The collapse and government takeover of Silicon Valley Bank and Signature Bank served as a stark reminder of the risks involved in investing. The stock market took a hit in response. These banks were heavily focused on tech startups and cryptocurrency businesses, which are riskier and should only make up a small part of a portfolio. They also lacked diversification in their asset bases and deposits. This situation highlights the importance of diversification to manage and reduce risk.
Despite the bear market of 2022 and the market turmoil in early 2023, brave investors see an opportunity. Long-term returns often come during periods of market volatility. As Warren Buffett suggests, market fluctuations can lead to irrationally low prices on solid businesses. Following this logic, we look for high-quality stocks that return cash to shareholders. Companies that pay dividends are especially attractive because they can offer solid long-term returns, even during bear markets.
Here are the top 5 long-term dividend stocks for 2023:
1. **Microsoft (MSFT)**: Microsoft is a diversified tech giant known for its software and hardware. It offers a range of products, from Windows and Office to Xbox, Azure cloud services, and the new ChatGPT with Bing. This diversity has led to significant profits and a strong cash position, making it the second-largest company by market cap, valued at over $2 trillion. Despite recession fears, Microsoft’s stock price has risen in 2023, and it has a strong track record of paying and growing dividends for the past 20 years. With a yield of about 1.0% and a payout ratio of ~29%, Microsoft is poised to continue increasing its dividend and could achieve Dividend Aristocrat status.
2. **Procter & Gamble (PG)**: Known for household brands like Tide, Pantene, and Gillette, Procter & Gamble has 21 brands each generating over $1 billion in sales. With an A+ dividend quality grade and a strong balance sheet, its dividend grows at about 6% per year and currently yields nearly 2.6%. The company’s essential products ensure steady performance in both good and bad times, making it a solid long-term investment.
3. **Hormel (HRL)**: Hormel faces challenges from high inflation but remains a strong player in the branded protein market. Known for brands like SPAM, Skippy, and Planters, Hormel has a 100+ year history of paying dividends and is a Dividend King. Its forward dividend yield is nearly 2.9%, the highest in a decade, with annual increases of 6% to 8%. Despite inflation struggles, Hormel’s strong performance over time makes it a good long-term stock.
4. **Consolidated Edison (ED)**: As one of the oldest utilities, ConEd operates in New York City and surrounding areas, providing electricity, natural gas, and steam. It has a stable revenue stream and a dividend yield of nearly 3.4%. ConEd has paid dividends for over 100 years and has increased them for 49 years, nearing Dividend King status. With a reasonable payout ratio of 69% and a B+ dividend quality grade, ConEd offers a combination of yield, safety, and growth.
5. **General Dynamics (GD)**: This defense contractor is known for military equipment like the M-1 Abrams tank and Gulfstream business jets. It has a strong market position and recession-proof characteristics. General Dynamics is a Dividend Aristocrat with a 32-year streak of dividend increases, growing at 6% to 8% annually. With a modest payout ratio of ~41% and an A+ quality grade, it’s a solid long-term investment, yielding about 2.4%.
Dividend stocks are a great option for many investors. They can generate a passive income stream over time, potentially growing to a significant annual income. This can help replace a regular salary when combined with Social Security and retirement plan distributions.