Walt Disney (DIS 0.39%) has a portfolio of fantastic media properties. These include movie studios, theme parks, and television networks. And those business segments generally produce enough cash to justify paying out a dividend to shareholders. But Disney suspended its dividend payments in 2020 over uncertainty and the hard financial hit the company took in relation to the pandemic.
While the pandemic hit lots of companies' bottom lines and forced dividend cuts or suspensions, there were at least two companies that weathered the setbacks far better and kept their dividends going. These two companies have a strong record of not only making regular dividend payouts but also consistently raising them (to the point where they qualified as Dividend Kings).
For dividend-focused investors, these two stocks might just be better investments.
The pandemic did hurt Coca-Cola's (KO -0.15%) business, as people were asked to stay at home and Coke's away-from-home operations took a hit. Its 2020 adjusted revenue fell by 9% to $33 billion. But Coca-Cola's top line bounced back quickly when restaurants and entertainment venues reopened to the public, and its 2021 revenue grew by 16%.
Despite the hiccup in 2020, Coca-Cola continued paying (and raising) its dividend. In February, the board of directors increased the quarterly payment by a penny to $0.42 per share, bringing the company to 59 straight years with an increase. The payout generates a 2.8% dividend yield, double the S&P 500's 1.4% yield.
Coca-Cola can make ever-increasing payments because it generates plenty of cash. For the first nine months of 2021, its free cash flow (FCF) was $8.5 billion. This handily covered the $5.4 billion in dividend payments over that timeframe.
Colgate-Palmolive (CL -0.49%) sells everyday products like toothbrushes, toothpastes, soaps, and deodorants, all with strong market positions. Its popular brands include Colgate, Palmolive, Irish Spring, and Speed Stick.
These products tend to do well no matter what's happening with the broader economy. After all, while people will cut spending on discretionary large-ticket items such as vacations, they don't brush their teeth any less during tough times. During the difficult days of 2020, Colgate-Palmolive's adjusted sales actually rose by 8.5% to $16.5 billion. Last year's sales increased by 4.5%.
Colgate raised its quarterly dividend by a penny to $0.45 per share in the second quarter of 2021, bringing it to 58 straight years with increased payments. The dividend yields 2.3% based on the current stock price.
Given the company's track record, it seems like a safe bet that it'll boost the dividend for the second quarter. Its success is not merely due to the importance Colgate places on dividends. It's also because Colgate has the FCF to easily make the payments. Its 2021 FCF was $2.8 billion, which was plenty to pay the $1.7 billion in dividends.
An ability to keep paying the dividend
When investing in dividend-paying stocks, it's important to look beyond the current yield. You should dig deeper to ensure that a company has the ability to continue the payments even if unexpected challenges arise.
Fortunately, Coca-Cola and Colgate have paid dividends even during the darkest days of the pandemic when the world was thrown into turmoil. Even more importantly, they have the cash to continue making them, so you can sleep well in the knowledge that your regular payments are secure.