Buying and holding solid dividend stocks is arguably the best way to predictably generate wealth over the long term. After all, you not only get paid to hang on to these stocks -- typically in the form of quarterly dividends -- but you also enjoy the potential to compound your gains with traditional share price appreciation.
But where can you find the best high-yield dividend stocks? The consumer-goods segment is a great place to look, as it consists of businesses with products that keep customers returning again and again.
So to start, let's look at three solid consumer-goods stocks with dividends that yield more than 3% annually, including Anheuser-Busch InBev (NYSE:BUD), The Coca-Cola Company (NYSE: KO), and Omnicom Group (NYSE:OMC).
A brewing titan like no other
First up, with its $204 billion market capitalization and a dividend yielding 3.3% as of this writing, brewing giant Anheuser-Busch InBev offers shareholders a rare combination of stability, income, and long-term growth potential.
Following the completion of its $100 billion megamerger with SABMiller late last year, AB InBev instantly became the world's largest brewer. The company vaulted its share of the global beer market to an incredible 28%, including almost 50% of the U.S. beer market -- though that shouldn't come as a surprise. Earlier this year, AB InBev revealed that it now has 18 beer brands that each generate at least $1 billion in annual sales, with some of the most popular varieties including Budweiser, Stella Artois, Corona, Michelob, Busch, Miller, Beck's, Castle, Foster's, and Modelo.
To be fair, that's not a guarantee that AB InBev will continue to survive and thrive. But if it's most recent quarterly results are any indication -- revenue in Q2 climbed a solid 5.4%, led by growth from global brands Stella, Bud, and Corona, and by "premiumization" initiatives -- AB InBev continues to fare well despite more competition than ever for drinkers' attention in the beer aisle.
A beverage leader in transition
As the largest non-alcoholic-beverage business in the world, Coca-Cola needs no introduction. And after increasing its dividend each year for more than five decades, Coke has a yield of 3.2% that's enough to appease nearly any investor's thirst for dividends. But perhaps most intriguing right now is the massive shift in strategy the $194 billion soft-drink king is implementing as we speak.
More specifically, Coke has been transforming its business to become less capital-intensive each of the past several quarters, striking deals to divest nearly all bottling operations to its partners, and refranchising bottling territories. Coke made notable progress to that end in its most recent quarter. Operating margin climbed 375 basis points year over year, driven by its exit from the lower-margin bottling business, and operating cash flow continues to climb as a percentage of net income.
Once Coca-Cola's transformation is complete, it will be less of a beverage manufacturer, and more focused on bolstering its brand while diversifying its beverage portfolio to better suit consumers' changing tastes. So while some investors are concerned that Coca-Cola stock trades at a seemingly steep 23.1 times this year's expected earnings, that premium might well be merited if all goes as planned.
A behind-the-scenes marketing leader
Finally, Omnicom Group isn't exactly a household name. But I think it's worth a look, as it sports a 3.1% dividend yield and stands as one of the world's largest advertising companies, with over 1,500 agencies in more than 100 countries.
That said, Omnicom's recent results don't look particularly impressive at first glance. Revenue last quarter fell 2.4% year over year, while net income per share climbed 2.9% to $1.40. But within the former decline was 3.5% organic growth, offset by a 1.5% foreign currency headwind and a 4.4% decline in acquisition revenue caused by agency dispositions so far this year. Omnicom clarified that it doesn't see any further significant agency dispositions in 2017.
Meanwhile, Omnicom generates healthy free cash flow (nearly $798 million through the first half of this year) and consistently operates in a shareholder-friendly manner. The company has returned at least 100% of net income to shareholders through dividends and stock repurchases for each of the past six years, making it an ideal portfolio candidate for patient, long-term investors willing to buy and hold while Omnicom continues to delight its customers with each passing quarter.
Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool recommends Omnicom Group. The Motley Fool has a disclosure policy.
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