Buying top dividend stocks and holding them long-term can be a great approach to building your investment portfolio. It boils down to holding shares of companies that have historically provided reliable dividends (as well as dividend growth) in all sorts of market environments. The challenge, of course, is finding the right companies to invest in.
The search should begin with companies that have consistent track records of financial growth. It helps if they also have considerable economic moats that are primed for long-term expansion. Finally, they should consistently raise their dividends over several years.
Here are two such dividend stocks that have real potential to deliver optimal performance through 2030 and beyond. If you have $1,000 in available cash that isn't needed to pay monthly bills, bolster an emergency fund, or pay down short-term debt, you might want to put it toward shares in these two dividend stocks.
1. UnitedHealth Group
UnitedHealth Group(NYSE: UNH) has consistently paid dividends for over 30 years. It initiated its first dividend in 1990, which was paid on an annual basis at that time.
The company has been paying consistent quarterly dividends since 2010. Over the trailing five-year period, UnitedHealth Group's dividend has risen by nearly 100%. At the time of this article, the company's dividend yield is 1.6%, with a forward annual dividend rate of $8.40 per share. That yield is right in line with the yield of the average dividend stock on the S&P 500 (1.5%).
Examining the business purely from a fundamentals perspective, UnitedHealth Group has been and remains the world's largest healthcare company by revenue. It makes money from two primary divisions -- its insurance wing UnitedHealthcare and its health services segment Optum. The UnitedHealthcare division is still the primary source of revenue for the business, but the Optum segment is quickly catching up.
Most of the company's money comes from collecting premiums from customers for health insurance plans, including employer-sponsored plans, individual health plans, Medicaid, and Medicare Advantage. The Optum business includes a range of services including pharmacy benefits, data analytics services, and healthcare provider networks.
Optum Rx, the company's pharmacy benefit manager (PBM), negotiates drug prices with manufacturers and collects fees from pharmacies and is one of the largest PBMs in the country. Another part of the Optum business is Optum Health, which provides healthcare services including home-based care and care coordination.
UnitedHealth Group reported total revenue of more than $400 billion in 2024, up 8% year over year. The company grew its cohort of domestic customers served by the UnitedHealthcare business by 2.1 million, while its cohort of Optum patients increased by 600,000. Total earnings from operations for the 12-month period were down slightly from the prior year but totaled $32.3 billion.
Cash flow from operations for the full year was $24.2 billion, 1.6 times its net income. Last year, UnitedHealth Group returned over $16 billion to shareholders through dividends and share repurchases.
Insurance companies have become somewhat controversial in recent years as the general public (especially in the U.S.) has expressed their displeasure with the healthcare system and with insurance companies (including through acts of violence). There is an increasing public push for changes to the system. Investors who put cash into this space will need to factor in the potential for regulatory changes (including antitrust investigations). So do your homework before buying.
2. Costco Wholesale
Costco Wholesale(NASDAQ: COST) is a dividend stock in a completely different sector of the economy. The company's chain of warehouse-style retail locations in multiple countries (but mostly in the U.S.) sells select goods (often at a discount) to shoppers willing to pay for an annual membership.
From a dividend perspective, there are a few elements to consider with this stock. The annual yield on its regular dividend is on the low end -- less than 1% at the time of this writing. However, that doesn't tell the whole story about the company's status for income investors and those seeking to put cash into a tried-and-true business like Costco's. Sometimes, an above-average dividend yield is a function of a stock price that has sunk significantly. This may or may not be due to underlying business issues, but the point is, yield isn't the only thing to look at.
A more modest yield is fairly common with companies that deliver steady, meaningful share-price performance. Costco's share price is up nearly 230% over the past five years (a compound annual return of 28.7%). That strong price performance is naturally going to depress the yield.
Costco's yield is low, but its stock's forward annual dividend is $4.64. Its quarterly base dividend has increased by 78% in that period (up about 12.4% a year). The company has raised its dividend every single year for 20 consecutive years.
As icing on the cake, it also pays a special dividend from time to time. Its last special dividend was paid out in early 2024, at $15 for every share owned by investors. Prior to that, it paid out a special dividend of $10 a share in December 2020.
Costco's business model revolves around its members-focused warehouses. Technically, non-members can shop on Costco's website but will pay a surcharge, and some items are available for members only. Broadly speaking, Costco incentivizes customers to buy a membership to access the full scope of the items it sells, and many of them are available at greater quantities and lower costs than shoppers could find elsewhere.
The business model involves selling its products at a low margin, resulting in low profits from its merchandise. The company sources products from vetted suppliers and negotiates favorable pricing terms to secure high-quality goods in bulk. It then passes those savings down to consumers. This is something it can do because of its recurring membership model.
As a result, membership fees account for the lion's share of Costco's profits, even though most of its revenue comes from retail sales. Those fees also give Costco wiggle room to operate with lower product margins than some competitors and still be impressively profitable.
Costco's revenue in the first quarter of its fiscal 2025 totaled $62.2 billion, up 7.5% from one year ago. Of that overall revenue, about $61 billion was derived from net sales of its products and services, while $1.2 billion was from membership fees. Net income totaled $1.8 billion, up 13% on a year-over-year basis. This time-tested business can continue to be a great source of growth and dividends for investors in the years ahead.
It's better to invest regularly and methodically
If you have cash to put into the stock market, you should take care to only use money that you won't need for bills or other financial commitments. Ideally, you should leave the money you put into stocks for at least three to five years at minimum to give your investment time to grow.
If you have $1,000 that you want to put to work in the stock market, you might consider putting $500 into each of the stocks mentioned above. However, it's important to focus on diversifying your investment portfolio across 25 or more stocks from various sectors that have quality underlying businesses.
The composition of your ideal portfolio will ultimately depend on your interests, risk tolerance, and investment preferences. Even if you have a smaller amount of cash to put to work, practices like dollar-cost averaging into quality companies can help you build enviable returns with time.
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Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
