Want Decades of Passive Income? 3 Stocks to Buy Now and Hold Forever

Key Points

• AbbVie has a roughly 3% yield, limited patent cliff risk, and an aesthetic niche that has long legs.

• Coca-Cola has a roughly 3.1% yield, a well-run business, and an attractive valuation.

• Chevron has a 4.3% yield, a rock-solid balance sheet, and a business model built to survive the hardest times.

• 10 stocks we like better than AbbVie ›

Stocks in the S&P 500 (SNPINDEX: ^GSPC) offer a miserly yield of 1.2% (on average) today. You can do way better than that and still invest in very attractive businesses. To prove that out, just look at pharmaceutical giant AbbVie (NYSE: ABBV) and its 3% yield, beverage giant Coca-Cola (NYSE: KO) and its 3.1% yield, and integrated energy giant Chevron (NYSE: CVX) and its 4.3% yield.

Here's a primer on each of these buy-and-hold dividend stocks.

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1. AbbVie has a unique foundation

AbbVie is a large pharmaceutical company. It faces all of the challenges of that industry, notably including the risk of patent cliffs. That's when a blockbuster drug loses its patent protection and revenues "fall off a cliff." There's really nothing unusual on that front, but AbbVie has already lived through the worst of its patent cliff issues for a while, with the expiration of its patent on Humira. It has a modest risk with the expiration of antipsychotic drug Vraylar's patent in 2029, but two of its most promising new drugs, Skyrizi and Rinvoq (which are both similar to Humira), have patent protections out to 2033 and 2037, respectively. In other words, AbbVie has plenty of time to find more new drugs.

There's a subtle story underneath those headline-grabbing drugs in the company's Botox business, which is a major product in the cosmetic space. That said, it has therapeutic uses, too, like treating migraines. The brand recognition of Botox and its wide use give it an edge over the competition and should make it a strong support for the pharmaceutical company's long-term growth. AbbVie has increased its dividend annually for over a decade, and it seems highly likely it will keep that streak going, noting that its cash flows more than adequately cover its dividend.

2. Coca-Cola's price is reasonable after a modest sell-off

Coca-Cola is both a Dividend King and one of the largest consumer staples companies on planet Earth. It owns an impressive collection of brands and has distribution, marketing, and innovation skills that are top-notch. It is also large enough to act as an industry consolidator, allowing the company to buy new brands and drink concepts as needed to keep pace with consumer tastes. If you are looking for a reliable dividend stock, this beverage giant should be on your short list.

That said, now is an attractive time to buy Coca-Cola stock. The company's strengths are well known, and it very rarely goes on sale. So a fair to slightly cheap price is something to take advantage of when it comes around. Right now, Coca-Cola's price-to-sales, price-to-earnings, and price-to-book value ratios are all below their five-year averages. Add in the 3.1% yield, and long-term income investors should probably consider buying this industry-leading beverage company with the idea of holding it forever.

3. Chevron is built to survive energy swings

Chevron is going to be the hardest sell on the list, given the inherent volatility of the energy sector. But you want some energy exposure in your portfolio because energy is so important to modern life. And Chevron's integrated energy model helps to soften the industry's swings. Being integrated means it has exposure to the upstream (energy production), the midstream (energy transportation), and the downstream (energy refining and chemicals). Each operates a little differently through the cycle, helping to smooth out revenue and earnings.

But the real key to the company's success on the dividend front, noting its 38-year streak of annual dividend increases, is found on the balance sheet. Chevron's debt-to-equity ratio is a very modest 0.2x. That gives management the leeway to add debt during industry downturns so it can support the business and the dividend. When oil prices recover, as they have always done historically, the company reduces its leverage again. The attractive 4.3% yield backed by the attractive business model should make this a top pick (and long-term hold) for most dividend investors, even conservative ones.

There are plenty of options if you look for them

It is easy to say the market is expensive, which it is, and then give up. But if you are trying to live off the income your portfolio generates, that's not a solution. You need to find good dividend stocks that can keep paying you well for years. Right now, AbbVie, Coca-Cola, and Chevron look like they would fit well in most long-term dividend portfolios. And that's true even though the market is hovering near all-time highs.

Should you invest $1,000 in AbbVie right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie and Chevron. The Motley Fool has a disclosure policy.