How To Find Long-Term Dividend Stock Ideas

Sometimes, I hear from investors that are interested in investing, and don’t mind spending a few years per week thinking about stocks, but don’t necessarily have the time or inclination to elevate that commitment to 20+ hours per week. As a result, they want to perform quick screens of stock ideas without actually having to sift through the entirety of the 15,000 publicly available stocks in existence.

If you are interested in companies that will be paying out dividends for years and years to come, and will build significant wealth over time as well, here’s the quick two-step screen I would perform.

First, you gather a list of companies that have been paying dividends for extraordinarily long times, and then you also making a list of companies that have been growing their companies for very long times.

Among the companies that have been paying dividends for very long times, you will see that: Stanley Black & Decker has been paying dividends every year since 1877, the Standard Oil predecessor to ExxonMobil has been paying out dividends since 1882, Consolidated Edison has been paying out dividends since 1885, Procter & Gamble has been paying out dividends since 1890, Coca-Cola has been paying out dividends to its private Atlanta shareholders since 1893 and has been paying a quarterly dividend since shortly after its IPO in 1920, Colgate-Palmolive has been paying out dividends every year since 1895, and Dupont has been giving shareholders some money every year since 1904. And the list can be as deep as you’d like.

Then, as another pool of potential investments, you’d look to the companies that have been raising their dividends every year for 50+ years. Lists like that will reveal Coca-Cola, Procter & Gamble, 3M, Parker-Hannifin, Genuine Parts, Emerson Electric, Northwest Natural Gas, Dover, American States Water, Diebold, and a few others.

Once you have a list of companies that have been paying out dividends for a long time and have been raising them for a long-time, the next step is to review their ten-year growth rates in profitability and dividends. This will give you a quick look at whether the company is humming along nicely or if the company is just gasping and huffing as it meanders along clinging to its former glory.

For a couple of examples, Stanley Black & Decker has been growing profits by 7.5% annually over the past decade and raising its dividend by 5.5% annually over the past ten years. That’s good enough to pass our test. Consolidated Edison has been growing profits by 2.0% annually over the past ten years, and been raising its dividend by 1.0% annually over the past decade. That’s not going to pass our test; it’s awesome that the company has been paying out dividends since 1885, but with inflation at 3-4% each year, we are going to want something better than a static company that isn’t really giving you growth.

In the case of Emerson Electric, the earnings have gone up by 7.5% over the past decade and the dividend has gone up by 6.5% annually over that same time period. Given the depths of the economic crisis in 2008 and 2009, and given that Emerson is a cyclical company, I find this fact impressive. For Northwest Natural Gas, the profits and dividends have both grown by 3.5% each year over the past decade, roughly in line with inflation. We can probably do better than that.

For Coca-Cola, profits have grown by 9% over the past ten years and dividends have grown by 10%. This is why people are obsessed with the company. It’s been paying out dividends since the 1890s or 1920s depending on how you draw the distinction between private and public ownership structures in conducting your analysis, and the growth is still impressive a century later. The really is no other company quite like it in the world. This company passes our test.

And then there is stuff like American States Water. If your goal is to preserve wealth, it’s hard to go wrong with a water company (unless you significantly overpay), because a lot of things could go to hell, and people will still pay their water bills. The profits have grown by 6.5% each year for the last decade, and the dividends have increased at a rate slightly better than 3% over that time. That will probably fall in our “take it or leave it” territory—it’s the kind of thing that should make you shrug your shoulders. You can do way worse, but in a world with Johnson & Johnson and Coca-Cola, we can probably do better.

If you are looking for ideas, I think a good starting point is to fuse long dividend histories with the recent historical growth figures. You know you are likely dealing with a quality company if the dividend has been going up each year for decades or has been paid out in some form for 100+ years, and it’s a great way to weed out all of the riff raff that exists among the 15,000 publicly traded stocks out there. But that’s only a first step; from there, you should review recent profitability and dividend histories to see if the company is still doing well. This list isn’t supposed to replace your ability to think; after all, up until recently, Pitney Bowes had been raising its dividend every year since 1980. You had to think and realize that the American mail industry is not a place for long-term investing—investing involves qualitative analysis, and no list can replace that.

On the other side, I think General Electric is one of the most impressive companies in the world, but its dividend cut during the financial crisis when it got caught owning large amounts of bad debt on its balance sheet has removed GE from the consideration of many conservative investors. It hasn’t bothered me because the problematic financial services have been largely removed, but I respect the wisdom of dissenting viewpoints regarding this company.

Instead, this is meant to provide fertile ground for research. If you build a portfolio of companies that have been paying out dividends for long periods of time, and then screen out the ones that haven’t really been growing by more than 3-4% for the past decade or so, then you are going to do fine. It’s not a perfect methodology and it does not mean that every company you buy will do well, but it does mean that recent growth plus long histories is a great way to find fertile ground for investing ideas. When you filter based on ten-year growth histories in addition to very long-term dividend histories, you are combining the best of both worlds by fusing together growth and stability.