5 Dividend Growth Companies With Powerful Brands

Apple, Nike, Coca-Cola, Starbucks and Tiffany have one important characteristic in common: strong dividend growth prospects supported by powerful brands. Here's what you need to know about investing in these companies.

Jan 5, 2014 at 1:00PM

Dividend growth investing is one of the most popular and time-proven strategies for superior long-term returns. However, simply extrapolating past dividend growth into the future is hardly enough to make sound investment decisions; investors need to understand the fundamental qualities of a business in order to identify companies that can effectively sustain growing payments over the years. Apple (NASDAQ:AAPL), Nike (NYSE:NKE), Coca-Cola (NYSE:KO), Starbucks (NASDAQ:SBUX), and Tiffany (NYSE:TIF) offer strong dividend growth prospects supported by powerful brands.

Growing iDividends from Apple
Apple owns the most valuable brand in the world, according to Interbrand. This leadership position in the high-end segment of the market provides superior pricing power for the company and above-average profit margins for shareholders. Besides, Apple has more than $147 billion in cash and liquid investments on its balance sheet as of the end of the third quarter of 2013, and it generates tons of cash on a regular basis.

Apple reinstated its dividends in 2012 and raised payments by 15% in 2013. The company pays a 2.2% dividend yield and has a comfortable dividend payout ratio of roughly 30% of earnings.

A dividend marathon with Nike
After decades sponsoring the most renowned athletes in various sports and creating memorable marketing campaigns on a global scale, Nike has positioned its brand as the undisputed heavyweight champion in the global sports shoes and apparel business. The Nike swoosh is one of the most recognizable logos on the planet, and the company benefits from a remarkably profitable business because of its economies of scale and brand differentiation.

The company has returned more than $15 billion to shareholders through dividend payments and share repurchases in the last 10 years and has raised dividends over the last 12 consecutive years; this includes a 14% increase announced on Nov. 21. Nike has a safe payout ratio near 27% of earnings and yields 1.2% in dividends.

Sweet dividends from Coca-Cola
Coca-Cola owns a rock-solid leadership position in the global soft drinks market thanks to 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 many others. An unparalleled distribution network and deep global reach provide formidable competitive strengths for the company.

Even if size and market saturation can be a drawback when it comes to generating growth, financial strength is not for this global juggernaut. Coca-Cola has raised dividends over the last 51 consecutive years; this includes an increase of 10% to $0.28 per share for 2013. The company pays a dividend yield of 2.9% and has a sustainable payout ratio near 55% of earnings.

Brewing dividend growth with Starbucks
Starbucks is about much more than coffee; the company benefits from one of the most valuable brands in the industry, and the Starbucks customer experience is a key differentiating factor generating strong competitive advantages for the company and superior pricing power for its products. International expansion and product innovation still offer abundant growth opportunities for the company over years to come.

The company has a relatively young history of dividends: Starbucks has paid a regular dividend since 2010. On the other hand, the coffee powerhouse has not been wasting any time when it comes to dividend growth: What started as a $0.10 quarterly dividend per share in 2010 has now turned into $0.26 per share, including a big increase of 24% for 2013. Its dividend yield is currently at 1.3%, and the payout ratio is still quite low, at 39% of earnings.

Tiffany's shining dividends
Tiffany stands out as arguably the most respected and well regarded jewelry and accessories brand in the world. Brand differentiation, retail locations, and exclusive designs provide superior profitability for the company in a fragmented industry in which most of its competitors don't have the same level of differentiation. In terms of growth prospects, Asia is looking like a particularly promising market for Tiffany in the middle and long term.

Tiffany has increased its dividend 12 times in the last 11 years, and payments have doubled through the last five years, including a moderate increase of 6% for 2013. This high-quality jeweler pays a 1.5% dividend yield, and the payout ratio around 37% of earnings provides plenty of room for further dividend increases in the future.

The bottom line
Dividends don't only provide income for investors; growing payments can be a clear and transparent reflection of business quality and fundamental strength. Apple, Nike, Coca-Cola, Starbucks, and Tiffany are very different companies operating in their own particular industries, but they have an important characteristic in common: healthy dividend growth prospects thanks to their valuable brands. Investors looking for solid dividend growth companies to hold for the long term may want to take a deeper look at these five high-quality names.

9 more dividend stocks to boost your portfolio's profits
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.

Fool contributor Andrés Cardenal owns shares of Apple. The Motley Fool recommends Apple, Coca-Cola, Nike, and Starbucks. The Motley Fool owns shares of Apple, Coca-Cola, Nike, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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