Marc Lichtenfeld
Marc is the Senior Editor of The Oxford Income Letter, which is based on his proprietary 10-11-12 System. He is a leading member of Oxford Centurion‘s Centurion Advisory Board. He is also the Editor of Technical Pattern Profits, Penny Options Trader and Oxford Bond Advantage.
Marc Lichtenfeld is the Chief Income Strategist of The Oxford Club. After getting his start on the trading desk at Carlin Equities, he moved over to Avalon Research Group as a senior analyst. Over the years, Marc’s commentary has appeared in The Wall Street Journal, Barron’s, and U.S. News & World Report, among others. Prior to joining The Oxford Club, he was a senior columnist at Jim Cramer’s TheStreet. Today, he is a sought-after media guest who has appeared on CNBC, Fox Business and Yahoo Finance.
His first book, Get Rich With Dividends: A Proven System for Earning Double-Digit Returns, achieved bestseller status shortly after its release in 2012 and was named Book of the Year by the Institute for Financial Literacy. It is currently in its second edition and is published in multiple languages. In early 2018, Marc released his second book, You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners, which hit No. 1 on Amazon’s bestseller list.
Forever Dividend Stocks are stocks you’ll likely want to hold forever. When you reinvest the dividends, you will generate enormous and safe returns thanks to compounding. And when it’s time to collect the income, you’ll have more than you thought possible from a one-time investment (of course, if you continue to invest, you’ll have even more income).
In this report, I’ll uncover my six favorite dividend stocks that have been hand-selected from my Compound Income Portfolio – a foundational portfolio of The Oxford Income Letter.
The Compound Income Portfolio is designed for wealth seekers. This portfolio uses the immense power of dividend reinvestment plans (DRIPs) to compound dividends and grow wealth in a conservative manner.
The concept is very simple…
If you buy 1,000 shares of a $10 stock and receive a 4% yield, and that $400 (4% of $10,000) is reinvested… at the end of one year, you’ll have 1,040 shares (if the price of the stock stayed the same at $10). Those extra 40 shares will also generate dividends.
If the dividend grows 10% per year, after five years, you’ll have 1,275 shares.
After 10 years, you’ll own 1,881 shares. Keep in mind that all those shares will generate more and more dividends every year as the dividend goes higher.
Check out the compounding math. It’s mind-blowing.
If you achieve just the average market return, after 10 years, your original $10,000 will be worth $34,606. The annual yield on your DRIP will be 13.2%.
After 15 years, you’ll have $65,674 (and a yield of 28.4% on your original investment).
In 20 years, you’re looking at $126,446… and an astounding annual yield of 58.3%!
The easiest way to reinvest your dividends is to simply tell your broker you want your dividends reinvested. Most brokers offer this service free of charge. So you can buy a stock once, pay one (or no) commission and hold the stock for years without paying another dime as your nest egg grows.
One thing to remember: If the stocks are in a taxable account, you will owe taxes on the dividends even if you are reinvesting them and not collecting the cash. So be sure to have enough cash set aside to pay your taxes every year.
Now that I have covered the power of compounding, let’s get to the picks…
Forever Dividend Stock No. 1: Enterprise Products Partners LP (NYSE: EPD)
My first pick is a leading North American provider of midstream energy services. It is an integrated provider of processing and transportation services to producers of natural gas liquids (NGLs) and consumers of NGL products.
Enterprise Products Partners generates most of its revenue from connecting producers of natural gas and NGL products with domestic and international consumers.
It has increased its annual payout every year since it began paying a distribution in 1998 (partnerships pay distributions, not dividends). The annual distribution amount has grown by nearly 50% over the past 10 years. The current quarterly distribution is $0.50.
The company has consistently grown its distributable cash flow (DCF) over the last six years – from $4.0 billion in 2016 to $7.8 billion in 2022.
Its ability to generate increasing DCF is a good sign for investors looking to earn growing dividends.
It has a payout ratio of 80%, and it currently has an annual distribution yield of 7.36%.
Note that a distribution is not exactly the same as a dividend, especially when it comes to taxes. A distribution often consists of return of capital, which is not taxed as a dividend. In fact, it is not taxed at all in the year it is received. Instead, it lowers your cost basis and you pay capital gains tax when you sell the stock (assuming you sell for a profit).
Partnerships like Enterprise Products Partners send K-1 tax documents instead of 1099-DIV forms like other dividend payers. These K-1s can sometimes be a hassle, and your accountant may charge you more to handle them.
Forever Dividend Stock No. 2: NextEra Energy Partners LP (NYSE: NEP)
Our second pick is a company that pays a 13.79% yield and has raised its distribution for 36 quarters in a row.
NextEra Energy Partners is a growth-oriented limited partnership formed by utility giant NextEra Energy.
It was formed to acquire and manage clean-energy projects whose cash flows are secured by contracts, and its goal is to pay a growing dividend to shareholders.
NextEra Energy Partners has invested more than $20 billion in renewable energy technology and currently operates more than 17,000 megawatts of wind and solar generation in North America.
Since it first began paying dividends, NextEra Energy Partners has increased its distribution amount every quarter and has grown its annual distribution by roughly 15% in each of the last five years.
The company paid shareholders a total of $3.25 per share last year, and based on its stated goal of 12% to 15% annual distribution growth, it will pay shareholders about $3.70 per share in 2023.
Though NextEra Energy Partners is set up as a partnership, investors receive a 1099-DIV, not a K-1 statement.
Forever Dividend Stock No. 3: Texas Instruments (Nasdaq: TXN)
My next pick, Texas Instruments, is one of the world’s leading chipmakers.
Founded in 1930 and headquartered in Dallas, the company designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide.
It has a 3.10% yield, and it has been growing its dividend every year for the last 20 years. The rising dividend is a result of increasing profit margins and free cash flow. Texas Instruments has raised its dividend by an average of 13.47% over the last three years.
In 2022, it paid out 52.77% of its free cash flow in dividends, leaving plenty of room to continue raising dividends for shareholders.
Texas Instruments paid a quarterly dividend of $1.24 to shareholders in July, and it expects to pay more in 2024.
Forever Dividend Stock No. 4: AbbVie (NYSE: ABBV)
AbbVie is another long-term dividend pick.
The company is a global pharmaceuticals maker. Its two bestselling drugs are Imbruvica and Humira.
Imbruvica treats chronic lymphocytic leukemia, mantle cell lymphoma and Waldenström macroglobulinemia, another form of lymphoma. Imbruvica is also being studied in other cancers and is expected to become one of the bestselling cancer drugs ever.
In 2022, Imbruvica generated $4.5 billion in revenue.
And AbbVie’s bestselling drug, Humira – which treats rheumatoid arthritis, psoriasis and Crohn’s disease – is the bestselling drug in history.
It logged $21 billion in sales last year, a 3.8% increase from the year before.
The tremendous growth of Imbruvica and the rest of AbbVie’s portfolio is projected to lead to 35% growth in earnings per share over the next three years.
And during that time, AbbVie should continue the 9.63% annualized dividend growth it has managed over the last three years. The company has raised its dividend for 51 years in a row.
The company is currently paying a healthy 3.99% yield and has an 89.56% payout ratio. This yield compares favorably with AbbVie’s peers, as the average large cap pharmaceutical company has a yield of just 2.4%.
Forever Dividend Stock No. 5: RTX (NYSE: RTX)
Formerly known as Raytheon Technologies, RTX provides a wide range of defense products and services, from electronics systems to missile systems. It manufactures the same kind of forward-looking infrared imaging technology that Boston authorities used to apprehend the Boston Marathon bombers.
RTX’s biggest customer by far is the United States government. But its international business has been growing. The company has a $2.4 billion contract to provide Qatar with Patriot air and missile defense systems.
The world isn’t getting any safer, and it’s hard to imagine the United States or any other government cutting back on defense spending. And that means huge cash flows for RTX.
In the last 12 months, RTX has generated more than $7.2 billion in cash flow from operations. Though it’s not the highest yielder at 3.32%, it has raised its dividend every year for 30 years. As a result, it can easily be called a Forever Dividend Stock.
Forever Dividend Stock No. 6: Eaton (NYSE: ETN)
Sporting a 1.64% dividend yield that we expect to grow roughly 4% per year over the next several years, Eaton is the perfect setup for income seekers. Eaton produces equipment that helps customers manage power more efficiently. It’s a huge business that includes more than 92,000 employees across 60 countries and customers in 175 countries.
It makes flight control systems, beverage distribution tubing, switches for keypads and thousands of other products.
The company has increased its dividend yield by an average annual rate of roughly 4.5% over the last three years, and it pays out 50% of its earnings in dividends, indicating a healthy and sustainable payout ratio.
Eaton has paid a dividend every year since 1923, and considering the company’s cash flow growth estimates, it should continue increasing its dividend for the next several years.
After all, the company has raised its dividend 14 years in a row.
Importantly, its dividend involves a special tax treatment…
Eaton is based in Dublin, Ireland. Typically, U.S. investors would have foreign taxes withheld from their dividend payments and then would apply for the foreign tax credit from the IRS.
However, Eaton’s dividend does not have foreign tax withheld from it if you live in the U.S.
Additionally – and this is a very attractive feature – like a partnership’s distribution, Eaton’s dividend is mostly considered return of capital. That means most investors will not be taxed on it. Instead, it will lower their tax basis.
The Cure for Stock Market Volatility
Dividend stocks are the cure for stock market fear and volatility. While most investors bite their nails fretting about what the market will do in the coming days, weeks and months, you can sit back and collect your dividends with little worry – except what you are going to do with your increasing amount of income (a problem anyone would like to have).
The six stocks mentioned above have an average yield of 5.5% and have raised their dividend yields every year for an average of nearly 25 years. And as I mentioned before, the powers of reinvesting your income and compounding dividends will boost your annual dividend yield even higher.
Remember, these are not short-term picks. They are long-term holds, and all of them should be able to maintain high dividend payments over the long haul.
I’m confident that these Forever Dividend Stocks will help you create the wealthy retirement you’ve always dreamed of.
Good investing,
Marc Lichtenfeld
Chief Income Strategist, The Oxford Club
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