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Forget FedEx: Here Are 3 Better Dividend Stocks

By Lawrence Rothman, CFA – Updated Oct 18, 2021 at 12:05PM

Key Points

  • These three stocks have a higher yield than FedEx.
  • All have raised dividends annually for more than a half-century.
  • They continue to produce cash flow well in excess of their dividends.

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These three Dividend Kings have solid long-term track records of increasing payments.

FedEx (FDX -3.40%) has a 1.3% dividend yield, roughly in line with the S&P 500. Although it increased July's payment by $0.10 per share to $0.75, the board of directors doesn't raise dividends annually. Before the latest move, the last time it boosted payments was three years ago.

While it's not a bad dividend stock, you can find more appealing options. These three companies have regularly increased payments annually and have better-than-market yields.

A man and a woman holding fanned out cash.

Image source: Getty Images.


Coca-Cola's (KO 0.25%) greater than 3% dividend yield is more than double the S&P 500. If you like getting increased payments, the board of directors has given them out annually for 59 straight years, making the company a Dividend King. Undoubtedly, that's part of the reason Warren Buffett likes it so much.

Known for its soda, Coca-Cola has four out of the world's five best-selling brands. But it also sells other beverages, including water, juice, and plant-based drinks.

Selling drinks to consumers and outside venues such as sports arenas, the company generates a lot of free cash flow. Even with last year's challenges that caused shutdowns and stay-at-home orders, Coca-Cola's free cash flow was $8.7 billion. This allowed the company to comfortably pay $7 billion in dividends. In the first half of this year, with more events open to the public, Coca-Cola's free cash flow was over $5 billion.

This is a nice, stable business that generates cash, and it rewards shareholders with ever-higher dividends.

Johnson & Johnson

Johnson & Johnson (JNJ -3.70%) is another Dividend King. It also has a 59-year streak after raising its quarterly payment in April by a nickel to $1.06. The dividend yield is a healthy 2.6%.

Johnson & Johnson is actually made up of three substantial businesses: consumer health products, pharmaceuticals, and medical devices. Collectively, they produced sales of $82.6 billion last year. Even better, the company generates plenty of free cash flow, including over $20 billion last year. This was nearly double the total it needed to cover its $10.5 billion in dividends.

While there were some hiccups last year due to the pandemic (including at its medical devices unit, since there were fewer elective surgical procedures), this year has proved to be better. For the first half of 2021, free cash flow was $7.9 billion, 43% higher than a year ago.

Typically, Johnson & Johnson's businesses do well in various economic climates. That's because it sells items like personal care products, including over-the-counter medicines and items for baby care; pharmaceuticals to treat a wide range of ailments, and medical devices to treat things like cardiovascular diseases and orthopedic problems. That provides me comfort that the company can continue producing free cash flow even if the economy turns downward.

Procter & Gamble

Procter & Gamble (PG 0.31%) has an even more impressive dividend history than the other two companies. It has increased payments for 65 straight years, including a 10% hike earlier this year. The stock has a 2.4% yield.

The company sells well-known consumer goods in areas such as beauty and grooming. Brands include popular names such as Head & Shoulders, Gillette, Crest, and Pampers. With $76 billion in sales and $14.4 billion in profits, Procter & Gamble produced $18.4 billion of operating cash flow in its most recent fiscal year, which ended on June 30.

After subtracting capital expenditures of $2.8 billion, it easily had enough free cash flow to pay the $8.3 billion in dividends.

Procter & Gamble sells everyday necessities, and people won't pull back on spending on them during a recession. After all, they still need diapers, toothpaste, and deodorant.

Some may classify these three as boring stocks. However, there's nothing unexciting about consistent profits and a ton of free cash flow. Then, they reward shareholders by increasing dividends every year.

While FedEx is no slouch, it doesn't share the same dividend gravitas. For dividend-seeking investors, Coca-Cola, Johnson & Johnson, and Procter & Gamble are three attractive investments.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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