2 Dividend Stocks to Hold for the Next 10 Years

Key Points

• Coca-Cola has raised dividends for the last 63 years.

• Home Depot shareholders can enjoy dividend payouts while waiting for a cyclical upturn.

• 10 stocks we like better than Coca-Cola ›

Dividend-paying stocks have appeal to investors for a variety of reasons. This includes providing regular income and their tendency to do better during downturns.

Of course, when thinking about holding stocks for a decade, you'll want to make sure you're investing in strong businesses with sustainable dividends. Coca-Cola (NYSE: KO) and Home Depot (NYSE: HD) have a history of not just maintaining payments but raising them annually.

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It's time to examine each company to find out why dividend-seeking investors should make them part of their portfolio for at least the next 10 years.

Image source: Getty Images.

1. Coca-Cola

Coca-Cola, founded in 1886, has grown into a beverage behemoth. It sells its drinks, which include soda, water, juice, and plant-based drinks, across the globe in more than 200 countries.

A mature company, its fast-growth days seem behind it. However, Coca-Cola continues to produce steady top-line gains. In the first quarter, sales grew 6% after removing the effects of foreign currency translations and acquisitions. Price/mix accounted for 5 percentage points, and higher volume was responsible for the balance. This led to a 10% increase in adjusted operating income.

The higher sales and profitability have supported dividends, a clear priority for the company. The board of directors raised the quarterly payout more than 5% earlier this year, which should provide investors with a degree of confidence given companies' reluctance to cut dividends. In fact, the latest action marked 63 straight years with an increase, keeping Coca-Cola a Dividend King.

The stock has a 2.9% dividend yield, more than double the S&P 500 index's 1.2%. With a 77% payout ratio, or the amount it pays out compared to net income, Coca-Cola's dividend payouts seem secure.

With growing profits and higher dividends, Coca-Cola should provide a good total return after a decade.

2. Home Depot

Home Depot produces the highest sales in the home improvement retail sector. Its ubiquitous presence and size make it a popular destination for professional contractors and people doing their own projects.

However, the company's sales can fluctuate with the economy, and particularly housing. That's because when people feel confident about their situation and buy homes, they typically do renovations.

Lately, economic factors like high interest rates have made extensive renovations more expensive. This has hurt Home Depot's sales. Fiscal first-quarter same-store sales (comps) fell 0.3%, driven by lower traffic, although foreign currency translation effects subtracted 0.7 percentage points. And U.S. comps rose just 0.2%. The company's adjusted diluted earnings per share dropped to $3.56 from $3.67 a year ago. The period ended May 4.

Still, Home Depot remains in a strong position to take advantage when people start doing major projects. After all, it has strong brand recognition and it's able to charge attractive prices due to its size, which gives it economies of scale.

Patient investors willing to wait for a cyclical upturn will note the stock trades at a lower valuation. The share price fell 4.9% over the last year through July 11. During this time, the S&P 500 gained 6.4%.

This has resulted in Home Depot's stock trading at a price-to-earnings (P/E) ratio of 25, down from 27 at the start of the year. That's also a better valuation than the S&P 500, which has a P/E multiple of 30.

While waiting for faster sales growth and increased profitability, shareholders will receive a 2.5% dividend yield. Moreover, dividends remain one of the company's key capital allocation priorities, following investing in the business' growth.

Home Depot isn't a Dividend King, but it has built an impressive streak. It has raised payments annually since 2010, including this year's hike from $2.25 to $2.30 a quarter. Aside from the willingness to pay dividends, with a 61% payout ratio, it also has the ability to keep paying them.

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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.