2 Dividend Stocks to Hold for the Next 20 Years

If you're buying dividend stocks to hold for the next 20 years, investing in businesses that generate robust cash flows is ideal. You also want to prioritize companies that can grow their dividend. The long-term growth, combined with reinvesting dividends in more shares of the stock, can turn even a small starting yield into serious long-term income.

Some of the best dividend growers are in the technology sector. Here are two industry leaders built to compound cash flow and dividends for decades.

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Microsoft

Microsoft's (NASDAQ: MSFT) dividend yield is just 0.84%, below the S&P 500 average of just over 1%. But what you're getting in exchange for a small yield today is tremendous dividend growth. Its quarterly payment has more than doubled over the past decade, translating into about 10% annualized dividend growth.

Microsoft has increased its dividend since 2004, and its subscription-driven model makes it perfect for dividend growth investors. Millions of customers pay recurring fees for Microsoft 365 and other enterprise tools on the Azure cloud platform. This leads to steady free cash flow that supports consistent dividend increases.

Microsoft Cloud revenue grew 26% year over year last quarter, surpassing $51 billion. High-margin software and cloud services continue to support profitability, with adjusted (non-GAAP) net income up 21% year over year. Even while investing heavily in artificial intelligence (AI), Microsoft returned only 32% of its free cash flow in dividends over the past year. This provides ample room to grow the dividend.

Analysts project Microsoft to grow earnings by 14% annually over the coming years, and its dividend could grow at a similar rate. Given Microsoft's scale, customer lock-in, and AI positioning, there's a reasonable case that long-term expectations could prove conservative, which would only strengthen the company's ability to keep raising its dividend.

Broadcom

Broadcom (NASDAQ: AVGO) also offers a below-average yield of 0.70%, but it is well positioned for significant upside in the AI data center market. Its trailing-12-month dividend has increased over 10-fold in the last decade to $2.36 per share, and there's room for meaningful growth over the next 20 years.

Broadcom supplies specialized semiconductors and networking components for several markets, including data centers, wireless devices, and automotive. These are high-value products that give the company pricing power and healthy margins. Over the last year, Broadcom generated $27 billion in free cash flow, representing a sky-high 42% margin on revenue.

Broadcom paid out 41% of free cash flow over the past year and has increased the dividend for 15 consecutive years. It recently announced a 10% dividend increase, and it should keep the streak going. Analysts are projecting Broadcom's earnings to grow at an annualized rate of 31% in the coming years, driven by surging demand for its highly customized chips and networking products for data centers.

Both Microsoft and Broadcom offer significant share price appreciation and dividend growth, making them excellent long-term investments.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.