Successful investing is very much about risk management. Just as consistent singles and doubles are more likely to win a baseball game than aiming for home runs (and striking out instead), the same can be said of investing.
You don't need to reinvent the wheel to be a successful investor. The stocks of businesses with strong brands and proven track records are enough to build substantial wealth. Here are two companies for dividend investors to consider that have raised their dividends for at least 50 consecutive years, which places them in the company of just 46 other Dividend Kings.
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1. Coca-Cola: The leading beverage company
Coca-Cola's (KO 0.63%) $275 billion market capitalization makes it the largest nonalcoholic beverage company on the planet. For context, that is $20 billion higher than PepsiCo's market cap.
Coca-Cola owns many of the most valuable beverage brands in the world, such as its flagship line of sodas, Dasani water, BodyArmor sports drinks and Minute Maid juices. The company's extensive product portfolio almost guarantees that it can satisfy anyone's beverage tastes.
Berkshire Hathaway's Warren Buffett prefers businesses that enjoy competitive advantages over peers. The rationale is that this leads to consistent growth in profits and higher dividends over time.
Coca-Cola certainly meets the above investment criteria, which is why Berkshire Hathaway owns 400 million shares, worth $25.5 billion. Coca-Cola's iconic brands supported growth in the payout for a staggering 61 years in a row. Thanks to that product lineup, analysts expect that the company's earnings will grow by 5.8% annually over the next five years.
Coupled with a payout ratio that is set to come in just above 70% in 2023, Coca-Cola seems positioned to build on this dividend growth streak with annual increases in the mid-single digits. Considering that the 2.9% dividend yield is significantly above the S&P 500's 1.6% yield, this is a nice combination of starting income and growth.
And income investors can buy shares of the stock at a forward price-to-earnings (P/E) ratio of 22.7. This valuation is basically in line with the average forward P/E of 22.5 in the nonalcoholic beverage industry, which makes Coca-Cola a buy in my opinion.
2. Hormel Foods: A legendary consumer staple
Hormel Foods (HRL 1.15%) sells a variety of well-known packaged brands such as Hormel pepperoni and bacon, Skippy peanut butter, and Planters nuts. As a testament to the depth of its product portfolio, the company holds the top or second-best market share in more than 40 categories.
This explains how Hormel has been able to boost its dividend for 57 years straight. And this streak should continue in the years ahead for two reasons: First, Hormel has a reputation for steadily launching new products and acquiring companies to bolster its offerings to consumers. This should support earnings growth in the years ahead. And second, with a payout ratio that should clock in at around 63% for the current fiscal year, Hormel's 2.8% dividend yield looks to be secure.
Yield-hungry investors can scoop up the stock at a forward P/E of 21.4. This is well above the packaged-food industry's average forward P/E of 16.9. But Hormel's history as a Dividend King and its stacked brand portfolio arguably justify this premium valuation.
