There are few guarantees in life. But one of the closest things to a certainty in investing is that companies that have increased their dividends for decades will probably continue to do so in the future. The resulting dividend growth is an incredibly effective way to build shareholders' wealth in the long run.
Here are two stocks with impressive track records as dividend payers that investors seeking steady income should think about for their portfolios.
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NYSE: KO
Key Data Points
1. Coca-Cola: The brand portfolio is unmatched
Everyone needs to quench their thirst daily with a fresh beverage. And regardless of someone's taste preferences, Coca-Cola (KO 0.12%) is sure to have at least a few products for everyone around the globe. The company has approximately 200 brands that are sold in over 200 countries and territories worldwide.
Whether it's through acquisitions or innovation via new products, Coca-Cola continues to do what is necessary to keep its growth prospects from fizzling out.
For one, the company acquired the remaining 85% stake in the sports drink brand BodyArmor in November 2021 for $5.6 billion in cash. As the fastest-growing major beverage company, this acquisition will probably turn out to be a winner for the company over the long run as it gains market share.
In March, Coca-Cola announced that it would be introducing two new flavors of vitaminwater -- coconut lime and raspberry dark chocolate -- to its zero-sugar lineup of products.
This illustrates why analysts predict that the beverage maker's adjusted diluted earnings per share (EPS) will grow by 6.1% annually over the next five years. There are always more beverage ideas to explore, and Coca-Cola doesn't mind experimenting with interesting ideas.
Thanks to its culture of innovation and acquisitions, the company has been able to hike its dividend annually for 61 consecutive years. With a dividend payout ratio positioned to come in at about 70% in 2023, Coca-Cola should have no trouble handing out more payout raises in the future. Coupled with a 3% dividend yield -- double the S&P 500 index's 1.5% yield -- that makes it an intriguing pick for income investors.
Shares of Coca-Cola aren't as expensive as you might think, either: The forward price-to-earnings (P/E) ratio of 21.7 is less than the average forward P/E ratio of 21.9 for the non-alcoholic beverages industry.
NYSE: MCD
Key Data Points
2. McDonald's: Die-hard brand loyalty rewards investors
McDonald's (MCD 0.56%) serves 63 million customers each day throughout the world.
Cheap and convenient menu selections paired with die-hard brand loyalty have literally paid dividends for shareholders: The company has raised its payout annually for 47 years in a row, with the most recent dividend boost last October at 10.1%.
And there are several reasons to be optimistic that McDonald's can build on its dividend growth streak. For one, the company's rewards program has reached almost 50 million members active in the last 90 days as of March 31. The program helps draw in loyal customers who spend more heavily and more frequently. That's one reason analysts believe the company will post compound annual earnings growth of 8.4% for the next five years.
The dividend payout ratio is expected to be around 56% in 2023. Given the company's 2.1% dividend yield, this provides investors with an attractive blend of starting income and future income. The fairly low payout ratio also provides McDonald's with ample room to boost its payouts further over the next few years.
Shares trade at a forward P/E ratio of 24.3, which is just below the restaurant industry average of 24.9. For a business with nearly a half-century of payout increases, this is an appetizing valuation for dividend growth investors.
