It is not always easy to find the most promising stocks on the stock market. But instead of betting on the future price potential of a share, investors can also concentrate on reliable dividend payers and thus generate comparatively secure income. Some companies have particularly distinguished themselves in recent decades through their dividend policy.
• Dividend stocks as a passive income opportunity
• Reliability of the dividend is more important than dividend yield
• Dividend aristocrats Altria, Coca-Cola and Realty Income in view
In order to achieve reliable returns on the stock market even in difficult times, dividend stocks are generally considered a good choice. But there are also clear differences among companies that pay high dividends – and not every dividend payer can be recommended without reservation. “It’s very important to be selective when buying dividend stocks and chasing yield,” said Dan Lefkovitz, strategist at Morningstar Indexes, on the index provider’s website. “The search for the highest-yielding areas of the market often leads to problematic areas and dividend traps – companies whose returns look good but are ultimately unsustainable,” he continued. Instead of paying attention to the level of the dividend yield, one should therefore concentrate on the durability and reliability of the dividends.
This is also the opinion of the experts at “The Motley Fool” – and in their search for the best dividend stocks they also took into account the probability with which a company will increase its payouts in the future. Based on these three criteria – durability, reliability and future growth of the dividend – the financial website identified three company stocks that could be particularly worthwhile for investors: Coca-Cola, Altria and Realty Income. Because these dividend stocks not only have a long history of annual dividend increases, but according to “The Motley Fool” they also have above-average dividend yields – although by far not the highest on the market – and also have strong advantages over the competition.
Morningstar expert David Harrell also calls this so-called “economic moat” an important feature when selecting the best dividend stocks. “An economic moat rating is of course no guarantee of dividends, but we have seen some very strong correlations between economic moats and the durability of dividends,” said the editor of Morningstar DividendInvestor. For Morningstar, the shares of Coca-Cola and Altria, among others, are characterized by meeting all of these criteria.
Coca-Cola: dividend aristocrat with a strong brand
Coca-Cola shares are recommended as a promising dividend stock by both the index provider Morningstar and the news site “The Motley Fool” – which is probably mainly due to the fact that the company can boast an unprecedented number of dividend increases. According to “The Motley Fool”, Coca-Cola has spoiled its investors with 61 consecutive annual dividend increases to date – and is likely to continue this series in the future. According to information on the website of the US stock exchange NASDAQ, owners of Coca-Cola shares received a total dividend of $1.84 per share in 2023 – spread over four distributions – and the dividend yield was most recently 3.13 percent.
According to “The Motley Fool”, the soft drink company’s strong business speaks for further dividend increases in the future. Coca-Cola exceeded analysts’ expectations in terms of sales and earnings in the third quarter. Sales increased by eight percent compared to the previous year – primarily because Coca-Cola was able to use its brand awareness and strength to successfully implement price increases. This more than offset declines in sales in Europe, Africa and the Middle East. According to “The Motley Fool”, Coca-Cola estimated its free cash flow at $10.2 billion – but according to the news site, it only needed 77 percent of that for dividend payments. The group should therefore have no problems in the future in increasing its dividend distribution in line with the growth rate of its overall business.
Altria: High dividend yield despite declining cigarette sales
Smoking cigarettes has become increasingly more expensive in recent years – also due to higher tobacco taxes – and has become increasingly out of fashion. Nevertheless, both “The Motley Fool” and the experts at Morningstar see the tobacco company Altria as a promising investment for dividend hunters – and this is also due to the strict regulation of the tobacco sector. This would make it almost impossible to build a new tobacco brand, virtually eliminating the risk of new competitors entering the industry, according to “The Motley Fool.” Altria has Marlboro but already has an established and well-known brand – and therefore also loyal customers and pricing power, which could compensate for falling sales. The group is also increasingly expanding its portfolio of smoke-free products and took over the start-up NJOY in spring 2023, whose e-cigarettes are one of the few approved by US regulatory authorities. Although Altria’s consolidated sales fell by 1.4 percent in the first nine months of 2023 due to headwind factors, overall cigarette sales in the USA fell by around eight percent in the same period, according to Altria estimates. At the same time, the tobacco company’s EPS rose by 3.3 percent as the company reduced the number of outstanding shares through share buybacks.
Altria’s dividend is also impressive. According to information from NASDAQ, investors received distributions of $3.92 per share in 2023; the dividend yield was most recently quite high at 9.76 percent. The tobacco company can also look back on numerous dividend increases: According to “The Motley Fool,” the dividend rose in the summer of 2023 for the 58th time in 54 years, by 4.3 percent. According to Morningstar’s Philip Gorham, the dividend is also a top priority in the company’s capital allocation – and is likely to continue to rise in the future.
Realty Income: REIT with more than 120 dividend increases in almost 30 years
According to InvestorPlace, the consumer staples sector, which includes Coca-Cola and Altria, has the most Dividend Aristocrats of any single market sector. But there are also reliable dividend payers in other industries – such as Realty Income. The company is a Real Estate Investment Trust (REIT), i.e. a listed stock corporation active in the real estate industry. As a REIT, the company is required to distribute the majority of its income to investors in return for special tax benefits. In the case of Realty Income, according to NASDAQ, that was $3.072 per share in 2023, which corresponds to a dividend yield of 5.24 percent. The real estate company has also increased its dividend a whopping 123 times since going public in 1994, according to The Motley Fool.
As a real estate group, Realty Income is more exposed to economic fluctuations than the consumer staples manufacturers Coca-Cola and Altria. But according to “The Motley Fool”, the company tries to keep the risks as low as possible through its special business model. For example, Realty Income rents its more than 13,000 buildings worldwide primarily to pharmacies, cheap general stores – such as 1-euro stores in this country – and other retail customers whose businesses have a certain level of resistance to e-commerce competitors and who are less susceptible to economic fluctuations than, for example, fashion retailers. According to the business magazine, Realty Income also has a very good credit rating, which means its borrowing costs are lower than those of smaller competitors and thus give it a competitive advantage.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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