3 Dividend Stocks to Hold for the Next 20 Years

When it comes to finding the top dividend stocks to buy and hold, many investors take one of two routes. Either they focus on high-yield dividend stocks or on stocks with long, established dividend growth records.

While both strategies are valid, they each have flaws. For instance, an overemphasis on yield could lead you to own many stocks that turn out to be "yield traps" or "value traps," weighing down your portfolio's long-term total returns.

In the case of long-standing dividend growth stocks, you could be paying too high a valuation premium, and/or focusing too much on mature businesses that are more limited in their future dividend growth potential.

With this in mind, you may want to consider a third route: Focus on stocks that could be dividend royalty in the making. These stocks are prime examples: Mastercard (NYSE: MA), Microsoft (NASDAQ: MSFT), and Philip Morris International (NYSE: PM).

Image source: Getty Images.

Mastercard: A financial tollbooth on a dividend growth streak

Mastercard, along with competitors like Visa, operates under a tollbooth-style business model. Rather than being the bank issuing the credit cards and taking on the credit risk, payment processing network operators like this one generate fees from the trillions of personal and business transactions completed using credit and debit cards.

This not only creates a steady, high-margin revenue stream. It also opens the door for elevated growth, as payment transactions around the globe shift from cash-based to card- and digitally based. With this, it's not surprising that Mastercard shares have handily outperformed the S&P 500 in the last decade.

Mastercard has experienced 14 years of consecutive dividend growth. Quarterly dividends have gone from less than $0.01 per share in 2006 to $0.87 per share today.

In recent years, annual dividend growth has averaged 10% to 15%. If this trend continues, Mastercard, with a forward yield of 0.7%, could produce a tremendous yield on your long-term position in the stock.

Don't sleep on Microsoft's dividend growth potential

When you think of Microsoft, the tech giant's generative artificial intelligence (GenAI) tailwinds may be what first come to mind. However, even if Microsoft's AI-related growth slows down in the years ahead, the company's strength as a dividend growth stock could persist.

With 24 years of dividend growth under its belt, Microsoft is nearly halfway to becoming a Dividend King. Dividend Kings are stocks with at least 50 years of consecutive dividend growth. Microsoft's forward dividend yield may be 0.9%, but if Microsoft's current rate of dividend growth persists, its quarterly payouts could become a greater contributor to overall returns.

In recent years, annual dividend growth has averaged over 10%. Relatively high levels of dividend growth may be sustainable, even if earnings growth starts slowing down from current levels exceeding 20%.

With its payout ratio currently at around 21%, Microsoft has plenty of room to allocate even more of its free cash flow to dividends, especially as AI growth slows down, and the company starts taking its foot off the gas in terms of AI-related capital expenditures.

Philip Morris International -- from smokeless leader to Dividend King?

Philip Morris International is another stock that debuted in the 2000s and has since become one of the blue chip dividend stocks. When former parent company Altria Group spun off Philip Morris International, or PMI for short, the Swiss-based tobacco company focused primarily on selling Marlboro and other cigarette brands outside the United States.

Since going public, however, PMI has diversified heavily into "smokeless" tobacco and nicotine products. First, the company launched its IQOS heated tobacco product. Then, after acquiring Swedish Match, PMI became the company behind the popular Zyn line of nicotine pouches. Last year, smoke-free products produced net revenues of $16.9 billion, representing 41.5% of total net sales.

Currently, Philip Morris International shares sport a moderately high 3.1% forward dividend yield. The stock has 18 years of consecutive dividend growth under its belt. I wouldn't rule out its potential to become one of the Dividend Kings, as smokers continue to transition from cigarettes to smoke-free cigarettes and nicotine product alternatives.

Annual dividend growth came in at 6.4% last year. Further mid-single-digit growth could persist, especially as earnings continue to grow at a double-digit clip.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard, Microsoft, and Visa. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.