2 Dividend Growth Stocks to Buy and Hold Forever

Key Points

• Investing in attractive dividend growth stocks can lead to superior long-term returns.

• The two healthcare companies below generally deliver excellent returns and dividend growth.

• Both have long-term tailwinds that can allow them to maintain solid performances over the long run.

For investors focused on the long game, there is little reason to sell -- at least, so long as a company generates solid returns through consistently improving financial results, regularly increases its dividend (if it pays one), and maintains strong growth prospects. Although it's sometimes difficult to find corporations that can do all that over long periods, stocks of this caliber do exist.

Consider the following two healthcare leaders: Zoetis (NYSE: ZTS) and Eli Lilly (NYSE: LLY). They have checked all of those boxes over the past decade, and there are good reasons to believe they can continue to do so for a very long time, making them excellent "forever" stocks. Read on to learn more about these companies.

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1. Zoetis

Zoetis is a leading animal health company with a diverse portfolio of products spanning various categories, including livestock, companion animals, and more. The company has 15 products that generate over $100 million in annual sales and consistently grows its revenue at a rate faster than most of its peers. Between 2014 and 2023, the company's top line increased at a compound annual growth rate of 8%, compared to the 5% the industry average.

The company has encountered some headwinds recently. Most notably, recent drug approvals by competitors could challenge the market share of one of Zoetis' most significant growth drivers, Apoquel, which helps treat allergic itch in dogs. Even so, Zoetis has dealt with competition for years and has still performed well. Although this issue may somewhat affect its results in the short term, the company's prospects look attractive for several reasons. First, Zoetis will continue to launch newer products.

It has proven itself to be an innovative leader in the animal health industry. Some of Zoetis' recent approvals, such as Solensia (first approved in 2022) and Librela (first approved in 2023) -- which treat osteoarthritis pain in cats and dogs, respectively -- are already helping drive sales growth. There will undoubtedly be plenty more such commercial launches in the future.

In the long run, Zoetis will benefit from the growth in the pet population, which has been ongoing for several decades in countries like the U.S., as well as other trends such as increased demand for protein sources due to human population growth, resulting in a greater need for products that help care for livestock. Zoetis can ride these tailwinds for a very long time.

Finally, the company offers a solid dividend program, despite a forward yield of just 1.3%, which is equal to the average yield for the S&P 500 index. Still, Zoetis' payouts have increased by an impressive 502% over the past decade. Yet its payout ratio of 31.6% remains conservative. There is ample space for more dividend hikes for Zoetis. Expect the company to offer consistent payouts and solid returns over the long run.

2. Eli Lilly

Eli Lilly has garnered significant attention in the past five years for its work in weight management, but the company has also quietly increased its dividends at a steady pace. The drugmaker's payouts have doubled over the past five years. That's not surprising. Eli Lilly's business seems to be firing on all cylinders. Revenue and earnings have been growing rapidly. The company's first-quarter top line jumped 45% year over year to $12.7 billion.

Most similarly sized pharmaceutical leaders would be thrilled to increase their revenue by a third of that percentage. That speaks volumes about Eli Lilly. And while its recent clinical and regulatory successes in the anti-obesity space are doing most of the heavy lifting, the company isn't a one-trick pony. Eli Lilly has blockbuster medicines in other areas, such as immunology -- with Taltz -- and oncology, thanks to Verzenio.

Even the company's pipeline is diversified across multiple therapeutic areas. It has recent approvals, too. Such products as Kisunla, which treats Alzheimer's disease, could eventually generate more than $1 billion in annual sales. Here's the point: Eli Lilly is an incredibly innovative company with a leadership position in diabetes and obesity, as well as significant footprints in other fields. The company is well positioned to develop new and improved products while generating above-average returns over the long term.

That's why dividend investors shouldn't be turned off by the company's low 0.8% forward yield. Eli Lilly's solid track record and modest cash payout ratio of 44% tell us plenty. That, combined with Eli Lilly's strong underlying business, makes it an attractive buy-and-hold option.

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Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has positions in and recommends Zoetis. The Motley Fool has a disclosure policy.