3 No-Brainer Dividend Stocks to Buy and Hold for Decades to Come

Buying and holding a stock over the long term requires conviction that the company will live up to investor expectations.

For growth stocks, that can mean unlocking the potential of a paradigm-shifting technology. In contrast, investors may expect dividend-paying companies to steadily boost their earnings and payouts over time, rewarding them with a one-two punch of passive income and capital gains.

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Here's why Lockheed Martin (NYSE: LMT), American Water Works (NYSE: AWK), and Watsco (NYSE: WSO) stand out as ultra-reliable dividend stocks to buy now.

Image source: Getty Images.

The sell-off in Lockheed Martin is a buying opportunity

Daniel Foelber (Lockheed Martin): Defense companies that contract with the U.S. government and its allies can be highly reliable cash cows that generate stable income no matter what the economy is doing. But not all defense contractors have a high dividend yield.

Lockheed Martin is an exception. Twenty-two consecutive years of dividend increases paired with a beaten-down stock price have pushed Lockheed's yield up to 3% -- making it a solid source of passive income. That's a far higher yield than peers like RTX and Northrop Grumman.

The stock has sold off because earnings have been weak, the company reported losses from classified programs, and it lost a sizable contract to Boeing that many thought Lockheed was favored to win. These factors contribute to lackluster guidance, but that doesn't affect Lockheed's ability to pay and grow its dividend, given the company's reasonable payout ratio of 57%.

In addition to the dividend, Lockheed consistently buys back a ton of stock, allowing earnings per share (EPS) to grow faster than net income. Over the last decade, EPS has doubled while net income is up by half as much thanks to a 25% reduction in the share count. Buybacks can help keep a stock valuation in check because there are fewer shares and, therefore, more earnings per share.

Lockheed has a price-to-earnings ratio of just 20 -- which is a good price for a reliable dividend-paying company, especially considering that Lockheed's P/E accounts for one-off losses from the classified programs. All told, Lockheed is a balanced buy for risk-averse investors interested in boosting their passive income.

For dependable dividends, get your feet wet with American Water Works

Scott Levine (American Water Works): Finding stocks that have the resilience to continue paying dividends for decades is no easy feat, but it becomes easier when attention turns to American Water Works and its 2.1% forward dividend yield. The water utility stock generates steady revenue from its regulated water operations -- a business model that is about as dependable as they come -- appealing to those interested in a stream of passive income that will continue flowing for years to come.

Serving more than 14 million customers, American Water Works is the largest water utility in the United States. While contracts with the U.S. government are one source of sales, the company's regulated business provides the lion's share of the company's operating revenue -- about 92%. Since regulated water customers provide a steady revenue stream, the company benefits from dependable cash flows that, in turn, provide management with the ability to plan accordingly for capital expenditures like infrastructure upgrades, acquisitions, and, of course, dividends.

Over the past five years, American Water Works has boosted its dividend at an 8.9% annual rate -- and management is keen on keeping this rate moving forward. In concert with its annual earnings-per-share (EPS) growth target of 7% to 9%, management has targeted long-term dividend growth of 7% to 9% each year.

Further demonstrating its commitment to returning capital to shareholders, management has set a payout ratio goal of 55% to 60%. This certainly seems like a realistic aspiration considering the company has averaged a 55% payout ratio over the past 10 years. American Water Works is a solid choice for dividend stocks with real staying power.

A relentless earnings and dividend grower

Lee Samaha (Watsco): This heating, ventilation, air conditioning, and refrigeration (HVACR) parts and supplies distributor is the largest player in a highly fragmented market in the U.S.

As such, its "buy and build" business model revolves around the relentless pursuit of acquisitions of much smaller distributors. After acquiring them, Watsco integrates them into its distribution network so they benefit from the company's scale, products, and technology. It's a win-win scenario that expands Watsco's geographic reach and sales in the process.

The technology is a key distinguishing feature, with Watsco offering mobile applications for customers and digital sales platforms for technicians to quickly order the parts they need to repair equipment.

Consolidating the HVACR parts distribution industry may not sound like the sexiest business going, but Watsco shareholders won't care. The stock has outperformed the S&P 500 over the last year, three years, five years, and 10 years, too. In fact, it's up an incredible 1,110% over the past 20 years, and management has increased the dividend significantly over time.

WSO data by YCharts

As the installed base of HVACR equipment continues to grow, demand for parts will likely grow, too, and if history is a guide, so will Watsco's earnings and dividends.

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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Watsco. The Motley Fool recommends Lockheed Martin and RTX. The Motley Fool has a disclosure policy.