Investors can have many reasons for preferring dividend-paying stocks over non-payers. Whatever your reasons might be, it's certainly nice to be able to rely on those regular payments, particularly when the market is volatile.
When looking for your next income stock, it's smart to start by considering a company's payment history. If it has distributed dividends over many years and through a variety of economic environments, that can give investors increased confidence that it will be able to keep doing so.
Both of these companies below have not only made payments steadily for decades -- they've increased them annually for 60 straight years. This more than qualifies them for positions on the list of Dividend Kings.
That's only a starting point, however. Next, look for evidence that the company will be able to continue raising its payouts. These companies check those boxes, too, and both have higher yields at today's share prices than the S&P 500's average of 1.5%.
Earlier this year, Coca-Cola (KO 0.15%) raised its quarterly dividend from $0.42 to $0.44 -- its 60th straight annual increase. It was even able to raise payments in 2020, when its business suffered as many restaurants and other food-service venues were temporarily closed. At the current stock price, it has a yield of 2.7%.
Looking to the future, the beverage maker continues to generate plenty of free cash flow (FCF) to cover the dividend. Last year's FCF was $11.3 billion and Coca-Cola paid out $7.3 billion in dividends. Even in 2020, when adjusted sales fell by 9%, the company still generated $8.7 billion of FCF while paying dividends of $7 billion.
Coca-Cola has gotten off to a good start in 2022, too. Its first-quarter adjusted sales grew by 18% year over year, and operating income increased by 24%. With five out of the world's six best-selling soft drink brands, the company has shown an ability to pass along increased costs to customers. And despite high inflation, Coca-Cola expanded its profit margin from 31% to 31.4%.
Beloved brands and a loyal customer base equate to continued strong cash flow and ever-higher dividends.
Colgate-Palmolive (CL -1.65%) has paid dividends since 1895, and in March, it announced that it was increasing its quarterly dividend by $0.02 to $0.47 starting in May. This made 2022 its 60th consecutive year with a payout hike. At its current share price, the stock yields 2.4%.
In 2021, Colgate-Palmolive's FCF was $2.8 billion while dividends were $1.7 billion. Its FCF generation was $3.3 billion in 2020 and $2.8 billion the previous year, handily allowing it to cover its dividends.
Even during challenging periods, people still stock up on the company's products, including the Colgate brand of toothpastes and toothbrushes, soap sold under popular brands like Palmolive and Irish Spring, and deodorants like Speed Stick. These necessities have stable demand no matter what's going on with the economy.
Colgate-Palmolive's first-quarter adjusted sales increased by 4% year over year to $4.4 billion, but its gross margin fell 2.2 percentage points to 58.5%. That was due in part to higher costs for things like packaging and raw materials, which have hurt a lot of companies' results. While the company expects its gross margin to contract this year, it's also increasing advertising spending, which should help protect and even expand its leading market share over the long term.
The ability to generate dependable income for shareholders is a nice quality for a company to possess. Coca-Cola and Colgate-Palmolive have shown that they place a priority on raising their dividends every year, and both have the financial resources to continue doing so. That combination of willingness and ability means investors can feel confident that they'll enjoy ever-higher dividends from these two companies.