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3 Dividend Growth Companies with Rock Solid Fundamentals

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Identifying companies with a good dividend history is not enough to make sound investment decisions. Investors need to analyze the business producing those cash flows to evaluate if dividends will continue growing into the future. Nike (NYSE: NKE  ) , Coca-Cola (NYSE: KO  ) and Walgreen (NASDAQ: WBA  ) have the fundametal strenght to continue rewarding shareholders with growing dividends for years to come and are definitely worth a closer look by Foolish investors looking for rock solid dividend picks.

Running with Nike
Renowned athletes like Lebron James, Roger Federer and the national soccer team of Brazil have many things in common, superb talent is one of them, and Nike sponsorship is another one. Nike has invested through the decades in sponsoring many of the most popular athletes in the world, and memorable marketing campaigns have made the company's brand the undisputed leader in the global athletic footwear and apparel industry.

A widely recognizable brand, a reputation for quality and a strong focus on innovation generate superior pricing power for Nike, and the company enjoys economies of scale when it comes to areas like bargaining power with suppliers, marketing and other expenses.

Higher prices and scale efficiencies mean superior profitability for Nike, the company has an operating margin in the area of 13.8%, materially above the industry average near 10.8% according to data from Morningstar

Nike has raised its dividends in each of the last 11 consecutive years, including a strong increase of 17% announced in November of last year, so investors have good reasons to expect further dividend increases before end of month.

The dividend yield is 1.1% and the payout ratio around 28% of earnings leaves plenty of room for this heavyweigh chanpion to continue raising dividends over the next years.

Always Coca-Cola
Coca-Cola owns an unquestionable leadership position in the global soft drink market supported by an unparalleled distribution network and a unique portfolio of brands featuring 16 billion-dollar brands including names like Coca-Cola, Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, and Minute Maid, among others.

The company has been facing stagnant volume growth in developed markets due to market saturation and the trend toward healthier nutrition. But Coca-Cola is focusing on alternatives like sports drinks and waters to adapt to changing consumer habits in those countries, while emerging markets are still offering plenty of room for volume growth in both traditional carbonated drinks and healthier choices. 

Coca-Cola is part of the Dividend Aristocrats Index, a select group of companies which has been able to increase dividends over the last 25 consecutive years. Even better, Coke makes most of its peers in the Dividend Aristocrats index look like simple plebeians with its amazing track record of 51 consecutive dividend increases in a row.

The company pays a sweet dividend yield of 2.8%, and the dividend payout ratio is at a sustainable 56% of earnings for this blue-blood dividend stock.

Healthy dividends with Walgreen
With its gigantic base of more than 8,105 drugstores in 50 states, Walgreen benefits from a leadership position in the U.S. drugstore industry. This defensive sector tends to be quite resilient in the face of fluctuating economic activity, which provides stability and reliability to the company´s cash flows.

Walgreen is in a privileged position to benefit from rising health care spending due to factors like the health care reform, an aging population and the generics wave. Store openings are slowing down as the company becomes bigger, but store profitability tends to increase over time and lower capital expenditures mean more free cash flows for shareholders, so a maturing store base bodes well in terms of cash flow generation and future dividends.

Also, Walgreen is broadening its offerings in existing stores, not only in health care and drugs but also in areas like food, beauty and cosmetics among others. This represents another venue for the company to generate growing sales and earnings with minimum capital expenditures. 

Walgreen has paid a dividend in 324 straight quarters -- more than 80 years -- and has raised its distributions for 38 years in a row, including a 14.5% dividend hike for 2013. The dividend yield is 2.1% and the payout ratio is quite moderate, in the area of 44.5% of earnings. If the doctor prescribed growing dividends for your portfolio, this leading drugstore chain can deliver.

Bottom line
A solid track record of dividend increases is one of the most desirable characteristics dividend-loving investors can find in a company. Nike, Coca-Cola and Walgreen offer not only that, but also the fundamental strength to continue raising their payments over years to come.

9 more great dividend picks from the Motley Fool
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

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9/23/2016 4:00 PM
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