3 Passive Income Stocks to Hold for the Next 20 Years | The Motley Fool (2024)

If dividends are your thing, you're most likely a long-term investor. After all, the dividend snowball takes time. You're probably looking for the compounding effect that creates massive wealth after years of dividends reinvested to buy more shares, which then pay more dividends.

This winning strategy isn't a gimme, though. You must find companies with the financial chops to grow and raise their dividends over time. Below, you'll find three dividend stocks with such track records and are also poised to continue delivering dividend growth.

Here are three dividend machines you can hold for the next 20 years.

1. Add the golden arches to your portfolio

McDonald's (MCD -0.65%) is one of the world's most recognizable brands. Its famous golden arches logo has become a global staple in the restaurant business, with roughly 40,275 restaurants worldwide. McDonald's primarily makes money as a franchise business by selling its branding and intellectual properties to franchisees who pay to open restaurant locations. The company collects rent from the land the restaurant is on, an initial franchise fee, and royalties on restaurant sales.

Approximately 95% of McDonald's restaurants are franchised, giving the company a steady revenue stream. Stable, growing businesses make for great dividend stocks, and McDonald's has delivered. The company has paid and raised its dividend for 48 consecutive years. Below, the dividend payout ratio is still very manageable at 65%.

MCD Dividend data by YCharts.

Investors should expect more dividend increases in the future. The company recently announced plans to increase the royalty fees on its new and refranchised locations beginning in January. That's just another growth lever to pull for a company that's established itself as a dependable dividend stock for any long-term investor.

2. A snack and beverage giant

PepsiCo (PEP -0.33%) is another company that has been feeding consumers for generations. While most people know its namesake soda brand, this is a massive snack and beverage conglomerate with brands like Gatorade, Quaker, Mountain Dew, Doritos, Frito Lay, Dole, and more. Its combination of food and beverages gives it leverage for grocery store shelf space that maybe only arch-rival Coca-Cola can rival.

The company has a dividend history spanning more than five decades, with 51 consecutive dividend raises. Investors may note that PepsiCo's payout ratio is a bit high for comfort at 94%. That shouldn't remain an issue, though. The company has shown over the summer that it can raise its prices without turning off consumers. Additionally, analysts believe the company can grow sales at a mid-single-digit rate. As profits grow, that payout ratio could begin moving lower over the next several years.

PEP Dividend data by YCharts.

If that doesn't give you peace of mind, note that PepsiCo also has over $10 billion in cash on its balance sheet, enough to fund the dividend for over a year. Businesses have ups and downs, but PepsiCo is an entrenched force at your local grocery store, and it's hard to see that changing anytime soon. Long-term dividend investors can buy PepsiCo with confidence that its dividend will keep coming.

3. A stock that offers a strong portfolio foundation

The Home Depot (HD -0.20%) takes investors from the grocery aisle to the tool section at their local home improvement store.

In fact, Home Depot is the world's largest home improvement retailer, selling various tools, materials, appliances, and services. It has more than 2,300 stores across the United States, Canada, and Mexico. Residential real estate is a tremendous part of the economy, and Home Depot sells both to homeowners doing a weekend project and professional contractors and homebuilders.

The company is steadily building an excellent track record as a dividend stock. Home Depot has paid its dividend for just 14 consecutive years, but it's raising the payout quickly. The average dividend raise has been nearly 16% for the past five years. The payout ratio is only 50% of Home Depot's cash profits.

HD Dividend data by YCharts.

Homeowners know that houses require constant upkeep, and they're most people's largest lifetime purchase, so there's an emotional attachment that stokes a desire for remodeling and upgrades. Home Depot is the elephant in the home improvement industry, and its already-sparkling fundamentals should have investors feeling great about the next 20 years.