5 Dividend Stocks to Hold for the Next 5 Years

Key Points

• The success of many dividend stocks is tied to retail and consumer businesses.

• The tech industry offers surprisingly attractive dividend plays.

• 10 stocks we like better than Target ›

As investors get closer to retirement, they tend to gravitate toward income-producing assets and may start to place a greater emphasis on dividend stocks. This may seem counterintuitive given the 1.2% dividend yield of the S&P 500 and the fact that companies have the right to suspend dividend payments at any time.

Nonetheless, the market offers some safe stocks that yield far more than 1.2%, and often, the condition of some stocks can make cutting dividends a costly move, reducing the likelihood of such an occurrence.

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Knowing those facts, investors tend to seek safe, growing dividends and possibly, some potential for stock price appreciation. While nobody knows what will happen over the next five years, these stocks stand a chance of beating the market while providing significant income.

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Target

Target (NYSE: TGT) operates nearly 2,000 stores across all 50 U.S. states, and over 75% of the U.S. population lives within 10 miles of a Target store. However, Target has faced struggles with supply chains, tariffs, and alienating customers over its changing position on diversity, equity, and inclusion (DEI). That caused the stock to crater, taking its P/E ratio to 11, far below the S&P 500 average of 30.

Still, its annual dividend of $4.56 per share gives it a yield of 4.3%. Target's dividend has risen for 54 straight years, making it a Dividend King. Abandoning that streak could harm Target's reputation, so continued payout hikes are likely. That is good news for shareholders since the low valuation and rising dividend are likely to result in market-beating returns over the next five years.

Realty Income

Realty Income (NYSE: O) owns over 15,600 single-tenant net leased properties, renting space to many of the best-known consumer-oriented businesses. Also, since tenants pay for maintenance, insurance, and taxes, it tends to produce a steady revenue stream.

Realty Income bills itself as "The Monthly Dividend Company," offering shareholders a payout every month since it launched its IPO in 1994. That dividend has also risen at least once per year since that time.

High interest rates have weighed on the stock price, but with an annual payout of almost $3.23 per share, it offers a cash return of 5.5%. As interest rates fall, profits should rise, setting the stock up for a likely recovery.

IBM

After years of stagnation, a hard pivot into artificial intelligence and the cloud seems to have fostered a comeback in International Business Machines (NYSE: IBM) stock. Over the last five years, its stock price has nearly doubled.

Even after struggles in the prior decade, it has maintained a 30-year streak of payout hikes. Its yearly payout of $6.72 amounts to a yield of 2.8%, making it one of the few AI stocks to offer a high-yielding dividend.

Admittedly, revenue growth is mired in the single digits, and investors may sour on the stock with its 38 P/E ratio. But with its technology and growth rates improving, the stock could still be a boon for income investors.

PepsiCo

In addition to its flagship cola, PepsiCo (NASDAQ: PEP) owns drink brands such as Mountain Dew and Gatorade and food products like Quaker and Frito-Lay. Still, competition and a stronger consumer focus on nutrition and freshness have weighed on the company, and more emphasis on healthy ingredients could raise costs.

Fortunately, PepsiCo has risen 17% from its lows earlier in the summer. Price increases may have also kept its financials from cratering.

That may also help preserve the dividend. Its annual payout of $5.69 per share offers a yield of about 3.7%. And a 53-year history of increasing payouts gives PepsiCo Dividend King status, making it likely the payout will continue rising.

AT&T

At first glance, AT&T (NYSE: T) may not look like an excellent income stock. It abandoned a 35-year streak of payout hikes in 2022 as it reeled from costly failed investments in DIRECTV and the former Time Warner.

However, after slashing its payout, it has used the dividend cut and asset sales to pare its debt and refocus on its core wireless and fiber businesses. It benefits from a strong brand, and it faces only two competitors in its core business, bolstering its competitive moat.

The 5G stock has more than doubled from its 2023 low, meaning it has moved far past its post-dividend sell-off. Its annual payout has remained at $1.11 per share since the dividend cut, and with improving prospects and a cash return of 3.9%, AT&T is again becoming an attractive choice for dividend-focused investors.

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Will Healy has positions in Realty Income and Target. The Motley Fool has positions in and recommends International Business Machines, Realty Income, and Target. The Motley Fool has a disclosure policy.