So far, 2022 has been a disaster for the market. However, the drop in stock prices also presents an opportunity to acquire some great stocks with lots of potential at a discount. If you are still hesitant to jump in, keep in mind that dividend stocks can be a safer bet, an excellent method to generate passive income.
Look for companies that continue to pay dividends regardless of the state of the market, which is a sign of their stability. Here are two stocks that fit the bill and could be a good buy if you've got money ready to invest.
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1. Coca-Cola
Coca-Cola (KO 0.68%) has dominated the beverage market for many years with a profitable business model. Its marketing approach, worldwide brand awareness, and ongoing innovation have enabled the company to thrive even in challenging market conditions.
Thanks to its resilience, Coca-Cola has also hiked its dividend payouts consistently for 60 years, making it a Dividend King. Companies earn this title by increasing dividends for at least 50 consecutive years.
Coca-Cola's second-quarter results are a testimony to its strength. Total revenue surged 12% year over year to $11.3 billion, while adjusted earnings jumped 4% from the year-ago quarter to $0.70 per share. Solid top-line growth was accompanied by an operating profit margin of 30.7%, a slight decline from the 31.7% a year ago. Management attributes this decline to currency impact, higher operating costs, and an increase in marketing investments.
Coca-Cola's key to keeping its profit margins safe is its pricing power. In order to protect its margins, the company typically passes on rising raw material costs to customers and people have been willing to pay.
In times like these, when most companies are lowering their guidance for the year, Coca-Cola is confident of achieving an impressive 12% to 13% organic revenue growth and adjusted earnings per share (EPS) growth of 5% to 6% for the year. This is a significant increase over the originally anticipated revenue range of 7% to 8% and EPS range of 3% to 4%. Strong results in the first half of the year and continued resiliency led to the guidance raise. Management said the company is seeing growth each quarter and hasn't observed any customer "pullback" yet. Thus, it believes it has some time to strategize before that happens but is also keeping an eye on consumer spending trends.
Coca-Cola's product line is limited to beverages and this could be a weakness going forward. However, for the time being, it appears to be on track by expanding to coffee, energy drinks, and alcohol.
The company declared a 5% quarterly dividend raise in February, bringing its yearly dividend growth streak to 60 years and increasing its payout to $0.44 per share. Generating free cash flow is essential as it funds the dividend payments. The company generated free cash flow of $4.1 billion in Q2 and anticipates generating around $10.5 billion for the year. Investors can rest assured that dividend payments won't end anytime soon.
2. Innovative Industrial Properties
Innovative Industrial Properties (IIPR 0.28%) is not a pure-play cannabis company, but rather a real estate investment trust (REIT) that leases property to cannabis companies in the U.S.
The Controlled Substances Act makes cannabis illegal federally and this makes it difficult for cannabis growers to raise money to build larger production facilities. So Innovative owns and manages these facilities and rents them to cannabis companies through a sale-leaseback arrangement. Rental income, the company's sole source of income, has proven to be more than sufficient for its survival.
In short, it is a safer choice for investors who want to get in on a risky industry like cannabis.
The majority of Innovative's tenants are well-known cannabis companies such as Trulieve Cannabis, Curaleaf Holdings, Cresco Labs, and Green Thumb Industries. These multistate players are rapidly growing, bringing more business to Innovative, as demonstrated by its strong second quarter. Total sales increased 44% year over year to $70 million, while net profit increased to $40 million from $29 million in the year-ago period.
This one-of-a-kind stock might not be a Dividend King like Coca-Cola, but it has been paying dividends regularly since going public in 2016. Its rising adjusted funds from operations (AFFO) -- comparable to net profits for non-REITs -- have allowed it to continue paying dividends. In Q2, AFFO jumped to $60 million from $43 million in the year-ago period.
Innovative increased its quarterly dividend payout by 33% year on year to $1.75 per share in June. It was the company's 13th dividend increase since its initial public offering. As a REIT, it is required by law to return 90% of its net earnings to shareholders, meaning we can expect dividends to continue flowing.
The stock's recent price drop has driven the dividend yield up to nearly 8% as of Thursday's market close, which could favor investors in the short term. However, in order for dividend hikes to continue, the company's profits/AFFO must grow as well.
The company has potential and gives investors indirect access to the fast-growing cannabis market. As more states legalize marijuana, there will be a greater need for larger production facilities, creating new opportunity for Innovative. This is a good choice for investors who have the ability to stomach short-term risks.
Coca-Cola offers a dividend yield of 2.8%, surpassing the S&P 500's average yield of 2%, while Innovative offers a yield near 8%. However, consistency in payouts is the more important criterion to consider when selecting dividend stocks. And both Coca-Cola and Innovative pass this test.
