2 Outstanding Dividend Stocks to Buy and Hold for 10 Years

Dividend investing will never go out of style. It's one of the best ways to take advantage of the magic of compounding (by reinvesting dividends), which can significantly boost long-term returns. And there is evidence that, over the past few decades, dividend-paying stocks have significantly outperformed non-dividend payers. But choosing a random income stock won't do -- they aren't all created equal. Let's consider two dividend-paying companies that look like excellent long-term picks: Johnson & Johnson (NYSE:JNJ) and Merck (NYSE:MRK).

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1. Johnson & Johnson

So far, it has been a good year for Johnson & Johnson, with the stock climbing 28%, compared to the S&P 500's 10% gain. One key reason for the company's performance is its strong financial results. Despite patent cliffs and government drug price negotiations, Johnson & Johnson is growing its revenue and earnings at a good clip. Second-quarter sales came in at $25.3 billion, up 6.6% year over year, while its adjusted earnings per share climbed 4.7% year over year to $2.90. Johnson & Johnson's recent financial results highlight its ability to overcome challenges.

It is doing so partly thanks to a large and diversified product lineup across pharmaceuticals and medical devices. It's difficult to find many healthcare companies more diversified than Johnson & Johnson, and that can help it perform well over the long run. Johnson & Johnson also continues to demonstrate its innovative abilities. The company's recent approvals include ICOTYDE, a medicine for plaque psoriasis, while its Ottava robotic-assisted surgery system, which could become an important growth driver down the road, has received marketing authorization.

Johnson & Johnson's pipeline features several dozen ongoing clinical trials, including some brand-new promising products. Beyond its core business, there has been some good news for Johnson & Johnson on other fronts recently. For instance, the company has moved closer to settling thousands of the talc-based lawsuits that have been a significant risk to the business for years. That's great news for investors.

Now turning to Johnson & Johnson's dividend program, it is also exceptional. The company has increased its payouts for 64 consecutive years, making it a Dividend King -- or a corporation with 50 consecutive years of dividend increases, at a minimum. Expect Johnson & Johnson to maintain healthy dividend growth over the next decade and deliver competitive returns, especially for those who reinvest dividends.

2. Merck

Merck should face increased competition for Keytruda, its biggest growth driver, moving forward. And the cancer drug will lose patent exclusivity by 2028. Meanwhile, the company's vaccine business, led by the HPV vaccines Gardasil and Gardasil 9 (which have sometimes been its most important products after Keytruda), has also faced headwinds in recent years. Can the stock really perform well through 2036? Yes, it can, and here is why.

Merck has already formulated a plan that should help it overcome the massive Keytruda patent cliff. It has earned approval for a subcutaneous formulation of the medicine -- called Keytruda Qlex -- that is much faster to administer and will help it retain patients beyond the original formulation's patent cliff. Merck has also earned approval for several new products that will help smooth out Keytruda-related losses.

Consider the company's second-quarter results. Its revenue increased 5% year over year to $16.6 billion. Sales of Winrevair, a recently approved treatment for pulmonary arterial hypertension, jumped 75% year over year to $588 million. Revenue from Capvaxive, a newer vaccine approved for pneumonia, climbed 42% year over year to $184 million. Further, Merck has several exciting pipeline candidates, including a personalized mRNA-based cancer vaccine it is developing with Moderna (NASDAQ:MRNA) that recently aced a phase 3 clinical trial in patients with melanoma. Merck should successfully navigate the Keytruda patent cliff, even if its sales initially decline, and perform well long after while still rewarding shareholders with regular dividend increases. Merck has increased its payouts by 93.79% over the past 10 years.

Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool has positions in and recommends Merck and Moderna. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.