3 Dividend Stocks Ideal for a 5-Year Holding Horizon

Key Points

• Weak consumer discretionary spending and sluggish homebuilding activity may both be approaching their cyclical lows.

• Fast-food giant McDonald’s is reevaluating its value proposition as economic pressures strain its core customer base.

• Pharmaceutical leader Johnson & Johnson’s multi-year strategic reinvention, particularly in oncology, shows strong long-term promise.

Most of the time, buying a dividend stock is a long-term commitment. While these stocks can perform well in the short term, their primary purpose is often rooted in steady, cumulative progress that takes time to pay off in earnest. Occasionally, however, a shorter-term opportunity arises. In addition to their income potential, these underlying stocks may be undervalued and poised for capital gains typically not expected of dividend-paying names.

With that backdrop in place, here’s a closer look at three dividend stocks you might want to step into, as long as you start with a five-year mindset. If you choose to do so down the road, of course, you can always decide to stick with them well beyond the five-year mark.

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Home Depot

It’s no secret why Home Depot (NYSE: HD) shares have struggled to make net progress over the past five years. While the home improvement retailer’s stock surged during the COVID-19 pandemic, recent spending on home improvements and new construction has been disappointing. According to the U.S. Census Bureau, residential housing starts and completions are hovering near multiyear lows. Home Depot’s recent second-quarter same-store sales rose just 1.7% (1.3% in the U.S.), driven primarily by price increases rather than organic traffic. With mortgage rates and home prices remaining elevated, near-term acceleration in home improvement spending appears unlikely.

However, as the old adage goes, it is often darkest before the dawn. Economic sectors, particularly housing, are highly cyclical, and current headwinds may eventually give way to a more favorable environment. The fundamental demand for housing remains robust; the Congressional Research Service estimates that the U.S. needs between 4 million and 5 million additional homes to meet actual demand. While homebuilding starts are currently low, they may be approaching a cyclical bottom. Additionally, average and median home prices have been slowly declining for three years, nearing pre-2021 levels. For investors willing to wait out the downturn, Home Depot’s forward-looking dividend yield of 2.8% provides a compelling income stream while waiting for a market recovery.

McDonald’s

One would expect a value-oriented brand like fast-food giant McDonald’s (NYSE: MCD) to perform well during times of economic strain, and historically, it has. However, recent quarterly results indicate that the company has fallen short of expectations. Comparable sales grew by only 1.3% globally and 0.8% in the U.S., with a portion of this growth driven by menu price increases rather than increased customer traffic. CEO Christopher Kempczinski acknowledged during the second-quarter earnings call that while the brand has restored its value leadership, “restaurant level results show that execution was inconsistent across the system.”

Reflecting these challenges, the stock price peaked in February and has since declined more than 20%, trading near two-year lows. Yet, challenging periods often precede turnaround stories. The recent soft performance is prompting McDonald’s leadership to act with urgency to boost baseline guest traffic and strengthen the U.S. business. For investors positioning for a recovery, the stock offers a forward-looking yield of 2.8%. This is supported by a dividend that has been increased for 49 consecutive years, backed by a resilient franchise model that generates steady rental revenue regardless of individual restaurant performance.

Johnson & Johnson

Last but not least, investors should consider adding Johnson & Johnson (NYSE: JNJ) to their list of dividend stocks to hold for the next five years. While its forward-looking yield of 2% may not be the highest for immediate income, the company offers an attractive balance of steady dividends and substantial growth potential. Even after a 92% rally from its lows last year, the stock’s current valuation does not fully capture the significant growth trajectory ahead.

At the core of J&J’s strategy is its ambition to become a dominant force in oncology. The company aims to expand its cancer drug portfolio from approximately $30 billion annually to at least $50 billion by 2030. This goal is well within reach, supported by expanded approvals for established treatments like Darzalex—which posted 19% year-over-year revenue growth in the second quarter—strategic partnerships such as the acquisition of Carvykti, and recent purchases like Halda Therapeutics, which added the clinical-stage prostate cancer drug HLD-0915 to its pipeline.

Beyond oncology, Johnson & Johnson is accelerating innovation in its medical technology segment. The company recently received FDA clearance for the latest software update on its Monarch robotic-assisted bronchoscopy platform. This marks the fourth major launch for Monarch in the past year and a half, integrating J&J’s Polyphonic digital learning ecosystem. Through strategic reinvention across both pharmaceuticals and medtech, Johnson & Johnson is well-positioned to sustain long-term growth.

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