Although the inflation rate has come down significantly in the past year to just 3% in June, prices are still substantially higher than they were just a few years ago. In an era where a dollar doesn't go as far as it used to, a rising dividend can be a coveted source of cash for investors. Yet not every company is able to raise its payout at the moment, and many that have done so recently have only boosted them by small, token amounts.
With that in mind, three top Motley Fool contributors went searching for companies that have recently boosted their payouts by at least 5%. At that level, investors have a shot at not just keeping up with inflation, but staying ahead of it. They singled out PepsiCo (PEP -0.62%), Starbucks (SBUX 0.47%), and Kroger (KR -0.75%) for your consideration. Read on to see how these everyday titans have been able to increase their payouts so much, and decide for yourself whether they might fit in your portfolio.
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The king of snacks and drinks
Eric Volkman (PepsiCo): Here's one indication of the ubiquity of PepsiCo's products. Have you ever visited a convenience store, grocery, or supermarket in this country and not seen some of its brands?
The answer's surely "no." Although the company takes its name from the famous beverage that anchors its portfolio, it's a massive and unavoidable presence in the snack market, too. Ruffles potato chips, Doritos, and Cheetos are all owned by the company; heck, even that old ballpark standby Cracker Jack belongs to PepsiCo.
As for drinks, in addition to Pepsi, the company also sells the old favorite of thirsty athletes, Gatorade. Ditto for Mountain Dew and, in partnership with other drink industry titans, bottled Starbucks beverages and Tazo teas.
With that kind of lineup and ubiquity, you can be sure that PepsiCo moves a great deal of product. This means a vast amount of revenue and well-in-the-black cash flow. The company's latest annual sales figure was more than $86 billion (up 9% from the previous year), while its net profit zoomed 17% higher to $8.9 billion.
PepsiCo is a consistently profitable company that throws off lots of cash. That cash fountain has supported a dividend that's been raised at least once annually for an astonishing 51 years in a row. This year's plump 10% increase brought the annual payout to $5.06 per share. At the current share price, that yields 2.6%, well above the 1.5% average of dividend-paying stocks in the S&P 500 index.
A decade and counting
Jason Hall (Starbucks): The past couple of years have been rough going for global coffee giant Starbucks. Like many retail companies, it took a severe blow from the pandemic, and even the recovery has been challenging. Tens of millions of people now work more from home, meaning fewer stops at Starbucks on the way to the office, and fewer afternoon pick-me-ups on the way home. Meanwhile, the impact of China's extended zero-COVID policy was brutal on its international results. And to top off that bitter brew, sprinkle on a dash of labor strife.
But based on its just-reported quarterly results, Starbucks has turned the corner in a big way. Business in China is surging, it's making use of its strong pricing power in its more mature markets, and customers are even starting to buy more food with their caffeine fixes. Put it all together, and you get record revenue, a higher operating margin, and a 25% increase in earnings per share. We also learned that the situation on the labor front seems to be improving, at least based on employee churn, which has declined. Lastly, its growth story remains super-impressive, with nearly 600 net new locations opened last quarter.
All that growth is paying off for investors. Starbucks raised its dividend by 8% late last year. That marked a dozen straight years of payout hikes, and set investors up for another dividend increase later this year. Based on its usual rate of growth, a 5% increase is probably the low end of what investors should expect.
People still have to eat
Chuck Saletta (Kroger): On Aug. 14, grocery titan Kroger will trade ex-dividend on a quarterly payment of $0.29 per share. That dividend represents a nearly 12% increase over the $0.26 per share the company paid last quarter. Kroger's ability to hand out a dividend that much larger than its previous offering at a time when other businesses are slashing their payouts is a sign that it must be doing something right.
And certainly, it helps that Kroger is the largest supermarket chain in the nation. With food inflation still trending ahead of overall inflation, a greater fraction of consumers' dollars are being spent on that necessity of life. Kroger is clearly benefiting from that trend -- and sharing its profits with its shareholders.
Of course, Kroger can't rely on price inflation alone to support its dividend. After all, it doesn't get the food it sells for free, and its expenses to acquire that food are rising alongside the prices it charges consumers. Instead, it has to leverage its scale as such a large buyer to help control costs, and also keep innovating to stay in tune with the way people shop.
Groceries have been slower to move online than many other types of purchases. The difficulty in cost-effectively transporting perishable foods that "last mile" to consumers' homes has long been a barrier. In addition, often people want to pick specific foods based on perceived freshness, time to expiration, and specific sizes among foods that vary significantly from item to item. That combination has led to in-person grocery stores continuing to survive -- and even thrive -- in an area where much of retail has moved more rapidly online.
Still, Kroger is leading innovation on that front to help ensure its customers can shop where and how they want to. It's using a combination of pickup and delivery services that leverages both its large, local store presence and significant technological investments to stay on top of the trend.
By both investing in its future and leveraging its scale and physical footprint to keep costs under control, Kroger is doing what it needs to do to support its higher payout.
Get started now
Whether your dividend income comes from these companies or others, a key thing to remember about those payments is that to receive them, you must buy the stock before its ex-dividend date and hold onto it until at least that date. As a result, it's a good idea to start looking now for the next great dividend payers to add to your portfolio. Once an ex-dividend day arrives, if you haven't yet pulled the trigger on the stock, you'll have to wait until its next dividend comes to receive your share of the cash. So get started now, and give yourself the most time possible before those deadlines pass you by.
