The Best Dividend Stocks to Hold Forever

By Carla Pasternak
May 25, 2011

As the director of income research for StreetAuthority's premium newsletter High-Yield Investing, I'm responsible for providing winning income ideas to more than 30,000 readers each month. You can guess that I'm always peppered with questions about dividend stocks.

But one question is asked more than any other: "What should I buy?"

It can be a tough one to answer. After all, everyone has different goals for their portfolio. Some want the safest dividends possible. Others want the highest yields they can find. Still others are looking for a combination of growth and yield.

So when I answer, I make it simple on myself. I tell people to buy income stocks they'll want to own forever.

In my mind, these "forever" stocks are the safe, reliable securities that increase dividends year after year. The securities you want to hold forever should come courtesy of businesses so fundamental that demand never falters.

For income stocks, this kind of unwavering demand drives reliable dividend growth. Year in and year out, regardless of circumstance, these stocks can power -- and even raise -- dividends.

[InvestingAnswers Feature: 4 Steps to Finding the S&P 500's Safest Dividend]

This sort of steady demand isn't a fairy tale. For example, StoneMor Partners LP (Nasdaq: STON) is the nation's second-largest owner/operator of cemeteries. It operates more than 250 cemeteries and 60-plus funeral homes across the United States. The company takes one of life's certainties and channels it into consistent dividend growth.

Since going public about seven years ago, StoneMor has increased dividends 10 times. The latest increase came just last month. StoneMor now pays $2.34 per share annually and yields a generous 9.8% at today's share price.

But along with steady growth, a "hold forever" gem must also have safe dividends. This means dividends are comfortably covered by cash flow. In April 2011, StoneMor increased its distribution to $0.585 a share for the first quarter. Still, distributable cash flow of $14.0 million easily covered the $9.3 million in distributions paid during the quarter.

Truth be told, the graying of our population is a great place to look for long-term holdings. It's one trend that shows no sign of reversing for decades.

#-ad_banner_2-#That's why I am also a fan of Senior Housing Properties Trust (NYSE: SNH). Senior Housing Properties owns independent and assisted-living facilities that cater to seniors. It owns more than 300 housing sites across the country.

Senior Housing began paying dividends in 2000 and has raised them steadily since then, a few pennies at a time. There has never been a dividend cut, even during the recent recession. The company hiked dividends twice in 2007, once in 2009 and again in 2010. Today, Senior Housing's yield is approaching 6.5%.

Distributions are safe because Senior Housing easily covers payments from its funds from operations (FFO). In the first quarter of 2011, the company reported $62.1 million in FFO, paying out $52.5 million to investors. Moreover, reliable cash flow is ensured by long-term leases on properties and growth comes from built-in rent increases.

Of course, there is no such thing as a perfect investment. Even with long-term holdings, you have to be willing to overlook a few blemishes. For instance, Senior Housing Properties relies on one tenant -- Five Star Quality Care -- for more than 50% of its income.

At this point, however, I think the benefits of steady demand and reliable dividends outweigh the risks, and those are two characterisitcs of an income stock I'll want to hold for a very long time.

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