3 Buy-and-Hold Dividend Growth Stocks

Look no further than Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ), Bank of Montreal (TSX:BMO)(NYSE:BMO), and Potash Corp./Saskatchewan Inc. (TSX:POT)(NYSE:POT) for long-term buy-and-hold dividend growth stocks.

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Investing for the long term can be tricky. With many companies’ competitive advantage eroded over time by changing technology, alternating social standards, and shifting patterns of consumption, it is important to invest in those that have a solid, multifaceted economic moat and a product or service that has relatively inelastic demand. It’s also vital to select those with strong growth prospects so that their dividends and share prices grow year over year and the resilience to withstand any downshifts in the economic cycle.

Let’s take a closer look at three companies that I believe possess all of those characteristics and will continue to grow over the long haul.

Canadian Natural Resources Ltd.

As Canada’s second-largest integrated energy major, Canadian Natural Resources Ltd. (TSX: CNQ)(NYSE: CNQ) remains an attractive option for long-term growth-oriented investors. The company has accrued a solid, high-quality, and geographically diversified conventional and unconventional oil asset base, encompassing Canadian oil sands, onshore and offshore Canadian light sweet crude, North Sea, and offshore Africa. It is forecast to hold almost 8 billion barrels of crude oil reserves.

Oil production continues to grow strongly, shooting up an impressive 19% compared to the previous quarter and 31% against the equivalent quarter in the previous year. This strong production growth has allowed the company to significantly boost revenue, cash flow and its bottom line, with net earnings for the same period jumping a very healthy 70% quarter over quarter and 1.2 times year over year.

It also pays a steadily growing dividend, which has been hiked every year since inception in 2001, giving it a compound annual growth rate of 25% and a yield of 2%. Furthermore, with a payout ratio of 30%, it is sustainable and there’s considerable room for further hikes, particularly if net earnings continue to grow.

Finally, the company has a wide, multifaceted economic moat with steep barriers to entry effectively preventing any significant competition, while the demand for crude remains relatively inelastic since energy is a key component of modern society.

All of this adds up to Canadian Natural Resources’ solid, long-term growth prospects, making it a true “mattress stuffer.”

Bank of Montreal

Canada’s fourth-largest bank by assets is Bank of Montreal (TSX: BMO)(NYSE: BMO), and it is fast shaping up as a solid, long-term growth play. The bank’s fiscal third-quarter (calendar second-quarter) results were particularly strong, with net income climbing 1.4% quarter over quarter and 12% year over year beating the consensus analyst forecast by 4%.

More impressively, the Bank of Montreal remains well capitalized, with a common equity tier one capital ratio of 9.7% and retains a low-risk credit portfolio with gross impaired loans to total loans a mere 0.67%. For these reasons, the bank hiked its dividend by 3%, giving it a tasty dividend yield of 3.7% and a very sustainable payout ratio of 48%.

However, it is the bank’s U.S. operations that offer considerable growth potential and already contribute 14% of the bank’s total net income. The U.S. economy is performing better than expected and while 2014 GDP growth is expected to be a modest 2.2%, it is predicted to grow strongly in 2015 at a rate of 3.2%.

These factors all bode well for further credit demand and increasing revenue from the bank’s U.S. operations and ultimately its bottom line.

Potash Corp./Saskatchewan Inc.

The final mattress stuffer is fertilizer giant Potash Corp./Saskatchewan Inc. (TSX: POT)(NYSE: POT), which continues to perform solidly despite a difficult operating environment dominated by weak potash prices. Demand for potash has continued to grow over the last three years, which has allowed Potash Corp. to report better-than-expected numbers for the second quarter of 2014. Despite net earnings for that period plunging 27% year over year, they still beat the consensus analyst estimate by 22%.

The company continues to maintain its 4.3% dividend yield, which remains sustainable with a dividend payout ratio of 92% despite the decline in net income.

Over the longer term, the outlook for potash and other fertilizer products is far more positive as the global population grows and quantities of arable land decline despite the expected increase of crop density and demand for fertilizers and other nutrients. This bodes well Potash Corp’s long-term prospects and when combined with the company’s firm control of costs bodes well for its growth prospects.

All three companies have a solid competitive advantage protected by a wide economic moat and high barriers to entry for their industries. This gives them solid, long-term growth prospects that, when coupled with their steadily growing dividend stream, make them attractive long-term buy-and-hold propositions for investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned. The Motley Fool owns shares of Potash Corp.

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