With the market hitting new highs, I’ve become cautious as I don’t believe stocks can continue to grow like they have been. I’ve become very interested in stocks that have a history of paying out dividend income in good times and in bad. I am fortunate to have dividend expert Bob Ciura of Sure Dividend contribute this guest post. The top pick has been on my short watchlist of 40 stocks for some time.
Income investors are best served by focusing on stocks that pay high dividend yields with sustainable payouts and strong business models. The Dividend Kings are an excellent place to look for stocks with sustainable dividends, as these companies have maintained extremely long track records of dividend growth. Dividend Kings have raised their dividends each year for over 50 consecutive years.
One of the benefits of dividend stocks that you can hold for the long run is that they provide truly passive income. You need to do very little work other than occasionally checking in on the stock’s underlying business performance. Your dividend income just keeps rolling in. That’s why Lazy Man And Money puts investment income at the top of the Passive Income Pyramid.
The following three stocks have all increased their dividends to shareholders for at least 50 years in a row. Each is a member of the Dividend Kings, and has a dividend yield above 3%.
1. The Coca-Cola Company (KO)
Coca-Cola is the world’s largest beverage company. It owns or licenses more than 500 unique non-alcoholic brands, in over 200 countries around the world. Coca-Cola has a market capitalization of $220 billion, and the company generates annual revenue of $35 billion.
Coca-Cola’s massive and diversified beverage product line has helped the company in a difficult environment for soda. Consumption of soda has declined for an extended period in the United States, as consumers reach for healthier drinks with fewer calories and less sugar. Fortunately, Coca-Cola is right there to serve the changing consumer preferences with a wide product portfolio beyond its flagship sodas. In recent years, Coca-Cola has branched out to energy drinks, water, teas, juice, and other products, which have helped return it to growth.
Coca-Cola reported first-quarter earnings that beat expectations. Organic sales, which excludes currency fluctuations, rose 6% against a consensus for a 4% increase. Unit case volume was up 4% as weakness in North America was more than offset by international strength. Comparable earnings-per-share increased 2% to $0.48 despite an 11% currency headwind. Earnings-per-share included a $0.02 benefit from timing, primarily from the bottler inventory build related to Brexit. Coca-Cola expects 2019 to be another year of steady growth, with a forecast of 4% organic sales growth and 12% to 13% in total sales growth.
Coca-Cola is growing revenue, and recent acquisitions will add to that growth. Last year, Coca-Cola acquired Costa Coffee for $5.1 billion. Costa is a global coffee drink maker, and also operates a chain of nearly 4,000 coffee shops. Coca-Cola has expanded its beverage portfolio to include drinks that cater to the health-and-wellness trend, such as adding natural drinks like Kombucha. It also made an investment in sports drink manufacturer BodyArmor.
Coca-Cola has increased its dividend for 57 years in a row. The stock has a current dividend yield of 3.1%, and there should be continued dividend increases each year.
2. Emerson Electric (EMR)
Emerson Electric was founded in Missouri in 1890 and since that time, it has evolved through organic growth, as well as strategic acquisitions and divestitures, from a regional manufacturer of electric motors and fans into a $41 billion diversified global leader in technology and engineering. Its global customer base affords it $19 billion in annual revenue.
Emerson spent the last few years restructuring its business, pointing itself toward higher-growth areas while selling off businesses no longer deemed to be part of the company’s growth strategy. For example, in 2016 Emerson divested its network power and other power businesses for over $5 billion, which it used to reinvest in organic growth and acquisitions. Emerson utilized more than $2 billion on acquisitions in 2018, including the A.E. Valves acquisition and the acquisition of GE’s Intelligent Platforms business.
These moves have put Emerson back on track. Emerson reported strong results for the most recent quarter. Revenue increased 8%, while underlying sales rose 4%. Acquisitions contributed half of Emerson’s total revenue growth last quarter. Underlying sales growth was due to strength in the North America air conditioning and global professional tool markets. Operating cash flow increased 7% in the second quarter, while free cash flow rose 3% to $414 million. EPS came in at $0.84, up 11% compared with the same quarter last year.
These moves have paid off for Emerson, as the company expects 2019 to be a very strong year. Net sales are expected to increase 7%-10% for the year, with acquisitions contributing 5% of full-year sales growth. Organic sales, excluding the impact of foreign exchange, are expected to rise 4%-7% this year. EPS growth is expected in a range of 4%-8% for fiscal 2019.
For the full fiscal year, Emerson expects adjusted EPS in a range of $3.60 to $3.70. Still, fiscal 2019 will be another highly profitable year for the company, which fuels its long history of dividend increases. Emerson stock yields 3%, and the company has increased its dividend for 62 years in a row.
3. Federal Realty Investment Corp. (FRT)
Federal Realty is a Real Estate Investment Trust, or REIT, which means it owns real estate properties which it leases for rental income. Federal Realty primarily owns shopping centers. However, it also operates in redevelopment of multi-purpose properties including retail, apartments, and condominiums. Its major markets are Washington, D.C., New York, Philadelphia, Boston, San Francisco, and Los Angeles. It also has properties in Miami and Chicago as a result of recent expansion. Federal Realty has a market capitalization of $9.9 billion.
Federal Realty reported first-quarter earnings that showed another quarter of steady growth. Funds from operation (FFO) per share was $1.56, in-line with expectations and up by 2.6% year-over-year. Total revenue was also up year-over-year by 3.4%. Meanwhile, same-store operating income increased 3.5% year-over-year, comparable portfolio leasing was at 94.6%, and achieved cash basis rollover growth of comparable spaces was 10%, reflecting a very healthy business. Due to the results that were relatively in-line with expectations, management maintained FFO per share guidance of $6.38 at the midpoint for the full year.
Federal Realty’s future growth will be based on raising rents on existing properties, as well as contributions from new properties. As a REIT, Federal Realty routinely acquires new properties, which means it is critical for REITs to have strong balance sheets and financial flexibility. Indeed, Federal Realty has a high credit rating of A- from Standard & Poor’s, which helps lower its cost of capital.
With an expected FFO payout ratio of 64% for 2019, Federal Realty should have little trouble continuing to raise its dividend going forward. Federal Realty stock has a 3.1% dividend yield, and the company has increased its dividend for 51 consecutive years.
This article discussed 3 Dividend Kings to fill out the top of your Passive Income Pyramid. To see our favorite dividend growth stocks today, start your free trial of The Sure Dividend Newsletter.
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