3 Blue Chip Dividend Stocks to Buy and Hold Forever

The stock market is full of noise, but over the long term, some of the best investments are made by choosing a quality company and holding it over several years, if not decades.

For example, Warren Buffett-led Berkshire Hathaway acquired most of its Coca-Cola and American Express holdings over 30 years ago. Both investments have compounded greatly, each providing hundreds of millions of dollars in dividend income for Berkshire each year. Moreover, Berkshire's stake in both companies has increased thanks to share buybacks.

Union Pacific (NYSE: UNP), United Parcel Service (NYSE: UPS), and Clorox (NYSE: CLX) all have what it takes to be lifelong holdings as well, especially if you're interested in generating passive income. Here's why these companies stand out as solid blue chip dividend stocks to buy now and hold forever.

A hand stacking stones in increasingly taller towers.

Union Pacific is a safe way to generate income from investing

Lee Samaha (Union Pacific): The West Coast railroad operates in an effective duopoly in its geography. While railroads face competition from trucking and other forms of transportation, the fact that they own their infrastructure creates a significant business moat.

If there are doubts about the cash-generative and relatively safe nature of the railroad business, consider that Warren Buffett's Berkshire Hathaway owns BNSF, Union Pacific's main rival and the largest railroad in the U.S.

Railroad revenue-growth prospects are typically aligned with the industrial economy at large. As long as there's a need to transport physical goods across the U.S., railroads will continue to be profitable. In addition, over the last decade, the industry has made great strides in improving profitability by implementing precision scheduled railroading (PSR) management techniques.

Under PSR, railroads focus on running trains on fixed times and fixed schedules to move freight cars, rather than wait for a long train to build up full of freight cars and then depart. With PSR, railroads can cut back on hubs and monitor a series of metrics (terminal dwell, freight-car velocity, locomotive productivity, etc.) to reduce operating expenses.

While slowing economic growth will still impact profit margins, PSR adoption has raised profit margins in the industry overall. As such, a combination of a safe market position, revenue tied to economic growth, and profit kickers are coming from PSR initiatives.

UNP Operating Margin (TTM)

Despire the bears' disapproval, UPS has a bright future

Scott Levine (UPS): Picking up blue chip stocks that pay dividends is a great way to fortify your portfolio and build a robust stream of passive income. But finding blue chip stocks like UPS that offer high-yield payouts, such as the 4.8% forward-yielding dividend that Big Brown offers, isn't easy. UPS is a company that's well-positioned to continue rewarding shareholders for years to come.

It's no secret that market sentiment for UPS has soured over the past year. While the S&P 500 has raced more than 24% higher, shares of UPS have plunged about 23%. The stock's decline primarily stems from the company's weak performance in 2023. Revenue and operating profit dropped 9.3% and 28.7%, respectively.

Disconcerting as this may be for potential investors, it's important to recognize that nothing catastrophic has happened with the company. Management attributes the poor performance to weakness in Europe -- a disappointment for sure but only a temporary headwind.

The company expects to return to growth before long. Providing an auspicious outlook, management projects revenue will climb to $108 billion to $114 billion in 2026. Similarly, management forecasts free cash flow rising to about $17.5 billion in 2026, which would be a considerable increase over the $5.3 billion in free cash flow that the company reported in 2023.

Between the company's shrinking business in 2023 and the current high dividend yield, skeptical investors may balk at buying shares, fearing that the company's financial health is in jeopardy. But a quick look at the financials suggests otherwise.

Over the past five years, UPS has taken a judicious approach to rewarding shareholders, averaging a payout ratio of 66%. Meanwhile, investors can look to see how well the company meets its 2024 guidance of $92 billion to $94.5 billion in revenue and adjusted operating margin of 10% to 10.6%.

Clorox's reliable and growing dividend is a compelling opportunity

Daniel Foelber (Clorox): At their core, consumer-facing companies like Clorox grow earnings through the increased sales volume of existing products, new product development/acquisitions, and price increases. To succeed, a company has to be able to forecast buying trends with some level of accuracy although it's impossible to be perfect.

What you don't want to see is a glaring overestimate or underestimate of demand. And unfortunately, that's exactly what Clorox did after its pandemic-induced surge in cleaning and hygiene products.

It's hard to believe, but the price of Clorox stock is now down over the last five years, more than erasing its 2020 gains, even though its sales are up. The glaring problem is costs, which have gone through the roof as Clorox mismanaged manufacturing expenses and raised operating expenses.

CLX

The good news is that management is painfully aware of this problem and is getting costs under control. Analyst consensus estimates for Clorox's forward earnings are fairly pessimistic, so there's no pressure for Clorox to stage an epic turnaround. In the meantime, the stock offers a whopping 3.5% dividend yield, which is far higher than the consumer staples sector average of 2.7%.

It's especially important to take a step back and look at the company's strengths at times like these, specifically identifying the characteristics that will lead to compound earnings and dividend growth over time.

Clorox's greatest strength is its brands. Despite only having a market capitalization of roughly $17 billion, compared to $395 billion for a behemoth like Procter & Gamble, Clorox has some industry-leading products. The flagship Clorox brand can hold its own against competitors like Lysol. And Clorox-owned Brita, Glad, Pine-Sol, Kingsford, Hidden Valley Ranch, and Burt's Bees are just a few of the company's other top brands.

A bet on Clorox is a bet on the company's ability to market these brands and continue innovating or making savvy acquisitions. In recent years, the company may not have the best track record for managing expenses. Still, it's built a solid and diversified portfolio that includes products for cleaning, grilling, cat litter, water filtration, personal care, food, and more.

For investors who believe in the strength of the company's brands and its ability to turn things around, Clorox looks like a rock-solid, reliable dividend stock to buy now.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Union Pacific. The Motley Fool recommends Canadian National Railway and United Parcel Service. The Motley Fool has a disclosure policy.