As a long-term dividend-focused investor, I face a very real risk of getting carried away with stocks. So if (or perhaps when) your company’s business takes a downturn, you may miss important clues. However, I have sold great companies before (there is one on this list) and regretted it. That’s why I’m never going to sell Realty Income (NYSE: O), Procter & Gamble (NYSE: PG), and Hormel Foods. (NYSE:HRL).
Let me briefly explain why.
1. I sold my real estate income once, but I won’t do it again.
I started investing in Real Estate Income a long time ago, when real estate investment trusts (REITs) yields were over 10%, mainly because REITs were still a niche sector on Wall Street. I bought it. When the yield fell to around 4%, he sold it and recovered a huge capital gain. However, I ended up missing out on dividend increases for many years and honestly regretted making such a short-term decision. Fortunately, another REIT I owned was acquired by Realty Income and I was once again a happy shareholder. I will never sell it again.
Image source: Getty Images.
There are several reasons for this dedication. First of all, Realty Income has proven to be a conservative and reliable dividend payer. The company has an investment-grade rated balance sheet and has increased its dividend every year for 29 consecutive years. It cannot be achieved by chance. And there’s also the fact that it’s Net Reese Nich’s heavyweight champion. Net leases require tenants to pay most of the property-level operating costs. If your real estate portfolio is large enough, this is a fairly low-risk model. Realty Income owns more than 15,400 properties across North America and Europe. Meanwhile, the company’s size and financial strength give it favorable access to capital markets to fund its growth.
I don’t expect real estate income to grow quickly, but when combined with the REIT’s 5% dividend yield, slow and steady growth is fine by me.
2. Procter & Gamble has the necessary leadership skills.
Procter & Gamble (P&G) is another industry giant, this time expanding into consumer staples. You’re probably familiar with brands like Bounty, Tide, Pampers, and Gillette. The company is a Dividend King with 68 consecutive annual dividend increases. Few companies can match this, but the real attraction here is P&G’s skillset.
Although the company is large and financially strong, it is simply a vested interest in the consumer staples sector. P&G is characterized by its strength in research and development, marketing, and distribution. Few companies can match this. In fact, the company is not really focused on gaining market share in the product segments it offers, but rather on expanding that segment with new and innovative products. As an example, the company created the Swiffer business, adding an entirely new category to the cleaning products niche. It required research and development (R&D) skills to create Swiffer, marketing skills to capture consumer interest, and the ability to get the new product into stores for widespread purchase. All of this sounds easy, but it’s actually not. P&G is better than its “Head and Shoulders” (just kidding, since that’s one of its brands) competitors.
Procter & Gamble’s current yield is approximately 2.4%. I bought it when the yield was close to 4%, so I’m enjoying a significant capital gain. But I have no intention of selling. I just want this consumer staples giant to continue to grow its business over the long term and reward me with more dividend increases. If you don’t own one, it’s a good idea to have it on your wishlist in case a bear market hits. Once this baby is bathed, you should jump at the chance to add it to your portfolio.
3. Hormel is having a hard time, but I’m fine.
Like P&G, Hormel is a dividend king. The company has increased its dividend every year for 58 consecutive years. That said, it is highly unpopular at the moment, offering investors a historically high 3.6% dividend yield. Stock is on shelves at a huge discount.
Once a meat producer, Hormel is now a food manufacturer focused on branded protein products such as meat and nuts. The company has expanded its portfolio through innovation and acquisitions. We are expanding the scope of our activities worldwide. Basically, Hormel aims to become one of the leading companies in the food sector. That effort has been hampered in recent days by rising operating costs (which the company has not been able to pass on to consumers or peers), avian influenza, China’s slow pandemic recovery, and acquisition decisions. Planters came at a time when the nut segment of the snack segment was starting to slow down. None of these problems are insurmountable, but when they all occur at once, they become extremely difficult. It’s no wonder investors are worried.
However, there is a unique twist here. The Hormel Foundation owns nearly 47% of Hormel, and the nonprofit relies on the dividends it collects to support operations. They have a vested interest in making sure Hormel does what it needs to do to maintain business growth and high dividends. This basically means I have an insider here to help me. I will not sell this even though I am currently facing issues. And you may want to hold your nose and jump on board while the stock is still unloved. If the Hormel Foundation has anything to say about it, and if it actually happens, Hormel will find a way to right the ship while continuing to support and grow its dividend.
You can change your mind, but I doubt it.
There’s always the possibility that Realty Income, P&G, or Hormel could significantly change the way they operate. If that happens, I’ll have to reconsider my commitment to each of these reliable dividend stocks. But until that happens, hopefully until I hand them over to my successor, I’ll stick with them. I learned a lesson when I sold real estate income…a great business is worth holding on to.
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Reuben Gregg Brewer has held positions at Hormel Foods, Procter & Gamble, and Realty Income. The Motley Fool has a position in and recommends Realty Income. The Motley Fool has a disclosure policy.
3 Great Dividend Stocks I ‘Never’ Sell was originally published by The Motley Fool.
