2 Dividend Growth Stocks to Buy and Hold Forever

Key Points

• Companies that generate enough profits to pay and increase dividends are usually great stocks to hold on to.

• Realty Income is a textbook example of the power of dividends when you reinvest them.

• Microsoft is a no-brainer technology behemoth that offers a one-two combination of dividends and price appreciation.

• 10 stocks we like better than Realty Income ›

Dividend stocks are about more than passive income. Ideally, you want some growth, too.

That means finding companies that pay a dividend and steadily raise it over time. Dividend growth is a good sign that the business is doing well, so companies that have long track records of increasing their payouts tend to make you a lot of money if you buy and hold them for long enough.

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But compared to the many thousands of publicly traded companies, the number of reliable dividend growth stocks is relatively small.

Here are two that investors can confidently buy and hold forever.

Image source: Getty Images.

1. Realty Income

Real estate is one of the oldest and most reliable investments money can buy. However, it's difficult for individuals to invest in commercial real estate by themselves. That's where real estate investment trusts (REITs), such as Realty Income (NYSE: O), come into play. A REIT is a publicly traded company that acquires and leases real estate, distributing its income to shareholders as dividends.

Realty Income specializes in single-tenant retail properties, including convenience stores, restaurants, and other types of businesses that people frequently use. That said, the company's real estate portfolio is massive, spanning over 15,600 properties across the United States and Europe, making it one of the 10 largest REITs in the world.

Realty Income's size and reputation afford it cheaper access to capital and attract the best tenants. These help it consistently earn a profitable return on the financial capital it invests, resulting in more profits that the company can distribute to its shareholders. Realty Income pays a monthly dividend, a rarity, and management has increased it for 110 consecutive quarters -- that's over 27 years of uninterrupted dividend growth. The stock yields a whopping 5.5% right now, so it also offers sizable income right away.

The only caveat is that REITs pay nonqualified dividends. That means the U.S. government taxes them at the shareholder level as ordinary income since REITs don't pay corporate income taxes. While Realty Income may not wow you with price appreciation, it operates in a multitrillion-dollar real estate market that paves the way for expansion as the company continuously acquires and leases more properties. You can reinvest the dividends to maximize the compounding effect. Doing so has made Realty Income a market-beating stock over its lifetime, and I don't see why that can't continue.

2. Microsoft

The technology sector isn't always the best place to find dividend stocks. Most technology companies focus on growth, and the rapid pace of innovation makes it difficult for companies to thrive long enough to pay and raise a dividend. Yet, Microsoft (NASDAQ: MSFT) is an exception. The company has raised its dividend for 23 consecutive years, and that streak is likely to continue for the foreseeable future.

Microsoft is one of the world's largest companies, with a diverse business spanning nearly every realm of the technology landscape, including cloud computing, artificial intelligence (AI), computer software, enterprise software, video games, and more. The company is also a financial juggernaut. Despite investing billions of dollars in data centers for AI, Microsoft has still generated over $69 billion in free cash flow over the past year alone.

Much of that finds its way to shareholders as a steadily growing dividend. The stock's yield is currently just 0.66%, but that's because the share price continues to rise, making it a double whammy of passive income and capital gains. The company has increased its dividend by an average of 10.3% annually over the past decade.

Microsoft is probably too large at this point to continue growing like it has over the past few decades, but make no mistake about it -- the company is growing. Analysts anticipate Microsoft's earnings will rise by an average of 11% annually over the long term, which should keep the share price and dividend headed in the right direction for years to come.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Realty Income. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.