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3 Dividend Stocks That Pay Better Than Coca-Cola

By Will Ebiefung – Apr 21, 2020 at 7:00AM

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Coca-Cola is a reliable dividend aristocrat. But income-hungry investors can find better yields in the market.

Coca-Cola (KO 1.12%) has been paying a dividend since 1920 and has raised it for 58 consecutive years. In these times of economic uncertainty, it's a company that investors can count on to weather the storm. But there are better income ideas out there -- other stocks pay more than Coca-Cola without skimping on safety and dividend growth.

Here are three dividend stocks that pay more than Coca-Cola. The first, Philip Morris (PM 2.43%), is a tobacco giant with significant growth potential. The other two, Realty Income (O 1.75%) and Healthcare Trust of America (HTA), are real estate investment trusts (REITs) that offer massive yields and compelling fundamentals. All three of these companies have a track record of increasing their dividends over the long term.

People dancing while holding paper money

Image source: Getty images.

Philip Morris

Philip Morris is the international spin-off of Altria. Both companies are famous for selling Marlboro cigarettes, but Altria focuses on the U.S. market while Philip Morris sells in Canada and the rest of the world. The tobacco industry is a favorite for income investors because cigarette demand tends to hold up well in economic downturns (as well as global pandemics).

According to analysts at RBC Capital, American consumers are buying the same amount of tobacco products as they were before the coronavirus crisis. And the same trend seems to be holding true in Europe, where tobacco shops are among the stores open amid the sweeping coronavirus lockdowns in Italy and France.

Philip Morris has a dividend yield of 6%, far higher than Coca-Cola's 3.4% payout. But investors should be aware that the company has a relatively high payout ratio of 93% of earnings and 71% of operating cash flow. While Philip Morris has increased its payout every year since going public in 2008, the high ratios could be a sign that the dividend is running out of room to grow.

Realty Income

What could be more enticing than a company with the word "income" in its name? A massive monthly payout. Yep, Realty Income has a 5.3% yield. And unlike most dividend stocks, the payout is distributed in monthly -- instead of quarterly -- installments. The company has a stellar track record with 26 years of uninterrupted dividend growth.

Realty Income is a REIT that operates in the commercial property sector, where it engages in house acquisition, portfolio management, and asset management, among others. The company's diversified portfolio contains assets from 49 U.S. states and Puerto Rico.

The coronavirus pandemic has hurt Realty Income's share price, sending the stock down around 30% year to date compared to a 13% decline in the S&P 500. Realty Income's stock currently trades at around 11 times 2019 revenue and around 16 times adjusted funds from operations, or FFO (the REIT equivalent of earnings). The company paid out $852 million in dividends, giving it an 81% payout ratio on AFFO -- high for most companies, but well within bounds for a REIT.

Healthcare Trust of America

According to the U.S. Centers for Medicare & Medicaid Services (CMS), healthcare spending in the United States is projected to grow by 5.5% every year until 2025 -- vastly outstripping expected GDP growth over that period. This trend creates a massive long-term catalyst for stocks in the healthcare sector, especially those that return value to investors through dividends.

Healthcare Trust of America is a REIT that focuses on owning and operating medical office buildings in the United States. The company has a dividend yield of 5% and compelling valuation multiples due to its strong balance sheet and respectable free cash flow. The stock trades at almost 8 times 2019 revenue and almost 17 times FFO. Its payout ratio is a comfortable 80%, and it has grown its dividend for seven years running.

While the coronavirus pandemic has sent Healthcare Trust shares down approximately 28% off 52-week highs, the crisis is unlikely to have a long-term negative effect on the business due to its defensive nature.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
$85.03 (2.43%) $2.02
Realty Income Corporation Stock Quote
Realty Income Corporation
$59.22 (1.75%) $1.02
Healthcare Trust of America, Inc. Stock Quote
Healthcare Trust of America, Inc.
The Coca-Cola Company Stock Quote
The Coca-Cola Company
$56.65 (1.12%) $0.63
Altria Group, Inc. Stock Quote
Altria Group, Inc.
$41.37 (2.45%) $0.99

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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