It’s not easy to find stocks that will last forever. Companies that can thrive and pay dividends over the long term are rare, but they do exist. Such companies typically possess several qualities, including competitive advantages and leadership in industries that are likely to continue to grow.
Let’s look at two stocks that investors can buy and hold forever: Apple (NASDAQ:AAPL) And Abbott Laboratories (NYSE:ABT). While neither has been popular on Wall Street recently, both have a lot to offer long-term, income investors.
1. Apple
Apple is facing several problems, including declining iPhone sales in China and an antitrust lawsuit from the U.S. Department of Justice that alleges the company has a monopoly in the smartphone market. The company’s revenue growth is expected to be slow over the next few quarters, while legal challenges make the outlook a little more uncertain. However, Apple has long known that it can’t rely on the iPhone to deliver solid sales growth forever.
For this reason, the company has worked tirelessly to create a robust ecosystem of users to whom it can offer all kinds of services. Apple has an installed base of 2.2 billion devices and counting – very few companies in the world have such a large ecosystem, and many would pay a fortune for it. This points to one of Apple’s greatest strengths: its brand name is a powerful moat. Apple’s customers are among the most loyal in the smartphone market.
Although the company’s services division is still relatively small in terms of revenue – at least compared to iPhone sales – there is still room for growth in some of the perks it offers, from streaming to fintech options like Apple Pay. Apple is also working on artificial intelligence (AI), although the company has lagged behind its similarly sized technology peers in this fast-growing area. But the company has never prioritized being first to market.
Apple has historically been incredibly successful at adding its own twist to existing technologies, and in some cases this had been going on for a while before the company got involved. It’s hard to ignore the company’s innovative track record or its history of outstanding financial results.
But what about the Justice Department lawsuit? Although this could drag on for years, I think it is extremely unlikely that Apple will be split into multiple companies. In the worst case scenario, Apple could face a fine or an out-of-court settlement. Investors shouldn’t be too worried about this lawsuit, although it’s worth keeping an eye on.
What about the dividend? Apple has increased its payouts by 104% over the last decade. It currently offers a yield of 0.58% and the cash payout ratio is just 14%. Although Apple’s yield is lower than that S&P 500The company’s 1.35% average, consistent sales and profits, strong innovation potential and ability to generate cash flow make it a strong dividend stock to buy and hold forever.
2. Abbott Laboratories
Abbott Laboratories is a leading medical device specialist. The company’s revenue growth has been fairly slow recently, which partly explains the stock underperforming the market.
In the first quarter, Abbott’s $10 billion in sales rose just 2.2%. However, the company faces difficult comparisons. Abbott Laboratories has been a leader in the COVID-19 diagnostics market. Since demand for these products is significantly lower, comparable sales are declining. Abbott’s revenue rose 10.8% in the period, excluding coronavirus-related sales.
Abbott Laboratories has a long list of medical devices. The company enjoys a good reputation as a leader in its field. In addition, the company has a strong presence in the healthcare industry and has the necessary expertise and experience to navigate this highly regulated market. These are important advantages, even when taking into account the many patents that the company holds, which protect its innovative products from competition, at least for a while. The healthcare sector will continue to grow, especially as the world’s population ages.
Abbott Laboratories offers many important products. Some of its better-known devices still have enormous growth potential. This is the case with FreeStyle Libre, a continuous glucose monitoring (CGM) franchise. CGM devices are crucial for diabetes patients who rely on blood glucose meters (BGMs) to monitor their sugar levels. CGMs do this automatically and continuously throughout the day, while BGMs operate manually and only measure blood sugar at a specific time.
Yet only 1% of the more than half a billion adults worldwide with diabetes use CGM technology – a clear growth opportunity for Abbott Laboratories, one of the two market leaders in the field. The company has many other exciting products. Abbott has been able to continually develop new products, which has helped it generate significant sales and profits.
The company plans to stay that way for many years to come.
Finally, Abbott Laboratories has increased its dividends for the 52nd consecutive year, becoming the Dividend King. The company’s ROE is over 2.04%. Although Abbott Laboratories’ cash payout ratio of 70% seems a bit high, the company’s track record and solid business position make it unlikely that the company will cut or suspend its dividends. Income seekers can safely hold this stock forever.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories and Apple. The Motley Fool has a disclosure policy.
“2 Beaten-Down Dividend Stocks to Buy and Hold Forever” was originally published by The Motley Fool