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

MarketsMotley Fool

Buying and holding great dividend stocks is the best way to predictably generate wealth over the long term. In fact, some of the world's greatest investors advocate buying stocks that you would only be comfortable holding indefinitely.

But finding such stocks is easier said than done. So to help get you started, we asked three top Motley Fool investors to each pick a dividend stock that should pay you for the rest of your life. Read on to see why they chose Corning (NYSE: GLW), Johnson & Johnson (NYSE: JNJ), and American Water Works (NYSE: AWK).

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An enduring tech leader

Steve Symington (Corning): Successfully navigating multiple tech revolutions since it was founded in 1851, glass technologist Corning arguably knows more about how to survive and thrive than any other publicly traded company on the market today.

And Corning's long-term success is more than just luck. Rather, it rewards shareholders by striking a balance between generous capital returns and embracing innovation to consistently drive incremental revenue and earnings. Under Corning's current strategic and capital allocation framework -- a four-year initiative unveiled in late 2015 -- the company is on track to meet its goal of returning more than $12.5 billion to shareholders through dividends and stock repurchases, while simultaneously investing $10 billion in the business toward capturing future growth opportunities. And management has pledged that they will increase the company's dividend by at least 10% annually through the end of 2019 -- a pattern they'll almost certainly extend when that time comes.

But Corning has also pulled back hard both as investors took profits after its latest strong quarterly report in late January, and as the broader market plunged in recent days, dragging many high-flying tech names down with it. For patient, long-term investors who are looking for a steady dividend payer, I think this is a perfect chance to open or add to a position in Corning.

The most complete business on the planet

Sean Williams (Johnson & Johnson): While no stock is without risks, healthcare conglomerate Johnson & Johnson might just be the market's most complete business.

Johnson & Johnson isn't just a giant healthcare company. It's actually composed of more than 260 businesses and three operating segments that work in harmony under the J&J brand. Having so many businesses allows Johnson & Johnson to acquire new companies, therapies, and devices, to help complement what it already owns or to divest slower-growing assets without disrupting its larger business.

Further, each operating segment serves its own purpose. Pharmaceuticals, which is the largest revenue contributor, is where you'll find the bulk of J&J's growth, margins, and pricing power. Meanwhile, medical devices is currently a slow-growth and somewhat commoditized segment that's a perfect play on an aging domestic and global population. Finally, consumer health products is a slow-growth division with strong brand-name products, modest pricing power, and very predictable cash flow.

J&J also brings inelasticity to the table. In other words, even though some of its consumer health products could see sales pressure if the U.S. economy struggles, its pharmaceutical and medical device sales should be strong considering that consumers have no control over what ailments they develop. Therefore, demand for pharmaceuticals and devices remains uninterrupted. If anything, as the population grows and ages, J&J's moat should get even stronger.

What income investors get with Johnson & Johnson is one of just two companies left with a AAA credit rating – that's higher than the U.S. government – and the ability to generate $12 billion or more in annual free cash flow. It also has a payout ratio of just 57%, suggesting plenty of room to increase its dividend in the years to come, and a 55-year streak of having increased its stipend. You can count on two hands how many other companies have a longer ongoing streak.

For all of these reasons, J&J is a good bet to pay a dividend for as long as you live.

A water utility for the win

Maxx Chatsko (American Water Works): The largest publicly traded water utility is down 14% year to date, which is a considerable drop for the stock. That's because growth is all but guaranteed in the heavily regulated industry. The company shells out a sizable amount of its cash flow to pay for infrastructure improvements across its asset base, then regulators award it with approved rate increases it can charge customers for a certain period of time. Rinse, repeat, accrue.

The remainder of its cash flow is returned to investors in the form of dividend payments and share repurchases. It's a lucrative setup. In fact, American Water Works nearly doubled the amount of cash distributed to investors from 2013 to 2017. It could get even better in the years ahead.

American Water Works is gearing up to invest $7 billion in infrastructure improvements between 2018 and 2022. That will go a long way toward obtaining the next round of rate increases from regulators, which will provide incremental income improvements capable of compounding over the long term -- much as investors have enjoyed in the last decade.

Of course, it's worth pointing out that the investment isn't without flaws. For instance, American Water Works stock -- as with most water stocks -- is relatively expensive compared to the broader market. The dividend yield of 2.1% also lags that of the S&P 500. But that's the price to pay for guaranteed growth over the long haul. If that's what you're looking for, then consider adding this to your portfolio.

The bottom line

There's no way to guarantee that these three stocks will pay dividends for as long as you live. But whether we're talking about Corning's innovation and long-term mindset, Johnson & Johnson's enviable diversified portfolio of businesses, or American Water Works' market leadership in an essential industry, they're as close to a sure thing as it comes to that end.

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Maxx Chatsko has no position in any of the stocks mentioned. Sean Williams has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.