Investors might be skeptical to put their money in the stock market now given the current market scenario. But history has shown that a distressed market creates good investment opportunities. Excellent growth stocks are trading at a bargain now.
Investors new to dividend stocks can consider these three that belong to an exclusive group of Dividend Kings. These stocks have earned the title by increasing dividends for at least 50 consecutive years. They generate stable profits, have strong growth strategies up their sleeves, and pay consistent dividends -- all very attractive qualities in a stock.
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Johnson & Johnson
Healthcare juggernaut Johnson & Johnson (JNJ -1.15%) has remained a favorite for dividend investors because of its consistent payouts. It maintains an impressive level of diversity in its business operations, composed of three segments -- consumer, pharmaceutical, and medical devices.
These balanced each other and kept the company strong for years even during turbulent times. However, to focus more on its core healthcare business, including the pharmaceutical and medical devices divisions, J&J is in the process of spinning off its consumer healthcare segment into a new publicly traded company.
Johnson & Johnson has paid dividends consistently for 60 consecutive years, demonstrating the strength of its business globally. Its outstanding financials every quarter indicate that dividend payments aren't likely to stop any time soon. In the first quarter, sales surged 5% to $23.4 billion while earnings per share increased 3% to $2.67. The company also religiously spends on research and development expenses, which jumped 10% to $3.4 billion as the company searches for new and innovative products.
Recently, J&J hiked its quarterly dividend by 6.6% to $1.13 per share, which also marked its 60th consecutive yearly dividend increase. Impressive, indeed.
Coca-Cola
Coca-Cola's (KO 0.31%) profitable business model has allowed it to grow its profits and consistently pay dividends for years. Its marketing strategies and geographical diversity has kept the company going even during a distressed market. Its recent first-quarter results are a testimony to that strength.
In Q1, total revenue surged 16% year over year to $10.5 billion while adjusted earnings jumped 16% to $0.64 per share. Strong top-line growth helped its operating margin rise to 32.5% from 30.2% a year ago. Coca-Cola's pricing power is its strength, which keeps its profit margins safe. When raw material prices increase, the company simply passes on the same to consumers, thereby protecting its profit margins.
The company foresees organic revenue growth in the range of 7% to 8% for the full year. Adjusted earnings per share could show a surge of around 5% to 6%. It also expects to see an adjusted free cash flow of around $10.5 billion for the year. Its business strength allows it to consistently pay and hike dividends.
In April, it announced a 5% quarterly dividend hike to $0.42 per share, marking its 60th consecutive annual dividend increase.
Altria Group
Tobacco giant Altria Group (MO 1.45%) has also maintained its Kingly dividend title by keeping its business thriving for years. But with rising inflation, investors worry that Altria might lose out on sales. But the company brought in $26 billion in sales in 2021 amid the ongoing pandemic.
Altria reaffirmed its guidance for the year despite a 2.4% dip in revenue in Q1 to $5.8 billion. Management stated the revenue dip was related to the sale of its wine business in October 2021. It expects its full-year adjusted diluted earnings per share to range between $4.79 and $4.93, a jump of 4% to 7% from the prior-year quarter.
Altria also has a 10% stake in beer company Anheuser-Busch InBev as well as partnerships with Cronos Group (cannabis) and Juul (vaping). However, the Food and Drug Administration recently announced a ban, blocking Juul from selling its products in the United States. A federal appeals court has temporarily blocked the ban, allowing Juul to continue selling its products for now.
Whatever might be the decision later, Altria investors can be assured that the company is still generating strong revenue from its tobacco business. This situation might just create an opportunity for Altria to make its own products in the e-vapor category.
Altria has a relationship as well with Philip Morris International to distribute IQOS (smoke-free alternatives) in the U.S. looks potentially challenging after PMI's recent investment in Swedish Match, which manufactures Zyn oral nicotine pouches. This merger has put Philip Morris and Altria (with a similar product, On! nicotine pouches) in direct competition.
It doesn't mean Altria's future could be in trouble. But it might have to build up a more substantial and reduced-risk product portfolio to keep up with the competition.
What is impressive is Altria is still capable of turning about 39% ($8.2 billion) of its trailing 12-month revenue of $21 billion into free cash flow. This allows the company to not only maintain but hike its dividend -- which it has done annually for 52 years. Currently, the stock offers a yield of 8.29%.
Despite the headwinds, management seems dedicated to returning cash to shareholders and maintaining its dividend payout ratio of 80%.
All three companies yield more than 2.5%, higher than the S&P 500 's average yield of 2%. But when choosing a good dividend stock, yield is not what you look at most. Consistency in dividend payments is the key, and Dividend Kings are expert at that feat. These ultra-safe stocks are good for investors holding a retirement portfolio because these companies are solid, mature businesses.
