PepsiCo (PEP +0.60%) is a solid long-term investment that would be a reasonable pick for most portfolios. It owns a well-diversified catalog of drinks and packaged foods brands, and it has generated consistent organic sales growth even as its food industry peers have been struggling to adapt to shifting consumer tastes. The S&P 500 component has also raised its dividend payout for 47 consecutive years, meaning it's not just a Dividend Aristocrat (with a 25-year-or-greater streak) -- it would become one of the even rarer Dividend Kings if it stays on course for three more years.
However, PepsiCo's forward yield of 2.6% might not satisfy everyone. For those income investors who are looking for higher yields than PepsiCo offers, these three rock-solid dividend stocks are well worth considering: General Mills (GIS +2.03%), Verizon (VZ 0.03%), and Cisco Systems (CSCO 2.82%).
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General Mills
General Mills -- the packaged foods giant that owns Cheerios, Haagen-Dazs, Yoplait, and other well-known brands -- currently pays a dividend with a forward yield of 3.7%. It has raised its payout annually for 15 straight years, and over the past 12 months, it covered its dividend with just 49% of its free cash flow (FCF).
Unlike Kraft Heinz, which posted organic sales declines over the past four quarters as its margins shrank, General Mills' organic growth stayed roughly flat and its margins expanded, thanks to its successful strategy of raising prices to offset weaker shipment volumes.
Like other established packaged foods companies, General Mills is struggling in the face of rising competition from healthier foods and private label brands from retailers. However, it's countering those headwinds by launching new variations of classic brands like Yoplait, acquiring organic brands like Annie's, and expanding into the premium pet food market with its takeover of Blue Buffalo.
Its strategies are working -- General Mills expects its organic sales to rise by 1% to 2% this year, and for its adjusted earnings per share (EPS) to rise by 3% to 5% on a constant-currency basis. Those steady growth rates, along with its reasonable forward P/E of 15, make it a sound income investment.
Verizon
Verizon is the second-largest U.S. wireless carrier, after AT&T. Its forward yield stands today at 4.2%, and it has raised its payout annually for 15 straight years. Over the past 12 months, it covered its dividend with 59% of its FCF.
Verizon is frequently compared to AT&T, but its business model is leaner. It acquired AOL and Yahoo! over the past five years, but in terms of price, those purchases pale in comparison to AT&T's takeovers of DirecTV and Time Warner.
Unlike AT&T, Verizon isn't burdened by a dying pay-TV business, nor by a fragmented ecosystem of costly media content and streaming services. But Verizon's wireless business continues to grow at a stable rate and offset the weakness of its smaller wireline business.
Still, its business model isn't perfect. Its attempts to build a streaming media and online advertising ecosystem flopped, and in the mobile space, it faces a reinvigorated competitor in the form of the soon-to-be merged Sprint and T-Mobile. However, its strengths still outweigh its weaknesses, and analysts expect its revenue and earnings will rise by 2% and 3%, respectively, this year -- which are decent growth rates for a stock that trades at just 11 times forward earnings.
Cisco Systems
Cisco, the world's top maker of networking switches and routers, struggled during the past year as its revenue and earnings growth decelerated. Demand from service providers, data centers, and enterprise campus customers dried up as macroeconomic headwinds intensified. The growth of its smaller security business, beefed up by acquisitions of companies like Duo and Umbrella, couldn't offset that slowdown.
Yet Cisco's gross and operating margins remain stable, and it consistently returns most of its FCF to investors via buybacks and dividends. It spent 40% of its FCF on dividends over the past 12 months, and currently pays a forward yield of 3.1%. It has raised that dividend annually for nine straight years.
Cisco's growth won't accelerate again until the macro outlook improves, but it still has plenty of cash for acquisitions, buybacks, and dividend hikes. Wall Street expects its revenue to dip by 2% this year, but forecasts its earnings -- buoyed by buybacks -- will rise by 5%. The stock trades at less than 15 times forward earnings, and it should continue to tread water until the networking market hits its cyclical trough and starts to rise again.
