5 Stocks to Buy and Hold Forever in 2021

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I recently put together a list of stocks to buy and hold forever.

This list of companies wasn’t for my portfolio, but rather my 17-year old son who is getting ready to start building his portfolio.

These buy and hold stocks have several important characteristics … most notably – they all pay a dividend.

And they don’t just pay a dividend, they have paid a consistent dividend for decades that increases annually.

The rate of these annual increases is usually well above inflation too … which makes these stocks the perfect way to start building a dividend income portfolio.

I like to think of investing in these companies like building the foundation of a new home.

That is why many dividend investors call these types of companies their foundational stocks.

You almost don’t even need to worry about owning them … and sometimes you may even forget about these companies.

They are boring to many investors.

But not to me.

These companies are consistent and usually never let you down (however it can happen from time to time).

Let’s take a closer look at how I look for the best stocks to buy and hold forever!

Finding the Best Stocks to Buy and Hold Forever

These are not your high flying growth stocks that everyone gets excited about.

Honestly, they are not even high dividend growth stocks. Although at times some of them may look like it.

And these foundational stocks don’t pay a crazy high yield. However, they do pay a bigger yield than your typical savings account these days.

They are not sexy or trendy. But they are solid like the foundation you would want to support your home.

I own many of these types of companies. And because of them … my dividend income has grown every year for over a decade.

As I start to help my son build his dividend income portfolio, we have been identifying these foundational stocks as a place to start.

Let’s take a look at some of the steps I use to identify these types of companies.

Step 1 – 25+ Years of Dividend Growth

For me to consider a stock to be included in the best stocks to buy and hold forever list … they need to have a long history of raising dividends every year.

I look for companies that have a minimum of 25 or more years of consistent dividend increases.

Unlike the best dividend growth stocks, where I’m looking for 10+ years of dividend growth … I want foundational stocks here. Think of companies that you know and have been around forever. These companies are very likely not going away any time soon.

And … these are the companies that will make up the foundation of your dividend stock portfolio.

When it comes to building the list of foundational dividend stocks … there are no exceptions to this rule of 25+ years of dividend growth.

Many of these companies would can be found on the Dividend Aristocrat or Dividend Champions list of stocks.

Step 2 – Current Yield between 2.0% and 3.0%

This isn’t necessarily a rule, but these types of companies typically have a current yield between 2% and 3%.

A company with a yield lower is probably a high dividend growth stock like Microsoft (MSFT) or Visa (V).

On the other hand, a company with a much higher yield (maybe over 4%) is likely a high dividend stock like AT&T (T) or Altria (MO).

The foundation stocks I am talking about are “usually” in the middle when it comes to yield. They are normally boring stocks too.

Again, this isn’t necessarily a hard rule … but the best stocks to buy and hold forever are usually in this range.

And by the way … there isn’t any reason why the other types of stocks couldn’t be buy and hold forever too!

Step 3 – Dividend Growth Rates Average 6% Annually

Most of the foundational stocks in my portfolio raise their dividend on average by about 6% per year. Of course this does vary from year to year … and depends on the economy.

But overtime these companies have – 10, 5, 3, and 1 year dividend growth rate averages that range anywhere from 5% to 7%.

Some years they may raise over 6% while other years they may be slightly below.

This 6% annual increase is a huge reason why our dividend income compounds and grows on its own every year.

Step 4 – P/E Under 30

I used to get hung up on only investing in companies with a price to earnings ratio under 20.

In today’s market with interest rates so low … that is very hard to find.

Nowadays I don’t look at the P/E that much … especially for stocks to buy and hold forever. For foundational stocks, I just try and make sure the P/E is under 30 before making a purchase.

Since my strategy is to hopefully never sell these companies and earn dividend income … what’s the difference if I buy today or wait until the P/E drops?

I would be missing out on future dividend income at the very least.

Step 5 – Payout Ratio Less than 60%

The last thing I want to look for is to make sure the dividend payout ratio is around 60% or lower.

Again, just like some of the other metrics listed above … this can fluctuate from year to year.

We just need to make sure that the payout ratio trend is not heading in the wrong direction (well above 60%). That could indicate the company is having to use more and more of it’s earnings to keep that nice 6% dividend growth rate.

And if that is the case … it probably isn’t a good fit for a foundational stock.

5 Best Dividend Stocks to Buy and Hold Forever

Now that we know how I identify the best stocks to buy and hold forever, I’d like to share my list for 2021.

Keep in mind … I am not necessarily actively buying every company on this list right now.

I do own shares of stock in each of these companies however.

And this is a list of companies I would be buying today if I was just starting out building my dividend income portfolio. This is also the list of companies that my oldest son is looking to buy as he begins to build his portfolio.

As always … please don’t take this as advice to buy these companies. It is important to do your own research before investing.

Note – If something changes throughout the year (good or bad), I will certainly update my list.

All of the numbers referenced below were taken from The DRiP Investing Resource Center with data compiled on February 2, 2021.

1 – Johnson & Johnson (JNJ)

My wife and I first purchased shares of Johnson & Johnson in 2010 and have been adding new shares periodically.

Our annual dividend income from the company (as of February 2021) is $238.58.

Over the past decade, this company has become a foundational stock for our portfolio.

Last April (2020), Johnson & Johnson announced a 6.32% dividend increase, which was impressive considering we were in the start of a pandemic.

Not only did the company have a solid dividend increase last year, their dividend history is very strong too!

Take a look at some of the dividend metrics I like to use in my analysis below –

JNJ Dividend Growth Metrics

  • Years of Dividend Growth – 58
  • Current Yield – 2.48%
  • Payout Ratio – 64.64%
  • 5 Year DGR – 6.2%
  • 10 Year DGR – 6.6%

This is about as good as it gets when searching for stocks to buy and hold forever.

From past history, Johnson & Johnson is about as consistent as it comes to raising their dividend each year. For example, take a look at their 5 year growth rate of 6.2% and the 10 year growth rate of 6.6%!

The current yield isn’t too high either … around 2.5%.

The only question right now is the payout ratio close to 65%. We want to make sure they are not using more and more of their earnings to continue raising the dividend by 6% each year.

If I was starting from scratch today building my portfolio, Johnson & Johnson would likely be one of the first companies I would start looking at.

2 – Procter & Gamble (PG)

Just like Johnson & Johnson … we added our first shares of Procter & Gamble to our portfolio back in 2010. Up until 2020, we had been adding additional shares of PG using DRiP (dividend reinvestment).

The company also announced a 6.03% dividend increase last April (2020) … during the start of the craziness! That is about as solid as you can expect from this type of buy and hold dividend stock.

We are set to earn $64.45 in dividends this year from this stock (as of February 2021).

Our plan for 2021 is to start adding new shares to the portfolio again … to continue building this foundation.

Take a look at some of the dividend metrics I like to use in my analysis below –

PG Dividend Growth Metrics

  • Years of Dividend Growth – 64
  • Current Yield – 2.47%
  • Payout Ratio – 59.79%
  • 5 Year DGR – 3.4%
  • 10 Year DGR – 5.2%

Just look at how long Procter & Gamble has been raising their dividend … 64 years straight!

The current yield around 2.5% and the payout ratio close to 60% are what we’d expect for this type of company.

Now the 5 year dividend growth rate average has slowed down some to 3.4%. The 10 year growth rate is a little better averaging 5.2%.

Overall, with the most recent dividend increase (6.03%) and the historical performance of PG … this is a great solid foundational stock.

3 – McDonald’s (MCD)

You are probably starting to see a pattern here …

Just like our previous two stocks, McDonald’s is a company that everyone has heard of (just like Johnson & Johnson and Procter & Gamble). You probably can’t drive down the road too far without seeing one of these restaurants or a billboard for a McDonald’s.

We purchased our first shares of MCD back in 2010 (see another pattern) … and have been earning dividend income ever since.

Our annual dividend income from the company (as of February 2021) is $210.71.

Last October (2020), the company announced a 3.20% dividend increase.

Take a look at some of the dividend metrics I like to use in my analysis below –

MCD Dividend Growth Metrics

  • Years of Dividend Growth – 45
  • Current Yield – 2.48%
  • Payout Ratio – 78.78%
  • 5 Year DGR – 7.9%
  • 10 Year DGR – 8.4%

McDonald’s has been a solid foundational stock over the past decade … with a 8.4% average dividend growth rate. The company has a slightly lower 5 year average growth rate at 7.9%.

The current yield around 2.5% and 45 years of dividend growth are also very solid numbers.

One thing we are looking at is the high dividend payout ratio close to 80%. We want to make sure this doesn’t start to move up much higher.

Despite the lower 3.2% increase announced last year and a high payout ratio, McDonald’s may still offer great opportunity as a foundational stock.

4 – Clorox (CLX)

Another well known company that made my list of stocks to buy and hold forever is Clorox. My wife and I bought our first shares in this company back in 2011. We have added a few shares over the years since our initial purchase.

As of February (2021), we are set to earn $165.31 of dividend income from this stock.

Last May (2020), the company announced a 4.72% dividend increase. That is a bit lower than what we’d prefer … but it is still a solid raise during a pandemic!

Take a look at some of the dividend metrics I like to use in my analysis below –

CLX Dividend Growth Metrics

  • Years of Dividend Growth – 43
  • Current Yield – 2.12%
  • Payout Ratio – 49.44%
  • 5 Year DGR – 7.5%
  • 10 Year DGR – 7.5%

The company has a solid history of growing dividends for over 4 decades.

With a payout ratio under 50% and long term dividend growth rates (5 & 10 year) at 7.50% … this could be a great foundational stock for starting a portfolio.

This company has been rock solid during the pandemic. And I don’t know about you, but I can never seem to find Clorox wipes at the stores!

5 – Cincinnati Financial (CINF)

Cincinnati Financial was one of a few companies in the Financials sector that made it out of the Great Recession over a decade ago … without cutting their dividend.

We started adding shares of CINF to our portfolio starting in 2011. During the next several years we made monthly contributions to CINF through the companies direct stock purchase plan.

Today, we earn $246.96 of annual dividend income from the company.

And just last week (January 2021), the company announced a very welcomed 5.0% increase!

Take a look at some of the dividend metrics I like to use in my analysis below –

CINF Dividend Growth Metrics

  • Years of Dividend Growth – 60
  • Current Yield – 2.85%
  • Payout Ratio – 49.48%
  • 5 Year DGR – 5.3%
  • 10 Year DGR – 4.1%

Just look at this company … 60 years of consistent dividend growth!

On top of that … a payout ratio around 50% and a decent current yield of 2.85%.

The longer term dividend growth rates are a slightly bit lower than our ideal number of 6% a year … but this company has been rock solid for our portfolio.

This is certainly on the list of stocks to buy and hold forever that deserves a look if you are starting your portfolio.

Building a Foundation of Dividend Stocks

I didn’t know this really at the time … but when we bought our first shares of JNJ, PG, and MCD back in 2010 … we were building a foundation.

Then we added another layer to the foundation in 2011 when we started adding shares of CLX and CINF to our portfolio.

We have added plenty of other layers to this foundation over the past decade. You can see all of our dividend stock portfolio for more information on what else we own.

These types of stocks that have a moderate current yield, but grow their dividends between 5% to 7% annually can be the building blocks to a solid portfolio.

As my oldest son starts his journey towards building a sustainable dividend income stream … you can bet he will be picking up some of these companies.

What companies would you add to the list of stocks to buy and hold forever?

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