7 Big Dividend Paying Stocks to Hold Forever

Within equities as an asset class, there can be a broad classification of growth and income investors. Growth investors seek to find opportunities in high growth business ideas. In general, a portfolio of growth stocks would have a high-beta. Further, there are dividend investors who look for stable businesses with robust cash flows. Income investors prefer to hold dividend paying stocks. Typically, a portfolio of dividend paying stocks have a low-beta.

However, the best strategy is to remain diversified. Overexposure to high-beta stocks can negatively impact the portfolio in a sharp downside. Going overweight on low-beta and high-dividend stocks does make the portfolio defensive. However, in times of high inflation, there can be a potential risk of returns that fail to beat inflation.

My focus in this column is on high-quality dividend stocks that investors can buy and hold forever. Besides potential for sustained dividends and possible dividend growth, I have focused on stocks that also seem undervalued.

Investors can therefore expect regular cash flows and there is a possibility of decent capital gains. Let’s take a deeper look into seven dividend paying stocks that are worth buying at current levels.

  • Intel (NASDAQ:INTC)
  • Apple (NASDAQ:AAPL)
  • Lockheed Martin (NYSE:LMT)
  • Altria (NYSE:MO)
  • Target Corporation (NYSE:TGT)
  • Pfizer (NYSE:PFE)
  • Chevron (NYSE:CVX)

Big Dividend Paying Stocks to Hold Forever: Intel (INTC)

Close up of Intel sign at their San Jose campus in Silicon Valley

Source: Sundry Photography / Shutterstock.com

There are several reasons to like INTC stock. First and foremost, the stock has remained sideways for the last 12-months. At a forward price-to-earnings-ratio of less than 10, the stock is attractive. Intel recently announced that Mobileye will go public in mid-2022. That’s a key near-term positive catalyst for stock upside.

Furthermore, INTC stock offers investors an annual dividend of $1.39, which implies a healthy yield of 2.75%. Intel has also guided for potential increase in dividends in the coming years.

It’s worth noting that for 2022, Intel plans to invest $25 billion to $28 billion. The company further plans to increase investments beyond 2022. This is likely to translate into revenue and earnings growth in the coming years. The company is looking at revenue growth at a CAGR of 10% to 12% over the next five-years.

Overall, Intel has been a laggard in the last few years and has lost market share. That’s likely to reverse with the company investing in innovation. Further, new chip factories in Arizona and potentially in Europe will address the chip shortage.

Apple (AAPL)

Apple (AAPL) stock information in a magnifying glass.

Source: dennizn / Shutterstock.com

I would include Apple among the top dividend paying stocks. Currently, AAPL stock has an annual dividend of 88 cents and a dividend yield of 0.49%. This might not sound very attractive.

However, the key point here is that Apple is still on a healthy growth trajectory. I would not be surprised if dividend growth sustains in the coming years. The stock is therefore a quality name among high dividend growth stocks.

In terms of business development, Apple has been increasingly diversified in the recent past. iPhone remains the cash cow. At the same time, the wearable and services business have gained significant traction. Emerging businesses are likely to ensure that healthy growth sustains.

It’s also worth noting that Apple has products lined-up that include virtual reality, augmented reality and electric vehicles. The business outlook is therefore robust and Apple has ample financial flexibility to pursue aggressive growth.

From a financial perspective, Apple reported operating cash flow of $104 billion for the last financial year. Robust cash flows will ensure strong dividend growth and value creation through share repurchases.

Overall, AAPL stock has trended higher in the recent past. The rally is likely to sustain on growth expectations. Additionally, dividend investors will increasingly find the stock worth holding.

Big Dividend Paying Stocks to Hold Forever: Lockheed Martin (LMT)

A Lockheed Martin (LMT) Space Systems sign in Sunnyvale, California.

Source: Ken Wolter / Shutterstock.com

Even in the pandemic year, global defense spending increased. For 2020, defense spending was $2 trillion. It’s clear that the sector will continue to grow even with macro-economic headwinds.

This factor makes Lockheed Martin among the top dividend paying stocks to hold. Currently, LMT stock offers an annualized dividend of $11.20, which implies an attractive yield of 3.25%.

It’s also worth noting that LMT stock trades at a forward price-to-earnings (P/E) ratio of 12.9. Valuations are attractive and investors can expect stock upside besides healthy dividends.

Lockheed Martin reported a total order backlog of $134 billion as of Q3 2021. This provides clear cash flow visibility. For 2022, the company has already guided for sales of $66 billion and operating cash flow of $8.4 billion.

These projections exclude the completion of acquisition of Aerojet Rocketdyne, which will complete in first quarter 2022. The acquisition will add to the company’s backlog and potential earnings growth.

Another important point to note is that Lockheed has been increasingly diversifying outside the United States. As an example, Lockheed is bidding for a $19 billion Canadian dollar fighter jet contract. Order growth from NATO and Allies will ensure that cash flow visibility remains robust.

Altria (MO)

a sign with the Altria (MO) logo

Source: Kristi Blokhin / Shutterstock.com

Altria is another high-quality dividend stock that also trades at an attractive valuation. Currently, MO stock trades at a forward P/E of 9.8 and offers investors a dividend yield of 7.98%.

Altria has been in a phase of business transformation and growth uncertainties have kept the stock depressed. However, there are two important points to note.

First, even with the company’s gradual shift toward non-combustible tobacco products, Altria continues to generate robust cash flows. In the smokable product segment, Marlboro remains the cash cow.

Revenue from this segment will ensure that dividends remain at current levels. For the first nine months of 2021, Altria reported operating cash flow (OCF) of $5.7 billion. This would imply an annualized OCF of nearly $8.0 billion.

Further, the company’s non-combustible product segment is gradually gaining traction. The company’s oral tobacco brand is available for distribution in over 110,000 stores in the U.S. Additionally, for Q3 2021, Marlboro Heat Sticks witnessed 20% growth in sales volume sequentially. In the coming years, the segment is likely to drive growth.

Altria also has exposure to the cannabis business through stake in Cronos (NASDAQ:CRON). A possible Federal level legalization of cannabis would be a game-changer.

Big Dividend Paying Stocks to Hold Forever: Target Corporation (TGT)

Image of the Target (TGT) logo on a storefront.

Source: jejim / Shutterstock.com

A key growth driver for the U.S. economy is consumption spending. Within this, retail spending is significant. Therefore, retailers like Target are positioned for steady growth that’s in-sync with GDP growth.

TGT stock is attractive from a dividend perspective. The stock currently offers an annualized dividend of $3.60, which implies a healthy yield of 1.5% at current levels. Additionally, Target has witnessed healthy growth and dividend upside is likely in the coming years.

With changing times, Target has built a strong omni-channel sales platform. This has helped in boosting comparable store sales growth. For Q3 2021, the company reported comparable store sales growth of 12.7%. For the same period, digital comp store sales increased by 29%.

Target has also committed to invest $4 billion annually over the next few years. The investment will be targeted towards boosting the company’s capabilities across its retail platform. These investments are likely to ensure that comparable store sales growth is healthy.

For the first nine months of 2021, Target reported operating cash flow of $5.6 billion. For the same period, the company’s capital expenditure was $2.5 billion. With free cash flows of $3.1 billion, there is ample visibility for dividends and share repurchase.

Pfizer (PFE)

blue Pfizer (PFE) logo on the windows of a corporate building

Source: photobyphm / Shutterstock.com

I rate Pfizer as another high-quality name among dividend paying stocks. I also believe that PFE stock has impending upside from a forward P/E of 12.5x.

From the perspective of dividends, the stock has an annualized pay-out of $1.60, which implies a dividend yield of 3.0%. There are two important reasons to believe that dividend growth is likely in the next few years.

First, Pfizer continues to generate robust cash flows from the Covid-19 vaccine. The company has a healthy order backlog for 2022. Additionally, there is a strong case for a booster dose with the omicron variant creating concerns. This will add to the cash flow potential.

Further, Pfizer has a deep pipeline of drugs in Phase 2 and Phase 3 clinical trials. The company has guided for 6% revenue growth and double-digit EPS growth through 2025. The innovation pipeline is likely to ensure that cash flows swell and dividends increase.

Additionally, Pfizer has ample financial flexibility to pursue external, or inorganic, growth. In August 2021, the company acquired Trillium Therapeutics. This will boost the company’s oncology pipeline.

Overall, considering the growth potential, PFE stock looks attractive at current levels. For income investors, there is visibility for sustained upside in dividends.

PFE stock also shows up in the top holdings of several top-performing high-dividend exchange-traded funds, including SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA:SPYD) and the Vanguard Dividend Appreciation Index Fund ETF Shares (NYSEARCA:VIG).

Big Dividend Paying Stocks to Hold Forever: Chevron Corporation (CVX)

Chevron has Put a Priority on Protecting Its Big, Fat Dividend

Source: Denis Kuvaev / Shutterstock.com

Chevron is among the dividend champions from the oil and gas sector. Even with the recent decline in oil price, CVX stock looks positioned to sustain dividends.

Additionally, as economic growth gains traction globally, oil is likely to remain firm. Chevron seems positioned for healthy cash flows in the coming years. Currently, CVX stock offers a healthy dividend pay-out of $5.36 . This implies a yield of 4.53%.

One reason to be bullish on Chevron is low break-even assets. Even at $60 per barrel oil, the company expects excess cash (after dividends and capital expenditure) of $25 billion.

It’s also worth noting that between 2016 and 2020, Chevron reported reserve replacement ratio of 99%. With a strong reserve base coupled with the advantage of low break-even assets, Chevron is positioned to deliver steady cash flows.

At the same time, Chevron is also investing in renewable energy. Excess cash buffer will allow the company to accelerate renewable investments and create a diversified portfolio of assets.

Overall, CVX stock looks attractive at a forward P/E of 14.0. Visibility for dividend growth and stock upside makes the stock among the top names to consider.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.