Cash distributions can be enormously valuable for investors. Dividends and buybacks have a direct impact on investment returns, and they can also be a clear sign of business quality and fundamental strength. Coca-Cola (NYSE: KO ) , Procter & Gamble (NYSE: PG ) , and Kimberly-Clark (NYSE: KMB ) have remarkable trajectories of dividend growth and share buybacks over time. Even better, they are in as strong a position as ever to sustain their capital distributions in the coming years.
Coca-Cola owns an undisputed leadership position in the global soft drinks market, supported by an unparalleled distribution network and a unique portfolio of brands featuring 16 billion-dollar names -- including brands like Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, and Minute Maid, among others.
The company is facing stagnant volume growth in developed markets due to market saturation and the trend toward healthier lifestyles. But Coca-Cola is focusing on alternatives like sports drinks and waters to adapt to changing consumer habits in those countries. Emerging markets, on the other hand, are still offering plenty of room for volume growth in both traditional carbonated drinks and healthier choices.
The company has a long-standing share buyback policy, which has consistently reduced its share count through the years. As of the third quarter of 2013, Coca-Cola had spent $2.8 billion in stock buybacks during the first nine months of the year, and the company is planning to end 2013 with a repurchase of between $3.0 billion and $3.5 billion for the full year.
Coca-Cola has paid a dividend since 1920, and it has raised those payments over the last 51 consecutive years; this includes an increase of 10% to $0.28 per share announced in February. The company pays a sparkling dividend yield of 2.9% and has a sustainable payout ratio near 55% of earnings.
Procter & Gamble offers reliability
Procter & Gamble owns a huge portfolio of leading brands, 25 of which generate more than $1 billion in annual global sales, including Head & Shoulders, Pantene, Gillette, Oral-B, and Pampers, among many others. The company has operations in more than 180 countries and it sells everyday necessities, which provides reliability and stability to its cash flows under fluctuating economic conditions.
Growth has slowed down lately, so management is planning to reinvigorate performance via a combination of increased productivity and permanent innovation. According to CFO Jon Moeller:
Innovation and productivity are the two biggest drivers of value creation. Innovation has always been a core strength for P&G. We are committed to mak[ing] productivity a core strength, systemic, not episodic.
The company made a big share issuance to finance the acquisition of Gillette back in 2005, but it has been steadily reducing its share count since then. During the third quarter of 2013 P&G repurchased $2.5 billion in stock and returned $1.7 billion in cash to shareholders via dividends.
Procter & Gamble has paid regular dividends for 123 consecutive years and has raised those distributions over the last 57 years in a row, including a 7% increase for 2013. This defensive juggernaut pays a dividend yield of 2.9% and has a reasonable payout ratio near 59% of earnings.
Clean up with Kimberly-Clark
Kimberly-Clark manufactures basic consumer products like diapers, tissues, feminine-care products and toilet paper, among others. The company claims that nearly a quarter of the world's population in more than 175 countries uses its products on a daily basis. Brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex, and Depend hold No. 1 or No. 2 share positions in more than 80 countries.
Management is planning to spin off the company's health care business in order to optimize shareholder value and refocus the company's resources, both human and financial, on its core consumer business. The company is also moving away from less profitable segments like its Western and Central European diaper business. This bodes well in terms of future cash flows and profitability for Kimberly-Clark.
The company has an active buyback policy and plans to repurchase $1.2 billion in stock during 2013. Kimberly-Clark has raised its dividend payments in each of the last 41 years; this includes a generous increase of 9.5% for 2013. The payout ratio is in the area of 63% and the stock is currently paying a 3.1% dividend yield.
High-quality names like Coca-Cola, Procter & Gamble, and Kimberly-Clark are among the most solid companies an investor can find when looking for reliable businesses making big cash distributions to shareholders. If cash is king, these dividend aristocrats can provide blue-blooded returns for your portfolio in the long term.
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