3 Safe Buy-and-Hold Dividend Stocks With Strong Balance Sheets

Key Points

• Costco offers consistent dividend growth, a strong balance sheet, and over 266% total return in five years despite a modest 0.5% yield.
• ADM has 53 straight years of dividend increases and a 3.3% yield, supported by a low debt-to-equity ratio of 0.34.
• Medtronic combines a 3.3% yield with 49 years of dividend growth, and strong positioning in AI-driven healthcare innovation.

Dividend yield is a commonly used metric for finding dividend stocks to buy and hold. The dividend yield is the amount of a company’s dividend as a percentage of its stock price. Since a company’s stock price can fluctuate every day, so will the dividend yield. However, because many of these are mature companies, investors don’t expect wide swings in a company’s dividend yield.

Another shared trait of dividend stocks that are built for the long haul is a strong balance sheet. Investors can measure that by looking at the company’s debt-to-equity ratio, which measures a company’s level of debt in relation to the overall value of its stock.

A company with a debt-to-equity ratio of one means that it has $1 in debt for every $1 in shareholder equity. Since dividends are part of that equity, investors want to know that their dividend isn’t at risk, as it could be if a company’s level of debt is too high.

An example of this was 3M NYSE: MMM. The company was a dividend king that had delivered 65 consecutive years of dividend increases. However, the company ran into financial problems due to legal liabilities (from two separate lawsuits involving forever chemicals and military-grade earplugs). Its debt-to-equity ratio climbed to over 50% resulting in a 35% dividend cut.

A reliable yield and low debt-to-equity ratios make these three stocks safe bets for buy-and-hold investors.

Costco: A Total Return Dynamo

Costco Wholesale Corp. NASDAQ: COST is up 15% in the last 12 months. This comes at a time when many investors are questioning the stock’s valuation. At 55x earnings, it’s trading at a premium to its historical levels. Plus, one share of COST stock is around $1,000.

But there’s no way around it. COST stock is a must-own stock because it generates a consistent total return. That is the combination of stock price growth plus dividends. In the five years ending in June, Costco has delivered a total return of over 266%.

Perhaps the most impressive part is that Costco is doing this with a debt-to-equity ratio of just 0.21%. That means investors should have no concerns about the company’s ability to raise its dividend as it has for the last 22 consecutive years.

Investors should look beyond the 0.5% yield as a reflection of the company’s stock price. Instead, they can focus on the 12.7% average dividend growth over the last three years as a better reflection on the growth and value in COST stock.

Archer-Daniels-Midland: Cyclical Growth Backed by Compounding Gains

Archer-Daniels-Midland Co. NYSE: ADM is part of an elite group of stocks known as dividend kings. These are companies that have increased their dividends for at least 50 consecutive years. In the case of Archer-Daniels-Midland, that streak is 53 years. With a debt-to-equity ratio of 0.34%, that streak is in no danger.

But if total return is of primary importance, there are better options. The growth of a company like Archer-Daniels-Midland is tied closely to commodity prices, which are notoriously cyclical.

That’s been evident in the ADM stock chart over the last five years. Its reliance on commodity prices makes it different from many consumer staples stocks that are more defensive in nature.

With a P/E ratio of over 12x, the stock is inexpensive to the broader market, but expensive compared to its historical average. That's also evident in its price-to-earnings plus growth (PEG) ratio, which is at 2.94.

Medtronic: Long-Term Growth Is Inevitable

Medtronic PLC NYSE: MDT is part of the growing robotic surgery and medical technology industry. The company is perfectly positioned for the aging of America, which will create steady demand for the company’s products and services. It's also well-positioned in the area of AI and machine learning.

That's all well and good, but Medtronic shareholders are wondering when the company will put it all together. That's impossible to say, but shareholders have been collecting a dividend that’s been growing for 49 years and has an impressive 3.30% yield.

They also get a stock that’s trading at a discount to itself with its P/E ratio around 23x.

The company’s debt-to-equity ratio of around 0.53% is impressive, considering the amount of investment it needs to make to continue delivering innovative products.