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3 Dividend Stocks That Should Pay You the Rest of Your Life

Reuben Gregg Brewer, George Budwell, and Brian Stoffel, The Motley Fool

There's a balance in the dividend space between high yields and dividend sustainability. In the end, it's generally more important to find stocks that can keep paying -- and hopefully increasing -- their dividends than to stretch for high yields that are ephemeral because they are backed by dividends that are likely to get cut. If you want to add a few good dividend names to your portfolio, these three Motley Fool contributors think you'll want to look at biotech Gilead Sciences (NASDAQ: GILD), telecom giant Verizon (NYSE: VZ), and consumer products specialist Procter & Gamble (NYSE: PG).

A stellar income opportunity

George Budwell (Gilead Sciences): Gilead Sciences may no longer be the high-growth play that it was earlier this decade, but the biotech has transformed into a top income and value stock in recent years. Shares presently offer a 3.9% yield and trade at a rock-bottom 9.2 times next year's projected earnings. That's a rather attractive package for any blue chip biotech. 

a piggy bank with the word dividends above it

Image source: Getty Images

The best part, though, is that Gilead should be able to continue growing its dividend at a healthy pace for the foreseeable future. Apart from the fact that it reported a monstrous $30.2 billion in cash, cash equivalents, and marketable debt securities at the end of the most recent quarter, its mega-blockbuster HIV drug Biktarvy and the experimental anti-inflammatory medicine filgotinib are both expected to be big winners for the company over the course of the next decade. 

Biktarvy, for instance, is forecast to hit a whopping $7 billion in sales as soon as 2024, according to a report by EvaluatePharma. Filgotinib has a shot at producing $6.5 billion in sales early in the next decade, depending on how the anti-inflammatory drug market ultimately shakes out. Taken together, these two high-value drugs should be able to provide the type of free cash flows necessary to maintain and grow Gilead's dividend for years to come. 

Huge barriers to entry protect this dividend 

Brian Stoffel (Verizon): I own exactly zero stocks because of their dividend. This makes sense, as income investing doesn't fit my approach, with over three decades until I hit my golden years. That said, if I were to retire tomorrow, I'd definitely put a chunk of my portfolio into Verizon.

There are a few big reasons for this. First and foremost, the dividend has been a consistent source of income for a long time. The company hasn't missed a dividend payment since its first one on March 20, 1984 -- back when it was known as Bell Atlantic. In addition, it has raised its dividend for 14 consecutive years. 

Just as important, even if the company doesn't raise its dividend, it's already yielding 4.3%. That's a hefty payback for an investing world that's seeing negative interest rates spread across Europe.

It can afford that payout because it collected $17 billion in free cash flow over the past year. Of that, about 59% was used to pay the dividend. That's a very healthy ratio: It means that Verizon still has room to grow the dividend sustainably if business goes well, and should be able to continue the current payout if business stagnates.

Perhaps most important, however, is Verizon's competitive position. There are high barriers to entry in telecom. It takes billions of dollars to build out the infrastructure to connect the masses, and it's a highly regulated industry. With the largest market share of mobile subscribers and it's status as the first to market with 5G technology, I think Verizon is a great bet for dividend investors.

A time-tested brand manager

Reuben Gregg Brewer (Procter & Gamble): You know the names that consumer products giant Procter & Gamble sells, including iconic brands Bounty, Tide, and Crest (among many others). Most of its products are daily necessities, so they get purchased in good times and bad. This provides P&G with a solid revenue base from which to pay dividends. And with long-term debt at a reasonable 30% of the capital structure, there's no reason to worry about the company's balance sheet

That's the foundation upon which P&G has built an over six-decade streak of annual dividend increases. There's no reason to doubt that it can keep paying investors year in and year out. But what this big picture is missing is probably the most important piece of the puzzle: P&G is a brand manager. That means it buys and sells brands over time to ensure that it has the best possible portfolio of assets working for investors. 

PG Chart

PG data by YCharts.

It doesn't always get the mix right, but over time it has done quite well. The most recent shift is a great example. In 2016, it sold off more than 40 beauty brands to Coty (NYSE: COTY). That allowed P&G to focus on its best beauty brands, which have been achieving solid success. Meanwhile, Coty has struggled to make the acquisition pay off.

P&G is performing quite well today overall, and the shares have rallied strongly this year. It isn't cheap, but the 2.5% yield is higher than what you'd get from the S&P 500 Index. And you should be able to rely on the dividend getting paid, and increased, for years to come. For conservative income investors looking to add a little diversification to their portfolios, it is still worth a deep dive. 

Brian Stoffel has no position in any of the stocks mentioned. George Budwell has no position in any of the stocks mentioned. Reuben Gregg Brewer owns shares of Procter & Gamble. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com