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Stable businesses and solid cash flow in good times and bad make these long term dividend stocks.
Dividend stocks are all the rage now, thanks to the Fed’s QE plan, which has cratered bond yields and sent everyone further out on the risk curve in search of yield. There are lots of great dividend stocks, and many have recognizable names. However, I prefer to look off the beaten path.
I prefer to seek long term dividend stocks that have great underlying businesses, with management that has proven it an survive tough times like the financial crisis. The test under that kind of pressure is what gives me confidence in a dividend stock. We just aren’t going to see the kind of disaster like the financial crisis for a very long time.
So any company that is still standing and paying shareholders is worth my investment dollar, and belongs as a core holding in your long-term portfolio.
Ashford Hospitality Trust (NYSE:AHT) is the only hotel REIT I know of that did not suspend its preferred stock dividend during the worst downturn in US history for the sector. The financial crisis was even worse than post-9/11 for hospitality. Yet Ashford Hospitality proactively drew down its $200 million credit line before it could be yanked, refinanced all its outstanding debt years out, engaged in interest rate hedges that enhanced revenue, and cut expenses to the bone. That’s what you call great management.
Ashford pays a 4.4% yield, and consistently generate more than enough FFO to cover that yield.
Genuine Parts Company (NYSE:GPC) is a classic Peter Lynch stalwart. Genuine Parts handles parts for cars, trucks and SUV’s, but also for buses, motorcycles, farm vehicles, and heavy-duty equipment. It also sells accessory items. People will always use cars, and cars will always need parts. Parts are like the razor blades to a hand-held razor.
But there’s an even better reason to love Genuine Parts – and that’s because they don’t actually manufacture the parts, they distribute them. Everyone knows the real money in any business is in distribution. The company has a distribution network in the form of 1,100 Napa Auto Part Stores.
GPC has been increasing its dividend for 58 years, spinning it off from its robust cash flow, which was almost a billion dollars last year. With a great balance sheet sporting $200 million in cash against only $500 million in debt, and a 9% lon-term growth rate, GPC is a winner.
What can be said about Kinder Morgan Energy Partners, L.P. (NYSE:KMP) that hasn’t been said before? The venerable oil and gas pipeline and storage company owns more than 80,000 miles of pipeline and 180 terminals. That’s a massive footprint, making it the third-largest energy company in the country. Kinder Morgan currently pays a yield of 6.9%. It has an unbroken record of increasing dividends dating back to 1992.
Look, every portfolio must have energy holdings. The Energy Information Administration is projecting that US gas production will increase 55% by 2040, and in less than 7 years the US will be net exporter of liquefied natural gas. That means someone has to handle the infrastructure for all this production, and Kinder Morgan will be at the head of the line.
A surprise entry to some investors might be Vectren Corporation (NYSE:VVC), which is not a household name. It should be. It is a gigantic provider of energy delivery services in Indiana and Ohio to over a million customers. It distributes natural gas and electricity, and also produces electricity at coal and gas-fired plants across 1,022 circuit miles. It is diversified with underground pipeline construction and repair service, while also investing in energy opportunities, real estate, and even mines. The energy delivery services also have penetrated numerous sectors, giving it further diversification. It provides services in automotive assembly, parts and accessories, as well as for agricultural, pharmaceutical and nutritional products. It currently pays a 3.5% dividend.
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