The Best Dividend Stocks for a Lifetime of Passive Income

Some say that death and taxes are the only guarantees in life, but what if there was a third? It could be Procter & Gamble (PG -0.72%) pay a dividend. The consumer staples giant has paid one every year since it was founded in 1890, increasing it every year for 66 years.

You probably want to know if the future is as bright as the past, and you’re in luck. Here are three reasons why Procter & Gamble could pay you for the rest of your life.

1. A treasure chest of resilient brands

Procter & Gamble is a household products conglomerate, which means that the company owns different brands, but they operate and sell under their own identity.

For example, it owns the laundry detergent brand Tide. But you will only see Tide displayed when you see an ad or go to the store and buy it. A small note on the label is the only clue that Procter & Gamble owns the brand.

The company’s dozens of brands include thousands of products. It includes 10 product categories, including over-the-counter medications, cleaning products, hair care, dental products, personal hygiene items, and more. It sells products worldwide, totaling more than $76 billion in annual sales.

PG Revenue (TTM). Data by Y charts. TTM = last 12 months.

Above you can see just how smooth Procter & Gamble’s growth has been over the decades. It has weathered occasional recessions and constant competition from generic brands selling at lower prices. All of this speaks to the brand power of the company.

Having so many brands also gives Procter & Gamble the flexibility to reinvent itself, like in the 2010s, which is why you see a decline in revenue. It sold certain product lines, such as Duracell batteries, to Berkshire Hathaway in 2016 for $2.9 billion in stock. Procter & Gamble can develop brands and then sell them whenever it wants, often raising significant capital.

2. The dividend is the gospel

Few companies can increase their dividend every year for decades; for those who do, the dividend becomes part of their identity. Ask any shareholder why they own shares of a Dividend Aristocrat or a Dividend King (companies with 25 and 50 year dividend growth streaks), and the dividend will likely grow fairly quickly.

Procter & Gamble’s 66-year streak makes it a dividend king and one of the oldest active dividend growth stocks – something management appreciates. Of course, past results are no guarantee of future results, but rather it shows Procter & Gamble’s commitment to the dividend, so investors can be confident that paying is a priority.

Currently, the stock offers a dividend yield of 2.74%.

3. An almost impenetrable track record

Companies do not pay dividends in hope but in cash, so they must be able to pay the cash expenses of paying a dividend and growing those expenses each year. Procter & Gamble has a three-part backstop that virtually guarantees its ability to pay the dividend.

First, it can afford the dividend organically just by using the free cash flow the business generates each year. You can see how much money the bill covers below; the dividend distribution rate is currently only 62%.

PG Free Cash Flow Statement

PG Free Cash Flow. Data by Y charts.

Suppose, hypothetically, the business collapses and cash profits fall. In this case, Procter & Gamble could dip into its balance sheet to cover its short-term dividend. It currently has $8.5 billion in cash on its balance sheet, or about a year of dividends.

The company also has a conservative debt ratio of just 1.5 debt to EBITDA (earnings before interest, tax, depreciation and amortization). In other words, he could easily borrow money if needed.

And if all else fails, Procter & Gamble owns dozens of brands and could eventually sell one or more, which could fetch billions.

The company can easily fund the dividend with existing earnings, so all of that will likely remain in the “what if” part of this discussion.

Takeaway for investors

Procter & Gamble delivers on all aspects of what you’re looking for in a dividend stock. The company’s earnings have proven sustainable over the years, and its many products mean it doesn’t live or die by just one part of its business.

It is highly profitable and has built its corporate culture around sharing those profits with investors. Its dividend growth streak is among the longest on Wall Street.

Perhaps most importantly, Procter & Gamble is financially disciplined, with a strong balance sheet and the bonus of brands it can sell at any time to raise more cash.

Add it all together, and there is perhaps no stock better positioned to pay dividends for the foreseeable future than Procter & Gamble.

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