, Inc. (NASDAQ:PEP) in its fourth quarter 2023 investor letter:

“We sold PepsiCo, Inc. (NASDAQ:PEP) based on our belief that the inflation and interest rate cycle has peaked, and the company may have difficulty maintaining the recent organic growth trends which were driven mainly by price increases. Furthermore, the market appears to be shifting away from defensive names and into a more cyclical positioning which could cause PepsiCo to lag.”

Click to continue reading and see 5 Magnificent Dividend Growth Stocks to Buy and Hold Forever.

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Disclosure. None. 11 Magnificent Dividend Growth Stocks to Buy and Hold Forever is originally published on Insider Monkey.