3 Dividend Stocks That Should Pay You the Rest of Your Life

Markets Motley Fool

It's been proved time and again that long-term investing is better than short-term trading, and when you're talking long-term, nothing's longer than a lifetime. Dividend-paying stocks come and go, but our Motley Fool investors think McDonald's (NYSE: MCD), Realty Income (NYSE: O), and Apple Inc. (NASDAQ: AAPL) are businesses that are perfectly designed to keep dividend checks flowing in the coming decades. Are these stocks right for your income portfolio? Read on to see why they could be perfect dividend stocks to buy for the long haul.

Continue Reading Below

Fast food for life

Demitri Kalogeropoulos (McDonald's): Local and regional burger joints come and go. Yet McDonald's, with its 36,000 restaurants around the world, still dominates the industry decades after it first established itself as a leader in fast food.

It helps to own a portfolio of iconic sandwich products including the Big Mac and Egg McMuffin. But even more important is the company's ability to constantly adjust its business to meet changing customer demands. In just the past few years, Mickey D's has modernized thousands of its restaurants, added all-day breakfast options, and taken big steps to improve its nutrition and food-preparation methods.

The results speak for themselves. Comparable-store sales spiked nearly 7% last quarter and the company saw an encouraging uptick in customer traffic even while profits soared.

Meanwhile, the company's franchised business model helps it deliver a level of profitability that smaller, less established chains can't hope to match. Revenue was flat in 2016, but operating margin still jumped to 31.5% of sales from 28% in the prior year. 

Continue Reading Below

Management is aiming to get that number into the mid-40% range over the long term with help from a refranchising initiative that will push its company-owned locations to 5% of the base from 15% today. In the meantime, more menu improvements are on the way. The pioneer of the drive-through is also now looking at digital ordering and delivery as a major growth opportunity for the years ahead. That's yet another example of the company's eagerness to adapt along with its market and helps explain why its dividend has risen in each of the past 41 straight years despite huge changes in the industry.

The rent's never too high when you're collecting it

Dan Caplinger (Realty Income): Real estate investment trusts are great ways to collect income, and one of the longest-lived REITs in the market has built up a reputation for treating shareholders right. Realty Income bills itself as The Monthly Dividend Company, owning thousands of rental properties and leasing them out to its tenants. For nearly half a century, the REIT has paid monthly dividends to its investors, and for close to 20 years in a row, Realty Income has boosted its payout every quarter.

Some investors fear that the REIT industry might prove vulnerable to changing trends, especially in the retail space that is Realty Income's bread and butter. Yet the company tends to focus on tenants that are protected from some of the headwinds that have hit retail more broadly, such as retailers of key consumer staples products, deep-discounters, and service-based companies that establish themselves in retail properties such as fitness clubs and movie theaters. That philosophy has worked well for Realty Income in the past and should continue to do so going forward.

Right now, Realty Income has a yield of almost 4.5%, which is well above the average for the overall market. If you want reliable income for the rest of your life, give Realty Income a closer look and see if it will fit well in your investment portfolio.

Cash, cash, plus more cash

Todd Campbell (Apple Inc.): Perhaps, the best measures of a company's ability to fund dividends for the long haul is its cash on hand and cash dividend payout ratio. In both instances, it's hard to find a more attractive business to buy than consumer electronics titan Apple Inc.

Apple is best known for its iconic iPhone, but it may be even better known to investors for its bulletproof balance sheet. Exiting the second quarter of 2017, Apple had $15 billion in cash, $52 billion in short-term marketable securities, and $190 billion (yes, billion) in long-term securities. That's an envy-inspiring war chest.

The cash dividend payout ratio is one my favorite ways to determine if a company's cash flow is big enough to support its dividend payments long-term. It measures how much cash flow, minus capital expenses and preferred dividends, is spent on common dividends. In Apple's case, the ratio suggests there's little risk that the company will disappoint income investors. Apple paid out only 24.5% of its cash flow on common dividends during the past 12 months, suggesting there's plenty of wiggle room to support future dividend increases.

In May, Apple announced that it's increasing the amount of money it's returning to investors by $50 billion, bringing the total it plans to spend by March 2019 to $300 billion. Most of this money will go to share buybacks, boosting earnings per share in the process, but some of the money will be used for dividend increases. Last quarter, it increased its quarterly dividend by 10.5%, and currently its shares yield a healthy 1.6%.

Overall, Apple built its cash stockpile by selling lots of high-margin laptops, iPhones, and smartwatches, and in my view, there's little evidence that demand for its products is waning. Instead, demand may accelerate with the upcoming launch of the company's next-generation smartphone and watch. If it does, then Apple's cash flow will provide even more dividend-friendly financial firepower, making this a top dividend stock to own for the long term.

10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Dan Caplinger owns shares of Apple. Demitrios Kalogeropoulos owns shares of Apple and McDonald's. Todd Campbell owns shares of Apple. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.