3 Great Income Stocks to Buy and Hold Forever

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Investors have different ways of generating returns on the stocks they own. Some chose to go with growth stocks, hopefully gaining outsized returns through stock price appreciation. Others are focused on income stocks, looking for potentially lower stock price appreciation in exchange for a regular cash dividend. Their emphasis is on finding stocks with higher yields and regularly growing dividends.

Investors looking for yield might want to consider real estate investment trusts (REITs) and utilities as part of their portfolio. These are often highly stable companies with above-average dividend yields. While these stocks are often known for being stodgy, slow growers, not all of them are. The first one in this list of three stocks has growth and income, which is a great combination in any stock market. 



Picture of a woman drawing a dollar sign.


© Getty Images
Picture of a woman drawing a dollar sign.

1. American Tower benefits from a long-term trend toward more mobile data usage

American Tower (NYSE: AMT) is a REIT with a great business model. American Tower is in the communications infrastructure business, which generally means cellphone towers. If you drive along the highway and see a fake tree that stands some 100 feet above the other trees, that would probably be a cellphone tower. American Tower builds these structures and then leases communications capacity on them to mobile phone companies, cable companies, and governments. 

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The mobile data sector has been growing at a rapid clip, which looks to continue as 5G becomes more popular. 5G will vastly increase upload and download speeds and reduce latency times. American Tower is in a highly concentrated industry, so its margins are huge, and there are big barriers to entry. American Tower has a 2.7% dividend yield and has a track record of increasing its dividend every single quarter for the past 10 years. Its stock has also risen 53% over the past five years, and that’s even with a 12% drop in the past year related to broader macroeconomic headwinds and an exodus from tech-focused stocks. For these reasons, American Tower is another great stock for income and growth investors alike to hold for the long term. 

2. Realty Income is a steady income payer

Realty Income (NYSE: O) is another REIT, but it has a somewhat different business model. Realty Income invests in single-occupant properties where most of the operating costs are borne by the tenant. These costs include maintenance, insurance, and taxes. These leases are referred to as “triple-net” leases, and they usually have long terms (like a decade or longer) and contain automatic rent escalators. These leases are extremely expensive to break, so a lot rides on vetting tenants to ensure they can fulfill such a commitment. 

This means that Realty Income’s tenants must be able to withstand a recession. Realty Income’s tenant base is highly defensive in that their typical tenant is in the consumer non-discretionary sector. The company’s best tenants include drug stores, convenience stores, and dollar stores. Realty Income was one of the few REITs that didn’t have to cut dividends during the COVID-19 pandemic. In fact, Realty Income hiked its dividend during the pandemic. The stock yields 4.5% and should be a core holding in an income investor’s portfolio. 

3. Regulated utilities are a highly conservative business

Duke Energy (NYSE: DUK) is a regulated utility based in the Southeast. Regulated utilities provide electricity and gas services and are generally granted a local monopoly. In exchange for this local monopoly, they subject themselves to a high degree of regulation. Part of the bargain is that the regulators get to determine how much they can charge for their services. Every state in the U.S. has some sort of Public Utility Commission that sets rates, mandates a certain amount of renewable investment, and specifies how much the company must spend on things like tree clearing. 

While this sounds bad for the investor, there are positives. Regulated utilities are generally paid a percentage return on their investment in equipment. The idea is that the regulators will set a permissible profit level. They could shoot themselves in the foot since regulated utilities have a lot of debt, and their borrowing costs will increase if profit falls too low. This will force the utility to raise rates to compensate. Duke Energy has a dividend yield of 3.8% and is another good choice for an income investor. 

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Brent Nyitray, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Tower. The Motley Fool recommends Duke Energy. The Motley Fool has a disclosure policy.

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