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3 Reliable Dividend Stocks to Buy and Hold Forever

The Motley Fool logo The Motley Fool 10/30/2022 Liz Brumer-Smith, Mike Price, and Kristi Waterworth

Dividend stocks' reliable payments and potential for payout growth year after year make them a fantastic source for passive income streams. Unfortunately, not all dividend stocks offer the same level of reliability over the long term.

Some stocks are known to cut their dividends when times get tough. Considering we're on rocky economic footing, reliability is more important than ever. Three stocks that offer tremendous reliability for investors today are Digital Realty Trust (NYSE: DLR), Weyerhaeuser (NYSE: WY), and W.P. Carey (NYSE: WPC).

Here's a closer look at these companies, which Motley Fool contributors say are their top dividend stocks to buy and hold forever.

Two people in a server farm © Getty Images Two people in a server farm

Digital Realty Trust's long horizon is why it's a winner

Kristi Waterworth (Digital Realty Trust): We live in a digital world that's only increasing in size and depth. There's almost nothing you do during your day now that doesn't somehow touch the digital world. Most people are well aware of big digital companies like social media businesses, software giants, and even tech companies that help develop new hardware. But fewer know about the layer that supports all of this.

The server farms -- endless banks of digital storage within physical facilities -- are the reason we can have so much technology so seamlessly integrated into our lives. That's why Digital Realty Trust is a dividend stock I'll hold forever. It's not just a stock, but a data center REIT that offers a whole different kind of real estate: the digital kind, and it's been growing steadily since it first went public in 2004.

Today, Digital Realty Trust's quarterly dividend is sitting at $1.22, for a yield of 4.64%, but it started at just $0.1563 in January 2005. Although the company's earnings are influenced by digital trends, it has so far always increased dividend distributions, and currently has a compound annual growth rate of 10%, which isn't shabby at all.

This is largely due to the conservative leadership of Digital Realty, and its forward-looking approach toward leasing space. As of right now, about 50% of its income comes from 20 massive investment-grade tenants with remaining lease terms of almost six years.

But that's only half the story. As of third-quarter reporting, the REIT currently has 44 projects under development across 27 cities globally, all set to start going online from the fourth quarter of 2022 through the third quarter of 2024.

Four of these data centers are already fully leased, and on average, the facilities that are actively leasing (many haven't started accepting lease commitments yet) have over 60% of their space spoken for. These are massive facilities running upward of 650,000 total square feet per site.

Although spending within the company has been high the last year, due to new acquisitions and more facilities being constructed, these pre-leases show that there's a huge appetite for what Digital Realty Trust has to offer, and that they offer it at a reasonable price. This is what they are and what they do, and it's why they'll always be in my portfolio.

Insulate your portfolio from inflation with trees

Mike Price (Weyerhaeuser): Weyerhaeuser isn't your run-of-the-mill REIT. It doesn't own industrial buildings or apartment complexes, it owns trees. The REIT is one of the biggest timberland owners in the world.

Its trees are converted into lumber, oriented strand board (OSB), or other engineered wood products. In the past, the company owned several other segments to convert lumber into other related products, such as paper, but in recent years it has pursued a focused strategy on timber and its closest byproducts.

Timber businesses can be great investments if they're run by smart capital allocators. Management teams can time the sale of timber for when the market is in their favor and then use that cash to buy back stock when it isn't producing outsize returns. Of course, those returns can be choppy. If timber prices or the housing market are suffering, the stock probably will be as well. But good management teams use that time to buy back shares.

In Weyerhaeuser's case, the stock shot up from $20 per share to over $40 following the pandemic as inflation fears got going. Once interest rates started going up in 2022, the stock price fell from $40 to $30, and management started buying back shares.

From the start of 2021 through the end of September 2022, the company reduced debt by $375 million and returned over $2 billion of cash to shareholders thanks to windfall profits created by the surging housing market. As long as the share price stays around $30, expect the buybacks to keep coming. The company has $1 billion in authorized repurchases. It currently yields 2.33%.

This is what you want with Weyerhaeuser. It isn't really a core holding. It's a defensive stock that does well during inflationary periods and returns value to shareholders during downturns.

W.P. Carey's diverse portfolio adds to its reliability

Liz Brumer-Smith (W.P. Carey): W.P. Carey is a diversified net lease REIT, meaning it owns and leases a variety of properties, such as industrial warehouses, self-storage facilities, retail space, and office buildings. As of the second quarter of 2022, the company had interest or ownership in roughly 1,350 different properties across Europe and North America, making it one of the larger net lease operators in the industry.

The net lease industry has a strong reputation for reliability and resilience during tough economic times. Triple net leases (NNN) in particular pass most responsibilities onto the tenants, meaning there's low overhead for W.P. Carey. Plus, NNN leases have built-in rent escalators, helping its income grow over the term of the leases, which can extend from 7 to 10 years, or longer.

Its diverse portfolio also adds to its income reliability. By specializing in a wide range of industries, it reduces its exposure to economic impacts for each of the respective commercial real estate industries. For example, if retail sales start to falter, it still has self-storage and industrial warehouses to help support its income stream in the event of tenant defaults.

The company has raised its dividend annually for the past 25 years. This long-standing track record of dividend raises would give the stock Dividend Aristocrat status if it was a part of the S&P 500. Since it's not in the S&P, it often gets overlooked despite its incredible dividend reliability.

Its portfolio occupancy remains strong at 99.1%. Its dividend payout of 83.5% is safe considering the company has manageable debt ratios and $103 million in liquidity. W.P. Carey also offers the highest dividend yield of these three stocks, at roughly 5.6%. 

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Kristi Waterworth has positions in Digital Realty Trust. Liz Brumer-Smith has positions in Digital Realty Trust. Mike Price has positions in Weyerhaeuser. The Motley Fool has positions in and recommends Digital Realty Trust. The Motley Fool recommends W. P. Carey. The Motley Fool has a disclosure policy.

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