6 Dividend Paying Stocks to Buy and Hold Forever

As a finance expert, I believe dividend-paying stocks form the backbone of a resilient investment portfolio. They provide steady income, hedge against inflation, and compound wealth over time. In this article, I explore six dividend-paying stocks that stand out for their long-term sustainability, strong fundamentals, and consistent payouts. I will analyze each stock’s financial health, dividend history, and growth prospects while providing mathematical models to assess their value.

Why Dividend Stocks Belong in Your Portfolio

Dividend stocks offer two key advantages: passive income and compounding. The power of reinvesting dividends can be illustrated with the formula for compound annual growth rate (CAGR):

CAGR = \left( \frac{FV}{PV} \right)^{\frac{1}{n}} - 1

Where:

• FV = Future Value
• PV = Present Value
• n = Number of years

For example, if you invest $10,000 in a stock with a 5% dividend yield and reinvest dividends for 30 years, the future value becomes:

FV = 10,000 \times (1 + 0.05)^{30} = 43,219.42

That’s over four times the initial investment—just from dividends.

Criteria for Selecting Forever Dividend Stocks

I focus on companies with:

• Dividend Aristocrat or King status (25+ years of increasing dividends)
• Strong free cash flow (FCF = Operating Cash Flow - Capital Expenditures)
• Low payout ratio (Payout Ratio = \frac{Dividends}{Net Income})
• Competitive moat (durable competitive advantage)

Now, let’s dive into the six stocks.

1. Johnson & Johnson (JNJ)

Dividend Yield: 2.9%
Dividend Growth Streak: 61 years

Johnson & Johnson is a healthcare giant with pharmaceuticals, medical devices, and consumer health divisions. Its diversified revenue streams make it recession-resistant.

Key Metrics:

• Payout Ratio: 44%
• Free Cash Flow: $22.1B (2023)

The Gordon Growth Model estimates JNJ’s intrinsic value:

P = \frac{D_1}{r - g}

Where:

• P = Stock price
• D_1 = Expected dividend next year
• r = Required rate of return
• g = Dividend growth rate

Assuming:

• D_1 = \$4.76
• r = 8\%
• g = 6\%

P = \frac{4.76}{0.08 - 0.06} = \$238

At ~$155 (current price), JNJ appears undervalued.

2. Procter & Gamble (PG)

Dividend Yield: 2.5%
Dividend Growth Streak: 68 years

PG dominates consumer staples with brands like Tide, Pampers, and Gillette. Its pricing power ensures steady cash flow.

Key Metrics:

• Payout Ratio: 58%
• 10-Year Dividend Growth: 5.8%

Using the Dividend Discount Model (DDM):

P = \frac{D_0 \times (1 + g)}{r - g}

Where:

• D_0 = \$3.76 (current annual dividend)
• g = 5\%
• r = 7\%

P = \frac{3.76 \times 1.05}{0.07 - 0.05} = \$197.40

PG trades at ~$165, suggesting reasonable valuation.

3. Coca-Cola (KO)

Dividend Yield: 3.1%
Dividend Growth Streak: 61 years

Coca-Cola’s global brand recognition and high margins make it a dividend powerhouse.

Key Metrics:

• Payout Ratio: 74% (slightly high but sustainable)
• Revenue Growth: 6% (2023)

The Earnings Power Value (EPV) model helps assess KO’s stability:

EPV = \frac{Adjusted Earnings}{Cost of Capital}

Assuming:

• Adjusted Earnings = $10B
• Cost of Capital = 6%

EPV = \frac{10}{0.06} = \$166.67B

KO’s market cap is ~$260B, indicating premium pricing.

4. Microsoft (MSFT)

Dividend Yield: 0.7%
Dividend Growth Streak: 21 years

Though its yield is low, Microsoft’s growth potential is unmatched.

Key Metrics:

• Payout Ratio: 26%
• Revenue Growth: 14% (2023)

A two-stage DDM accounts for high growth:

P = \sum_{t=1}^{n} \frac{D_t}{(1 + r)^t} + \frac{P_n}{(1 + r)^n}

Where:

• P_n = \frac{D_{n+1}}{r - g}

Assuming:

• High growth phase (5 years, g = 12\%)
• Stable growth (g = 5\%)

Calculations suggest MSFT is fairly valued at ~$420.

5. ExxonMobil (XOM)

Dividend Yield: 3.4%
Dividend Growth Streak: 41 years

Exxon thrives in energy, benefiting from oil price cycles.

Key Metrics:

• Payout Ratio: 37%
• Free Cash Flow Yield: 8%

The FCF model estimates intrinsic value:

P = \frac{FCF \times (1 + g)}{r - g}

Assuming:

• FCF = \$36B
• g = 3\%
• r = 8\%

P = \frac{36 \times 1.03}{0.08 - 0.03} = \$741.6B

XOM’s market cap is ~$475B, indicating undervaluation.

6. Realty Income (O)

Dividend Yield: 5.2%
Dividend Growth Streak: 29 years

A REIT with monthly dividends, Realty Income leases properties to stable tenants.

Key Metrics:

• Payout Ratio: 75% (normal for REITs)
• Occupancy Rate: 98.6%

The Net Asset Value (NAV) model applies:

NAV = \frac{NOI}{Cap Rate}

Assuming:

• NOI = \$1.5B
• Cap Rate = 6\%

NAV = \frac{1.5}{0.06} = \$25B

O’s market cap is ~$45B, reflecting premium pricing.

Comparison Table

Stock	Yield	Payout Ratio	Growth Streak	Valuation Model
JNJ	2.9%	44%	61 years	Gordon Growth
PG	2.5%	58%	68 years	DDM
KO	3.1%	74%	61 years	EPV
MSFT	0.7%	26%	21 years	2-Stage DDM
XOM	3.4%	37%	41 years	FCF Model
O	5.2%	75%	29 years	NAV Model

Final Thoughts

Dividend investing is a marathon, not a sprint. The six stocks I discussed—JNJ, PG, KO, MSFT, XOM, and O—have stood the test of time. By focusing on strong fundamentals, sustainable payouts, and growth potential, you can build a portfolio that generates income for decades. Use the valuation models I provided to assess entry points and make informed decisions. Happy investing!