Investing in dividend-paying stocks has proven to be rewarding for shareholders. However, being successful involves more than choosing stocks with the highest dividend yield, because the dividends may not be sustainable. That’s why it’s crucial to choose companies that can continue to pay.
The three companies below have higher returns than the S&P500‘s 1.3%, along with the ability to not only maintain their payouts, but also continue to increase them. Each of them has increased dividends annually for over 50 years, making them Dividend Kings. Therefore, it is clearly important for them to reward shareholders with dividends.
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Coca-cola (NYSE:KO) is known all over the world for its soft drink products. These popular brands include Coca-Cola and Sprite, but the company also sells other products such as water and juice.
Although Coca-Cola has become a household name, you may not know about the company’s long history as a dividend payer. It has increased dividend payments annually for 62 years in a row.
That impressive performance includes challenging periods such as recessions, stagflation and inflation. This range includes a 5.4% increase earlier this year, to $0.485 per quarter. Normally the board of directors increases dividends for the first calendar quarter, so another increase seems likely soon.
The company has a payout ratio of 78%, which indicates that there is a cushion at current dividend levels to at least maintain payments. This shows that the company is paying out less than 100% of its profits, which is a positive signal for its ability to maintain payments.
Coca-Cola shares have a dividend yield of 3.1%, about 1.8 percentage points higher than Coca-Cola shares S&P500‘s return.
Procter & Gamble (NYSE:PG) produces products such as shampoo, deodorant, razors, toothpaste and diapers. It sells them under well-known brands including Head & Shoulders, Gillette, Crest, Tide and Pampers. These have a large market share.
Furthermore, these are consumer products, so people use these products regardless of what happens to their personal finances. By producing renowned products with stable demand, Procter & Gamble has been able to pay dividends for the past 134 years and increase them for the past 68 years. Last May, the company increased quarterly payments by 7%.
Procter & Gamble’s products generate enough free cash flow (FCF) to support the dividend. It produced free cash flow of $16.5 billion in its last fiscal year ended June 30. That was enough to pay out the $9.3 billion in dividends.
The company’s shares have a dividend yield of 2.4%.
Target offers a variety of merchandise through its physical locations and online. It often sells these under its own brand or under exclusive agreements with suppliers. Its offerings have helped it become a popular shopping destination.
A few years ago, Goal (NYSE: TGT) admitted it had the wrong inventory mix, with too much focus on discretionary items. Subsequently, management discounted merchandise, which temporarily hurt gross margin and profitability, but the company appears to be back on track.
Fortunately, the company’s temporary problems did not affect its ability to pay dividends. The board of directors increased the dividend by 1.8% to $1.12, starting with the quarterly payment in September. Target has paid dividends since 1967 and raised them for 53 consecutive years.
The company’s ability to pay dividends seems beyond question when one examines its financials. It has a payout ratio of 45%.
Target shareholders will receive a dividend yield of 2.9%, more than double that of the S&P 500.
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Target. The Motley Fool has a disclosure policy.
Do you want safe dividend income in 2024 and beyond? Invest in the following three stocks with ultra-high returns. was originally published by The Motley Fool
