While most stocks have bounced from their bear market lows, many remain well below their highs from when the sell-off started 18 months ago. That's good news for income-seeking investors since dividend yields have an inverse relationship with stock prices. Many top-quality dividend stocks now offer attractive dividend yields.
Coca-Cola (KO), Prologis (PLD 0.69%), and Johnson & Johnson (JNJ -0.46%) are among the dividend elite. They each pay an above-average dividend that they've steadily increased over the years. With more dividend growth ahead, those with $1,000 or so to spare should consider investing it into these elite dividend stocks.
Add some pop to your passive income
Shares of Coca-Cola currently sit about 7% below their high from early last year. That decline has nudged the beverage giant's dividend yield up to around 3%. That's a great yield for such a high-quality dividend stock. It can turn a $1,000 investment into nearly $30 of annual dividend income. For comparison, a similar investment in an S&P 500 index fund would only produce about $15 of annual dividend income, given its lower yield (currently around 1.5%).
Coca-Cola has a phenomenal track record of paying dividends. In February, the company increased its payout by another 4.6%, marking its 61st straight year of dividend growth. That kept it in the ultra-elite group of Dividend Kings, companies with 50 or more years of steady dividend increases.
That payout should continue growing. Coca-Cola generates lots of free cash flow, giving it money to reinvest in its business and pay dividends. The company's long-term target is to grow its earnings per share by 7% to 9% annually while converting 90% to 95% of its earnings into free cash flow. That growing cash flow will support Coca-Cola's ability to continue pushing its payout higher.
Leading dividend growth
Prologis' stock got pummeled during the bear market. While it has bounced off its lows, shares are still down nearly 30% from their peak early last year. That decline has driven its dividend yield up to 2.8%.
The industrial REIT has done a fantastic job growing its dividend. Since its initial public offering, Prologis has increased its dividend at a 15% compound annual rate. That ranks it 13th in dividend growth in the S&P 100 (an index of the 100 largest companies in the U.S.). Over the last five years, Prologis has grown its dividend twice as fast as the S&P 500 average. It gave investors a 10% raise earlier this year.
Prologis' payout should keep rising. The company expects the net operating income of its existing industrial real estate portfolio to grow by 8% to 10% annually for the next several years. The main driver is expiring leases, which will enable it to sign new ones at much higher market rates. In addition, Prologis has an excellent track record of making value-enhancing acquisitions and development investments.
A very healthy dividend
Johnson & Johnson stock has fallen about 11% from its peak during the bear market. That has pushed its dividend yield up to 2.9%.
The healthcare giant is dividend royalty. Like Coca-Cola, it also delivered its 61st consecutive annual dividend increase earlier this year, boosting the payout by another 5.4%.
The company backs that payout with a super-elite balance sheet. Johnson & Johnson has an AAA bond rating, tied for the highest in the world. That gives the company tremendous financial flexibility to invest in growing its business. For example, last year, the company spent $16.6 billion to acquire Abiomed to strengthen its position in the high-growth medical technology space. Future deals like that and the company's continued investment in R&D will help grow earnings, enabling Johnson & Johnson to keep boosting its dividend.
Top-tier dividend stocks
Coca-Cola, Prologis, and Johnson & Johnson lost value during the bear market. That has pushed up their dividend yields to more attractive levels. Add in their elite dividend growth track records (which are showing no signs of stopping), and they're great stocks to buy for income and upside right now.
