Two dividend bargains I'd buy and hold for 25 years

For all income investors, the rise in inflation over the last couple of years is causing additional challenges. It means that the real income return on all shares has fallen significantly. In fact, some stocks now no longer offer an above-inflation dividend yield, which makes them far less attractive for an income-focused portfolio.

At the same time, the rise in the FTSE 100 has made it more challenging to obtain high yields in many cases. Add to this a difficult future for the UK economy and the prospects for a high and rising dividend seem relatively low.

Despite this, there are some stocks which could be of interest. Here are two examples which could be worth buying and holding for the long run.

Upbeat performance

Reporting on Monday was national commercial law firm and complementary professional services business Gateley(LSE: GTLY). The company's trading update showed that it has made good progress in the first six months of the year. Activity levels have been robust, with strong growth in the company's Corporate and Property service lines helping to generate revenue growth of 10%. Increasing staff numbers and further investment in its growth prospects mean that the business remains confident in its medium term outlook.

With a dividend yield of 4.3%, Gateley offers a real income return at the present time. The company's bottom line is forecast to rise by 14% this year and by a further 7% next year. This suggests that dividend growth could be brisk. And with a dividend coverage ratio of 1.5, future dividend growth appears to be sustainable. There may also be significant opportunities for further investment in order to allow the business to generate additional earnings growth. Therefore, with inflation set to move higher, the company could be a sound income investment for the long run.

Wide margin of safety

Of course, the FTSE 100's rise has not meant that all stocks are now trading on excessive valuations. Life insurer Aviva (LSE: AV) may be within 10% of its five-year high, but still has a price-to-earnings (P/E) ratio of just 9.6. Furthermore, with its bottom line due to rise by 5% next year its rating is forecast to fall to only 9.1. This suggests that it offers a wide margin of safety and could deliver high capital growth in the long run.

In terms of its income prospects, Aviva's dividend yield of 5.1% is surprisingly high. It pays out just under half of profit as a dividend, and looks set to maintain this payout level as a proportion of profit in the long run. This should provide a sustainable level of growth for the business, while also providing its investors with a robust income outlook.

Therefore, with a mix of value, income and capital growth appeal, the stock could be a sound buy for the long run. While it may take time for investor sentiment to improve, the investment case for Aviva appears to be compelling at the present time.

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Peter Stephens owns shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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