If you’re a risk-averse investor, there are many dividend stocks to buy and hold that will amplify your returns with minimal downside risk. Many inelastic businesses generate substantial cash and have high payout ratios. Even in the worst-case scenario, cash-rich companies will remain stable and pay dividends while retaining modest upside potential. These stocks are perfect for a retirement portfolio or as defensive securities you can hold during market instability.
However, the current climate offers a unique opportunity. Many growth-oriented businesses are changing hands at a compelling value, sometimes even less than defensive stocks. Including some of these growth picks is a good idea, as they will provide proportionately higher gains when the market enters a sustained uptrend. Therefore, this article will mainly focus on a mix of defensive and growth-oriented dividend stocks that will provide more total returns over the long run.
The following seven dividend stocks to buy and hold should help you craft an ideal portfolio:
One of the top dividend stocks to buy and hold is PepsiCo (NASDAQ:PEP), a well-known dividend king with a diversified business model. It is among the safest stocks to buy and provides a stable upside. Its five-year gain of 60.5% closely resembles the Nasdaq and is 12% more than the S&P 500. That’s nothing unusual, but PEP’s remarkable aspect is its very little downside risk. The stock was among the first to recover during the coronavirus recession, and the late-2021 selloffs had minimal impact on its stock price. Essentially, PEP investors are mirroring gains similar to the Nasdaq but without much downside risk.
What really sweetens the deal here is its 2.61% yield and accelerating growth after the coronavirus pandemic. The company also grew at a double-digit clip in Q4. Moreover, PepsiCo has much room to continue increasing its dividends as it had a $5.1 billion cash buffer at the end of last year.
The selloffs in the last two years have turned Intel (NASDAQ:INTC) into a value stock with very little downside. While growth stocks had a strong rebound in Jan., INTC was the only exception, and it now seems to be bottoming out. The company has a hard time catching up with its 2021 figures, and strong competition from Advanced Micro Devices (NASDAQ:AMD) is causing sales to take a hit. But once monetary policy allows more discretionary spending, it will cause a strong resurgence in demand for Intel products.
Moreover, Intel isn’t a pure-play chip company anymore. It has high-growth segments such as data and artificial intelligence that can drive growth in the future. Once margins improve and profits rebound, we will likely see INTC making a comeback. In addition, the 5.6% dividend yield makes the stock a must-buy at its current trough. It’s no dividend king, but I believe its upside potential makes up for the lack of historical increases.
BlackRock’s (NYSE:BLK) ever-expanding asset value and diversification make it a compelling pick regardless of short-term headwinds. The company has $671 billion of liquidity across multiple currencies and has $8.6 trillion worth of assets under management. Simply put, it’s a colossal company that’s too big to fail. BlackRock has a tech-centric portfolio with substantial exposure to Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT). These companies won’t disappoint in the long run, and with BlackRock’s 2.79% yield; investors can bet on significant total returns when they cash out.
Of course, I would not recommend BLK stock if you entirely wish to avoid short-term losses. But its current valuation suggests that the trough won’t extend much further from here. The company has a streak of 14 consecutive years of dividend increases.
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) is among the top dividend stocks to buy and hold for investors interested in the defense industry. The company has a strong history of delivering impressive returns to its shareholders, with a 10-year average return of 21.7% without its dividends factored in. It currently yields 2.52%.
In addition to strong financial performance, Lockheed Martin is also a critical player in the defense and aerospace industry. Its advanced fighter jets and other aerospace hardware are essential to the security of the U.S. and Europe, and the company is well-positioned to benefit from the increased defense spending by NATO and other allies, including Japan and Australia. As my colleague, Will Ashworth pointed out, the company’s $150 billion backlog will also take several years to fulfill and generate lots of cash. The surge in demand has made the defense industry highly inelastic, putting LMT on solid footing for the years to come.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) is positioned to be one of the biggest beneficiaries of rising government investment in renewable energy and construction. With geopolitical tensions rising and climate change worries accelerating, now is the best time to diversify American energy sources and bring emission-free electricity to the grid. The company’s 2022 earnings report demonstrated a 23% growth in revenue, and it provided guidance about dividends increasing by 10% over the next few years. It currently yields a modest 2.23% with a payout ratio of 81%.
Stock analyst Gurufocus.com also notes NEE stock as “modestly undervalued” with a net margin of 19.8%, ranked better than 85.26% of its peers. The company has increased its dividends for 30 years consecutively.
With massive amounts of spending going into construction projects, Caterpillar (NYSE:CAT), a global manufacturer of construction and mining equipment, is well positioned to benefit from the $1 trillion infrastructure bill, which allocates funds for investments in transportation, broadband, and water infrastructure, among others. Caterpillar’s equipment will be in high demand as the government ramps up its investment in infrastructure projects.
Caterpillar’s financials have been shining recently, and the company’s earnings have consistently exceeded analysts’ estimates. Its dividend yield of around 1.94% and a payout ratio of 37% make it an attractive option for income-seeking investors.
In addition, the company’s net margin of 11.28% is among the best in the construction industry, ranked 87.87% better than its peers. And Caterpillar’s return on equity of 41.5% is ranked better than 93.3% of construction companies. As the construction industry scales, this edge in the margin will make it one of the most profitable companies in its space. The company has increased its dividends for 30 years consecutively.
Union Pacific (UNP)
Union Pacific (NYSE:UNP) is a freight giant that will also bank on the infrastructure catalyst and keep growing. This railway business has one of the most robust fundamentals and is a cash-generating machine with significant share buybacks and a sustained uptrend. Last year, it paid $3.16 billion in dividends and targets to keep its payout ratio at 45% of its earnings. The company’s 28.13% net margin is especially robust and ranked better than 87% of companies in the transportation industry.
Union Pacific is necessary for the U.S. economy as over a third of American exports use freight transport. Being the second-largest freight pure-play company, it is important for the government to provide subsidies and pave the way for a more efficient rail network. With that in mind, I see more catalysts like the infrastructure bill positively impacting the company, which is why the current value is an entry point investors shouldn’t ignore. UNP stock offers a lot more upside potential, which combined with its 2.58% yield should lead to substantial long-term total returns. The company has increased its dividends for 16 years consecutively.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.