Investing in dividend stocks can be a great way to build wealth over time. Companies that pay dividends usually have a history of profitable performance, and they have proven themselves through recessions and calamities like a pandemic.
Target (TGT 0.70%) and Coca-Cola (KO +0.46%) are two such reliable businesses. Each has built a sustainable company that has survived and prospered over several decades. Further, they are generating enough profit to give some back to shareholders. And during the next stock market crash, you might be able to buy these surefire dividend stocks at a price that's much lower than today.
Coca-Cola is trading at a trailing price-to-earnings ratio of 32. Image source: Getty Images.
Target
Target is one of the steadiest profit-generating businesses in existence today. In the last decade, Target's operating profit margin has remained in the range of 5.5% to 7.6%. That's a desirable attribute when looking for dividend stocks, as it provides for the ability to pay generous dividends.
Sales are surging since the onset of the pandemic, and it doesn't look like consumers are ready to pull back on spending at Target. The company has made smart investments to align with how consumers prefer to shop nowadays. Target now has a best-in-class digital shopping experience, starting with its website and moving to multiple fulfillment options for customers, including pick up in-store, delivery to your car in a Target parking lot, same-day delivery, and standard delivery.
The pivot is yet another demonstration of Target's ability to adapt to the times and continue delivering profits and dividends to shareholders. Indeed, from 2011 to 2021, Target increased its quarterly dividend from $0.25 per share to its most recent $0.90 per share payout.
Coca-Cola
Coca-Cola has been delighting customers with tasty beverages for generations. The long-standing relationship with consumers makes it difficult for competitors to encroach on its business. Sales decreased for Coca-Cola during the pandemic. It generates a good portion of its sales in away-from-home channels like restaurants that suffered dramatically during stay-at-home orders. As economies are reopening, that part of its business is likely to bounce back.
Although Coca-Cola's operating profit margin has fluctuated more than Target's over the last decade, it is also much higher. Indeed, in the last 10 years, Coca-Cola has an average operating profit margin of 23.6%. That's impressive considering folks have been decreasing their intake of sugary beverages. Coca-Cola has found a way to maintain profits anyway. Through a combination of increasing prices, decreasing serving size, and improving productivity, it has levers it can pull to sustain these margins over time.
In 2011 Coke paid a split-adjusted quarterly dividend of $0.235. By 2021, the dividend per share had reached $0.42 each quarter. Importantly, the high profit margin could allow Coke not only to continue paying a dividend but perhaps continue increasing the dividend payment as well.
Data source: YCharts
Look for reliable dividends
Target and Coca-Cola are proven winners with solid prospects. During the next stock market crash, assuming their stock prices fall along with the market, these two excellent companies can be had at relatively cheap prices. Additionally, each is fairly priced using the historical price-to-earnings ratio and price-to-free cash flow ratio (see chart).
Investors would be wise to place these two on their list and be ready for the opportunity to buy during a crash.
