3 Dividend Stocks to Buy and Hold for the Next 5 Years

Most of the time, buying a dividend stock is a long-term commitment. It's not that these stocks can't do well enough in the short run. Their chief purpose and performance, however, is often rooted in steady, cumulative progress that takes a while to start paying off in earnest.

Every now and then, though, a shorter-term reason to own a dividend stock surfaces. In addition to their income potential, the underlying tickers themselves are undervalued and ripe for capital gains typically not expected of dividend-paying names.

With that backdrop in place, here's a closer look at three dividend stocks you might want to step into, as long as you start with a five-year mindset. If you choose to do so down the road, of course, you can always decide to stick with them well beyond the five-year mark.

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Home Depot

It's no secret why Home Depot (NYSE: HD) shares haven't made any net progress for the past five years. Although the home improvement retailer's stock soared during and because of the COVID-19 pandemic, spending on home improvements and homebuilding itself remains anemic. The U.S. Census Bureau reports that, as of July, residential housing starts and completions are both now near or at multiyear lows. And Home Depot's recently reported Q2 same-store sales were up only 1.7%, and 1.3% in the U.S., with much of that modest growth simply the result of higher prices. Moreover, with home prices and mortgage rates both still outrageously high, it doesn't feel like accelerated growth is on the near-term horizon either.

As the old adage goes, though, it's always darkest before dawn.

It's difficult to remember or believe when you're in the trough, but the economy -- and even different aspects of the economy -- are highly cyclical. Things seem tough right now, but market dynamics do eventually dictate change.

The stage is set for change from a big chunk of Home Depot's business, too. That's homebuilding. Data recently gathered by the Congressional Research Service indicates that the U.S. needs on the order of an additional 4 million to 5 million homes to meet actual demand. Although homebuilding starts are still currently at multiyear lows, they may also be near a cyclical bottom. It's also worth noting that average home prices and median home prices of homes being sold in the United States have actually been slowly drifting lower for three years now, according to the Census Bureau and U.S. Department of Housing and Urban Development. Both measures are now on the verge of falling back under pre-2021 levels, in fact, when prices first reached untenable levels.

Only time will tell how close the residential construction market and Home Depot stock are to their respective bottoms. You'd be plugging into a forward-looking dividend yield of 2.8% in the meantime, though, which certainly makes it easier to remain patient waiting on the eventual recovery.

McDonald's

One would think a value-oriented brand like fast-food restaurant chain McDonald's (NYSE: MCD) would thrive when money is tight, and consumers are pinching pennies. That's certainly been the case in the past anyway.

In light of last quarter's results, however, it's clear that McDonald's simply missed the mark. Companywide same-store sales only improved 1.3% year over year, while comparable sales in the United States were only up 0.8%. And like Home Depot, at least some of that sales growth is attributable to price increases. CEO Christopher Kempczinski also conceded during the Q2 earnings conference call that, "although we've restored our overall value and affordability leadership, our restaurant level results show that execution was inconsistent across the system."

Investors seemed to see it coming well beforehand, though. The share price peaked all the way back in February and is now down more than 20% from that high, and it is still near a two-year low.

Once again, however, it's always darkest before dawn. Last quarter's lackluster results appear to be a wake-up call for McDonald's management team. As CFO Ian Borden commented during the Q2 earnings call, "we're acting with urgency to improve our baseline guest traffic and put the U.S. business in a stronger position as we exit 2026."

Investors looking to capitalize on this stock's impending, growth-driven recovery will be stepping into a forward-looking yield of 2.8%. And that's based on a dividend, by the way, that's now been raised for 49 consecutive years. There's no end to the streak in sight, either, given that a large portion of McDonald's cash flow comes from the rent its franchisees pay, regardless of how well or poorly their restaurants perform.

Johnson & Johnson

Last but not least, add Johnson & Johnson (NYSE: JNJ) to your list of dividend stocks to buy and hold for the next five years.

There's no denying you can do better than its forward-looking yield of only 2%. So, if you need more income right out of the gate, by all means, look elsewhere.

If you're looking for a balance of income and growth potential, however, Johnson & Johnson brings some of both to the table even after its 92% run-up from early last-year's low -- that rally still doesn't fully reflect what's likely in store in the foreseeable future.

Simply put, J&J is looking to become an oncology titan. Specifically, it aims to grow its cancer drug business from around $30 billion annually to at least $50 billion by 2030, making it the largest player in oncology.

The thing is, it can do it. Through a combination of strategies that includes expanded approvals of existing treatments like Darzalex (which achieved year-over-year reported revenue growth of 19% in Q2), partnerships like the one that brought Carvykti into its portfolio, and outright acquisitions like last year's purchase of Halda Therapeutics that gave it clinical stage prostate cancer drug HLD-0915, that $50 billion mark is more than achievable by 2030.

And that's just oncology. Johnson & Johnson is also turning up the heat on its medical technology business. Just a few days ago, the company announced the FDA had cleared the latest version of the software used by its robotically assisted bronchoscopy platform called the Monarch. It's the fourth launch of new Monarch technology in the past year and a half, with this latest one also integrating Johnson & Johnson's digital learning ecosystem called Polyphonic.

The point is, J&J is finally reinventing itself following a slow exit from the impact of the COVID-19 pandemic.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2028 $320 calls on McDonald's and short January 2028 $340 calls on McDonald's. The Motley Fool has a disclosure policy.