While stock price growth gets a lot of attention, it's not the only way to make money. Investors should also pay attention to dividends and their role in a stock's total returns. Dividends are a way for companies to reward investors for their patience. They can also make up a lot of investors' total returns over the long haul, so their impact shouldn't be taken for granted.
If you're looking for dividend stocks to add to your portfolio, two companies that arguably have the most recognizable brands in the world are a good option: McDonald's (MCD -0.91%) and Coca-Cola (KO).
1. McDonald's
There aren't too many countries in the world where you won't run into the iconic gold McDonald's arch. Having been around for decades, McDonald's is a poster child for the fast-food industry as we know it today. With over 40,000 stores, the chain is still going strong.
In the second quarter of this year, McDonald's increased its global sales by 11.7% to just under $6.5 billion, with each of its three main segments increasing by double-digits:
- U.S. market: 10.3%
- International operated markets: 11.9%
- International developmental licensed markets: 14%
McDonald's offers a quarterly dividend of $1.67, which currently amounts to a trailing-12-month dividend yield of around 2.4%. It has also increased its dividend for 47 straight years, making it just a few years shy of reaching the coveted Dividend Kings club. There shouldn't be any concerns over the dividend's sustainability, either, given its payout ratio of 55% -- which has come down nicely in the past several years.
MCD Payout Ratio data by YCharts
McDonald's has a stronghold in the U.S., but its continued growth long-term will rely on its global expansion. There are currently McDonald's in over 100 countries globally, but that leaves plenty of room for growth. Even within the countries where it currently operates, there are growth opportunities as many of these places have a relatively small number of stores.
While the golden arches remain popular in the U.S., it's the global expansion and ongoing digitalization to improve the customer experience that should strengthen its long-term prospects. CEO Chris Kempczinski noted that a recent trip to China "truly brought to life the power of a highly digitized economy and our potential for global growth moving forward."
The stock isn't quite undervalued by most metrics, but it's one you likely won't regret buying years down the road.
2. Coca-Cola
The world's leader in non-alcoholic beverages is Coca-Cola, and it's been that way for quite some time. It has a portfolio of household name brands that have put it in a market-dominating position that's primed for longevity.
One advantage of being a market leader and having the brand loyalty Coca-Cola has is you get pricing power. Although Coca-Cola's global unit case volume only grew 2% year over year in the third quarter, its organic revenue and operating income grew 11% and 6% year over year, respectively.
Pricing power is a competitive advantage because it gives Coca-Cola the ability to raise prices without significantly reducing consumer demand. That's a perfect recipe for maintaining or improving margins despite potential increased costs.
Coca-Cola is also a Dividend King, having increased its annual dividend for 61 consecutive years. In the past 10 years, it's increased the dividend by over 64%, and there's no reason to believe it'll drastically slow down its annual increases anytime soon.
Although Coca-Cola stays in its lane by focusing on beverages, it does a great job at embracing emerging categories and making active investments to compete in them. Whether it's introducing Topo-Chico hard seltzer and Simply Spiked in the rise of ready-to-drink alcohol, embracing plant-based beverages with AdeS, or catering to evolving preferences in its soft drink category, Coca-Cola has shown it won't get complacent.
