While the broader S&P 500 has soared, many high-quality dividend stocks have lagged, presenting a unique opportunity for long-term investors. We delve into 11 such magnificent S&P 500 dividend payers, from resilient REITs to global payment giants and essential service providers, all currently trading at attractive valuations and poised to deliver a lifetime of passive income.
The past year has seen the S&P 500 index surge approximately 25%, fueled by a robust economy and moderating inflation. This market rally, however, hasn’t lifted all boats equally. Savvy investors know that periods of market discrepancy often unveil incredible opportunities, particularly in dividend-paying stocks that offer consistent returns regardless of short-term volatility.
Many exceptional companies, despite their strong underlying fundamentals, have seen their share prices dip, pushing their dividend yields to even more attractive levels. For those focused on building wealth through reliable passive income, now might be the perfect time to lock in higher yields on stocks poised for sustained growth. From 1973 through 2022, dividend-paying stocks in the S&P 500 outperformed non-dividend payers, rising 9.2% annually compared to a 0.6% annual decline for the latter, according to Hartford Funds and Ned Davis Research.
Let’s dive into 11 such magnificent dividend stocks across various sectors that offer compelling long-term prospects, making them prime candidates for a “buy and hold forever” strategy.
Real Estate Investment Trusts (REITs): The Enduring Income Generators
Real Estate Investment Trusts are a cornerstone of many dividend portfolios, known for their tax-advantaged structure that requires them to distribute at least 90% of their taxable income to shareholders. Several top REITs have seen their shares decline about 20% from recent highs, partly due to the Federal Reserve’s stance on interest rates. This decline has, in turn, elevated their dividend yields, making them even more attractive.
Realty Income (O): The Monthly Dividend Company
Often referred to as “The Monthly Dividend Company,” Realty Income (NYSE: O) is the world’s largest net lease REIT, boasting over 15,000 commercial properties leased to resilient tenants like Walmart, Costco, and Walgreens. Its dividend track record is virtually unmatched, with 128 dividend increases since its public listing in 1994, marking streaks of 109 straight quarters and 30 consecutive years of boosting its payout. The company’s focus on single-tenant properties with net leases ensures stable cash flow, as tenants cover all operating costs. With its share price down around 20%, Realty Income currently offers an impressive yield of approximately 6%, significantly higher than the S&P 500’s average dividend yield of 1.2% as reported by S&P Global. Realty Income’s recent acquisitions, including the $9.3 billion purchase of Spirit Realty, are expected to further boost its adjusted funds from operations (FFO), reinforcing its capacity for continued dividend growth.
Prologis (PLD): Powering Global E-commerce Logistics
As the leading industrial REIT, Prologis (NYSE: PLD) has been a significant beneficiary of the e-commerce boom. Companies engaged in online sales require roughly three times more warehouse space than traditional brick-and-mortar operations, creating a persistent demand for Prologis’s vast portfolio of over 5,600 buildings and 1.2 billion square feet of rentable space across 20 countries. Prologis has delivered leading dividend growth, increasing its payout at a 13% compound annual rate over the last five years. Despite its strong performance, its share price has experienced a roughly 20% decline, pushing its yield to nearly 4%. The company’s substantial land bank, capable of supporting $41 billion in future buildouts, and expansion into sustainable energy and digital infrastructure, position it for continued above-average dividend growth.
Extra Space Storage (EXR): Capitalizing on Growing Demand
Extra Space Storage (NYSE: EXR) is a dividend growth machine in the self-storage sector, having increased its dividend by nearly 245% over the past decade. The company has capitalized on steadily growing demand, with 11.1% of U.S. households now using storage, up from 5.5% two decades ago. Its growth strategy includes aggressive acquisitions, such as the $15 billion purchase of Life Storage last year, and building the sector’s largest third-party management business. This has resulted in Extra Space holding the largest share of the U.S. storage market at 14%. A 20% slump in its shares currently offers a yield of over 4%, making it an attractive prospect as it continues to consolidate the fragmented storage sector.
Medical Properties Trust (MPW): Navigating Healthcare Real Estate Challenges
For investors seeking higher yields in the healthcare real estate sector, Medical Properties Trust (NYSE: MPW) offers a compelling, albeit higher-risk, proposition. This REIT owns 444 hospitals and related buildings globally. Its reliance on long-term net leases, where tenants cover variable costs, provides historically reliable cash flows. While the stock has tumbled around 32% due to challenges faced by some tenants, notably Prospect Medical, the company’s estimated funds from operations (FFO) of $1.50 per share in 2023 (even in a worst-case scenario without Prospect Medical’s rent) is still more than adequate to cover its annual dividend commitment of $1.16 per share. This suggests the high 13.8% yield might be sustainable, offering significant income for patient investors.
Payment Processing & Animal Health: Growth with Consistent Dividends
Mastercard (MA): The Future of Digital Payments
Mastercard (NYSE: MA) operates one of the world’s leading payment networks, benefiting from the global trend of cash displacement. Its strong network effects and significant exposure to international markets, where card penetration is lower and growth is faster, provide a substantial long-term tailwind. The company has demonstrated impressive financial strength, with revenue and earnings growing steadily for years, leading to a phenomenal 375% increase in its dividend over the past decade while maintaining a conservative 18.1% cash payout ratio. Despite a modest forward yield of around 0.5%, Mastercard’s robust business, vast market opportunity (an estimated $12.5 trillion in cash and check transactions globally), and exceptional dividend growth make it an excellent “forever” stock.
Zoetis (ZTS): Investing in Pet Humanization
As the world’s leading animal health company, Zoetis (NYSE: ZTS) is uniquely positioned to benefit from the “humanization of pets” trend, where owners are increasingly willing to spend on their companion animals’ care. Zoetis boasts a diversified product lineup, including 17 products generating over $100 million in annual revenue. While it faced short-term competition for its dog allergy medicine, Apoquel, the company consistently innovates, launching new growth drivers like Librela and Solensia for osteoarthritis pain. Zoetis has an outstanding dividend growth record, increasing payouts by 502.4% over the past 10 years, supported by a healthy 34% cash payout ratio. Its long-term growth prospects make its current modest yield of 1.4% a solid entry point for dividend seekers.
Essential Services: Infrastructure, Utilities, and Healthcare
Brookfield Infrastructure (BIPC/BIP): Global Diversified Infrastructure
Despite a 25% decline in its value over the past year, Brookfield Infrastructure (NYSE: BIP / BIPC) continues to be a magnificent value creator. The global infrastructure operator is on track to deliver over 10% funds from operations (FFO) per-share growth this year, consistent with its 11% compound annual FFO per-share growth over the past decade. Its business benefits from inflation-indexed rates and volume growth, supported by ongoing capital projects. Brookfield’s capital-recycling strategy, where it sells mature assets to reinvest in higher-return opportunities (like data center platforms), further boosts its growth. Offering a current dividend yield of 4.8%, Brookfield aims to increase its dividend by 5% to 9% annually, positioning it for robust total returns from its beaten-down price.
NextEra Energy (NEE): The Renewable Energy Leader
Shares of NextEra Energy (NYSE: NEE), a leading utility and renewable energy giant, have fallen nearly 30% over the past year. This dip comes despite the company’s strong operational performance, delivering 10.8% adjusted earnings per-share growth through the first three quarters of this year and remaining on track for its 2023 guidance. NextEra has a remarkable history of 9.8% compound annual adjusted earnings per-share growth over the past decade and an 11% yearly dividend increase rate. With a massive backlog of capital projects, particularly in renewables, and a strong investment-grade balance sheet, NextEra is well-positioned to continue delivering 6% to 8% annual earnings growth. Its current dividend yield of 3.1% combined with strong growth prospects suggests potential for double-digit total annual returns.
UnitedHealth Group (UNH): Dominating the Healthcare Landscape
For investors looking to capitalize on the secular tailwind of an aging population, UnitedHealth Group (NYSE: UNH) stands out. As a leader in health insurance benefits management, UnitedHealth has consistently raised its dividend payout, achieving a stunning 489% increase over the past 10 years. The company continues to expand its competitive position, particularly in the Medicare Advantage space, adding 440,000 new members in the first quarter of 2023 alone. Strategic acquisitions, such as LHC Group, which provides in-home interventions, further integrate and optimize its healthcare delivery. While its yield is currently 1.3%, UnitedHealth’s dominant market position and growth trajectory make it a powerful long-term dividend growth story.
Consumer Staples & Energy: Enduring Staples and Cyclical Opportunities
Coca-Cola (KO): The Resilient Dividend King
A true titan of consumer staples, Coca-Cola (NYSE: KO) has been a bedrock for dividend investors for decades. This global beverage giant sells its products in over 200 countries under iconic brands like Fanta and Sprite, alongside its namesake. Coca-Cola holds the esteemed title of a Dividend King, having increased its dividend for 63 consecutive years, a testament to its enduring business model and financial stability. Despite some temporary volume weakness due to overall inflation, Coca-Cola continues to expand its market share in the nonalcoholic beverage sector. Trading at a more attractive valuation following a 3.6% dip over the last year, its 3% dividend yield offers reliable income while waiting for consumer volumes to normalize, as highlighted by Sure Dividend.
ConocoPhillips (COP): Riding the Energy Cycles
For those willing to embrace cyclicality, ConocoPhillips (NYSE: COP) offers an opportunity in the energy sector. As a major player in oil and natural gas exploration and production globally, its results are inherently tied to commodity prices. While lower crude oil prices have impacted recent earnings, leading to a 28% drop in adjusted earnings per share, the company has proven its ability to generate significant free cash flow (FCF), which comfortably covers its dividend payments even during softer periods. ConocoPhillips generated $2.9 billion in FCF during the first half of the year, compared to $2.7 billion in dividend payments. With its stock down over 20% and offering an above-market yield of 3.6%, patient investors can collect substantial income while awaiting a recovery in energy prices, positioning themselves for attractive total returns as the cycle turns.
The Power of Lower Prices: Unlocking Higher Dividend Yields
The recent slump in the share prices of these magnificent S&P 500 dividend stocks has created a compelling entry point for long-term investors. Lower prices directly translate to higher dividend yields, allowing you to lock in more passive income for every dollar invested. Each of these companies possesses robust underlying businesses, strong balance sheets, and clear growth prospects that should enable them to continue increasing their dividends for many years to come.
Embracing a “buy and hold forever” philosophy with these types of high-quality, dividend-paying companies can lead to a lifetime of compounding returns and passive income, outperforming the broader market over the long run. Now is an opportune moment to consider adding these resilient income generators to your portfolio.
