A lot of global risks, including Brexit and the potential of interest rates increasing, have been making financial markets quite volatile. To combat that short-term volatility, we should find long-term income stocks that we could buy and hold for the next 10 years.
For me, those long-term income stocks have to meet the following fundamental criteria. First, they own global diversified defensive consumer brand portfolios. Second, they have a history of paying uninterrupted dividends for more than a decade. Third, they currently offer dividend yields of more than 2%. Here are three UK dividend stocks meeting the above criteria.
Get drunk with a high cash return yield
I believe investors can sleep well at night when holding Diageo (LSE: DGE) in their portfolios. Diageo is considered one of the most well-diversified alcohol beverage corporations, with more than 200 different brands across 180 countries. Diageo is considered a true dividend aristocrat, as it has been raising dividends for more than 25 years straight.
With healthy cash flow generation, the company keeps returning cash to shareholders through both dividend payments and share buybacks. Apart from a recent 5% increase in the interim dividend, Diageo has also repurchased £1.3 billion worth of shares in the first half of fiscal 2019. It also announced the plan to increase the share buyback program to £3 billion, or 3.93% buyback yield. Diageo’s current dividend yield is decent at 2.26% at the time of writing. Thus, the total cash return yield for shareholders (including dividends and share buybacks) is as high as 6.19%.
Decent yield with a dividend hike plan
Next, I would like to discuss Unilever (LSE: ULVR). It owns global diversified consumer brands, which are used daily by two billion people in 190 countries around the world. It has around 310 factories in more than 70 countries. As consumers, every single day we encounter Unilever’s brands, such as Comfort, Surf for household cares, Dove, Vaseline for personal cares, and Lipton and Knorr for food & drinks. Unilever is also famous for paying uninterrupted dividends for more than a decade, with a consistent dividend increase in the past five years. Unilever has raised per-share dividend from €1.03 in 2013 to €1.50 in 2018, a 7.81% annual compounded growth. The company plans to further increase its dividend payment for 2019 by 6%. It is currently offering a good dividend yield at 3.3%.
Smoking good with this tobacco giant
Finally, the third income stock is tobacco giant British American Tobacco (LSE: BATS). With famous tobacco brands including Dunhill, Pall Mall and Kent, BATS is the market leader in more than 50 countries, operating in around 180 countries. Like Diageo and Unilever, BATS is also a consistent dividend payer for more than a decade. In the past two years, its stock has plunged by 50%, due to the out-of-favor tobacco industry factor, and the high debt level after the acquisition of Reynolds American. However, I reckon the significant drop in the share price creates a good buying opportunity for investors. A 20x price-to-earnings (P/E) stock that many investors want to own now becomes an out-of-favor 9x P/E stock, yielding as high as 7.36% in dividends.
With strong global brands, a history of uninterrupted dividend payment for more than a decade, I’d say all three stocks – Diageo, Unilever and British American Tobacco – are suitable for long-term income portfolios.
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Anh does not hold a position in any of the companies mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.