Dividend investing will probably never go out of fashion. This is not only because people generally like the idea of making some money while doing nothing, but also because companies that consistently pay and increase their payouts tend to have excellent underlying businesses. That’s primarily why dividend stocks have outperformed their non-dividend-paying peers over long periods of time. So investing in high-income stocks isn’t a bad way to start 2025.
Here are two excellent candidates to consider: Coca-cola (NYSE: KO) And Visa (NYSE:V).
Brand names are important. Few companies worldwide have a stronger brand than Coca-Cola, the market leader in soft drinks. Coca-Cola’s name, reputation, and presence in virtually every country known to man means that Coca-Cola will continue to attract a good amount of sales. That is the company’s competitive advantage. Moreover, it is not only a leader in soft drinks, although that is how it earned its name. Coca-Cola has significantly diversified its portfolio. It offers virtually everything from alcohol to coffee and tea, sports drinks, energy brands and water.
Coca-Cola’s diversification is an essential part of its strategy. This allows it to respond to the needs and preferences of different markets. And as concerns about the health effects of some of its more popular products grow, this strategy has also helped the company reduce its exposure to these less healthy options. So the company can survive and thrive in a more health-conscious market. Admittedly, Coca-Cola is probably not a particularly attractive growth stock. Don’t expect the stock to keep pace with the AI leaders.
What it does offer, however, is consistency and reliability. Coca-Cola records stable turnover and profit.
KO earnings (quarterly) data by YCharts.
It has been doing this for a long time, supporting its incredible dividend track record. Coca-Cola is a Dividend King with an active streak of 62 consecutive payout increases. The company’s forward yield stands at 3.11%, well above S&P500‘s average of 1.32%. Coca-Cola’s payout ratio seems a bit high at 74%, but the company has often maintained a fairly high payout ratio while still increasing its dividends. Investors have nothing to worry about: Coca-Cola will remain an excellent income stock beyond 2025. It’s no wonder the company remains one of Warren Buffett’s favorites.
Like Coca-Cola, Visa has one of the most powerful brands in its market. Millions of credit cards in circulation bear the logo of the financial industry giant, which cuts a fee for every transaction it helps facilitate through its payment network. It is true that the company’s business can be sensitive to recessions. When times get tough and consumers start spending less, Visa’s payment volume could drop, leading to lower revenue and earnings for the company.
No business is risk-free, and as long as Visa’s performance in good times can more than offset its slowdown in bad times, the company will do just fine. In fact, Visa should benefit as the cash movement phenomenon continues. People switching from cash transactions to credit cards and digital payment methods have had Visa on their backs for a while, but cash and checks haven’t been completely phased out yet — not even close. There are still trillions of dollars in payment volume that the company can bring into its ecosystem.
And while Visa won’t capture this entire market, it doesn’t have to. Even by grabbing a small piece of the remaining available pie – which is likely to grow even larger in the long run – Visa can continue to grow its revenue and earnings at a good pace for a while. Furthermore, the company’s network effect means it will likely remain a top dog in the industry. In short, Visa has a strong position and excellent growth prospects, all of which have generally led to solid financial results.
V Sales data (annual) according to YCharts.
Finally, the company’s dividends have grown nearly 392% over the past decade. While Visa’s forward yield is quite low at just 0.74%, it’s still an attractive income stock to hold for a while given its robust underlying business and a 21.36% payout ratio, leaving plenty of room for more dividend growth.
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*Stock Advisor returns December 30, 2024
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in Visa and recommends Visa. The Motley Fool has a disclosure policy.
2 Dividend Stocks to Buy for 2025 and Beyond was originally published by The Motley Fool
