3 Dividend Stocks Worth Holding for the Next 5 Years

The S&P 500 index (SNPINDEX: ^GSPC) is sitting near all-time highs, offering dividend investors a skinny little 1% yield. That's not a very attractive income stream if you are trying to live off the dividends your portfolio generates. Rising interest rates and bond yields are pushing investors toward bonds for income, but that may actually be creating a stock buying opportunity for investors who think long term.

Which is why dividend lovers will want to consider high-yielding options like Energy Transfer (NYSE: ET), Realty Income (NYSE: O), and PepsiCo (NASDAQ: PEP), with yields of up to 6.5%. And, notably, each one has been increasing its dividend. Here's a quick look at all of them.

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PepsiCo is working through some headwinds

PepsiCo is one of the world's largest consumer staples companies. It makes snacks, beverages, and packaged food products that are sold globally. It has industry-leading brands, with marketing, distribution, and innovation strengths that few can match. But, it is currently working through a difficult period, with inflation increasing operating costs and belt-tightening consumers pressuring sales. The company is working to better align with consumers, something it has done many times over the last 54 years.

If 54 years seems oddly specific, it is. That's the number of years PepsiCo has increased its dividend, making it a Dividend King. The headwinds the company faces today, including rising interest rates and bond yields, aren't really unusual, and PepsiCo has survived such headwinds before while continuing to reward investors. However, Wall Street is deeply negative on the stock, pushing its yield to a historically high 4.7%. If you have the fortitude to buy while others are selling and hold for five years or more, PepsiCo could turn out to be a great income opportunity at today's prices.

Realty Income has advantaged access to capital

Realty Income's dividend yield is an even higher 6%. The real estate investment trust's (REIT's) shares are coming under extreme pressure as interest rates and bond yields rise, since it uses debt to finance its property purchases. That's a real issue, but one that is likely to be more of an opportunity than a long-term threat. Property markets will eventually adjust to higher rates, allowing buyers to make profitable investments. If they don't, property markets will seize up, a situation that would be unlikely to last very long.

Realty Income benefits from being the largest net-lease REIT (it owns over 15,500 properties) with a globally diversified portfolio (spread across North America and Europe). It also has an investment-grade-rated balance sheet. These facts provide it with easy access to capital markets and the ability to issue relatively low-cost debt. So, even during this difficult period, it has an advantage over its smaller peers.

As a long-term investor, you benefit from Realty Income's slow and steady growth via regular dividend increases. At this point, the monthly pay dividend has been increased for 31 consecutive years. It could be a reliable, foundational investment for even the most conservative dividend investor.

Energy Transfer has repositioned itself for the future

Energy Transfer and its lofty 6.5% yield require a bit more risk tolerance. It cut its dividend in half in 2020 to reduce leverage and shift toward a slow, steady distribution growth model. Some investors may prefer to avoid a business that just recently had a distribution cut. However, the distribution is growing again, with a target of 3%-5% annual increases.

That said, Energy Transfer is one of the largest midstream businesses in North America. It charges fees for the use of its energy infrastructure assets, so the volume of energy flowing through its system is more important than energy prices. With a stronger financial position, it has proven to be a reliable source of income during a volatile period for the energy sector. If you can overlook the 2020 distribution cut, holding Energy Transfer for five years or longer could be a good way to gain exposure to the energy sector without worrying about oil price volatility.

Position your dividend portfolio for the long term

Rising rates and yields are putting pressure on dividend stocks as bonds look more attractive. But bonds can't grow like a business; they are set obligations with static income streams. This is why the sell-off in dividend stocks could be a great opportunity for investors who think long term. Right now, PepsiCo, Realty Income, and Energy Transfer all offer lofty income streams that are very likely to be even more attractive five years from now than they are today, thanks to regular dividend increases.

Reuben Gregg Brewer has positions in PepsiCo and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.