These two high-yield stocks have the potential to offer you growing dividends for a long time to come. Dividends are indeed a boon to those who invest for income. They provide a real return on your investment irrespective of stock price changes and can serve as a steady stream of passive income, supplementing your active income.
Although large, established firms might experience fluctuations in revenue and earnings, most are reluctant to reduce their dividend payments as this could negatively affect investor perception. If you’re on the hunt for reliable dividend-generating stocks, the following characteristics should be considered:
The company should have a solid competitive advantage and powerful brands that allow them to dictate prices, ensuring customers remain loyal.
Consistent free cash flow and a history of increasing dividend payments over several years or decades should be evident.
Such stocks not only offer peace of mind but due to their reliability, they can be held indefinitely or even bequeathed to your children.
Below are two high-yield stocks that promise to grow their dividends in the future continuously.
Procter & Gamble
Procter & Gamble (NYSE: PG) is a consumer goods corporation worth $350 billion, known for its vast assortment of hair care, personal care, and home care items. Its portfolio includes well-known brands like Head & Shoulders, Crest, Oral-B, Pampers, and Pantene, which hold significant pricing power due to their daily use by consumers.
This exceptional pricing power was visible in its fiscal Q3 2023, with organic sales growing by over 7% year-on-year, primarily driven by pricing. Despite foreign exchange headwinds resulting in a 4-percentage-point decrease in total revenue, the company reported organic growth across all its 10 product categories.
Despite economic challenges from high inflation, Procter & Gamble maintained healthy free cash flow (FCF) for the first nine months of fiscal 2023. With an FCF of $9.2 billion, 13% lower than the $10.5 billion from the previous year, the company sustained its impressive FCF generation record, enabling dividend payouts for 133 straight years, including 67 consecutive increases.
There are reasons to believe that Procter & Gamble will continue to raise its dividends for the foreseeable future. CEO Jon Moeller anticipates the company’s growth will be primarily organic, but potential selective acquisitions in the beauty and personal healthcare sectors are not ruled out.
The company’s recent acquisitions include premium beauty brand Tula Skincare and haircare brand Mielle Organics. Procter & Gamble aims to achieve annual cost savings of $1.5 billion by optimizing its supply chain and intends to strengthen brand loyalty through targeted marketing.
3M
3M (NYSE: MMM) is a conglomerate that manufactures a diverse range of products for industrial, transportation, electronics, healthcare, and consumer goods. Its portfolio includes adhesives, wound care, filtration systems, and stationery.
Known for its innovative products and pioneering research and development, 3M has consistently raised its dividend for 65 years and has maintained payments to shareholders for over a century.
Much like Procter & Gamble, 3M is a robust free cash flow generator. The company produced an average free cash inflow of $5.4 billion from 2020 to 2022. Despite a near-quarter decline in net income year over year, the conglomerate delivered $800 million in FCF in Q1 2023.
CEO Mike Roman has committed to business restructuring, aiming to simplify operations and reduce fixed costs by cutting about 6,000 jobs and a previously announced 2,500 layoffs. These measures are expected to boost operating income annually by between $700 million to $900 million. The company plans to prioritize investments in high-growth markets such as automotive electrification, semiconductors, and healthcare.
In addition to organic growth, 3M has a track record of strategic acquisitions to bolster its industrial capabilities and expand its product portfolio. In 2019, it made one of its biggest purchases by acquiring bandage and wound product company Acelity for $4.3 billion. Last year, the company’s food safety division merged with Neogen to broaden its product and geographic reach.
Recently, 3M has faced lawsuits alleging that its combat-grade earplugs do not adequately protect against loud noises, causing gradual hearing loss and tinnitus over time. Over 200,000 military service members and veterans are suing the company. Lawyers have set aside $1 billion to settle these lawsuits, with a trial expected by the end of the year. 3M has also set aside $10.3 billion over 13 years to settle around 4,000 lawsuits over chemicals that contaminated drinking water.
Despite the worry these lawsuits might bring, their financial impact is minor as the conglomerate generates over $5 billion in free cash flow annually. While these lawsuits may represent a temporary challenge, they are unlikely to affect 3M’s capacity to continue increasing its dividends in the foreseeable future.
Management plans to divest assets to unlock value, reallocating capital to promising growth areas to optimize value across its portfolio. With a collection of strong brands and innovative products, 3M is well-positioned to continue growing its dividend.
These two corporate titans, Procter & Gamble and 3M, offer robust investment opportunities for those seeking stable, growing dividends. Their successful track records, continual growth strategies, and powerful brands make them ideal for long-term investors. Despite the financial and operational challenges, these companies’ commitment to generating and increasing dividends assures their reliability as enduring income generators. Therefore, if you are searching for stocks you can hold onto indefinitely and ones that offer the prospect of lifelong dividends, consider adding these two to your investment portfolio.
