The big attraction of dividend growth stocks is that they can potentially pay you for years and even decades. But the danger for investors is assuming that just because a company has increased its dividend for decades, it will continue to do so, or that it will always be a great dividend stock.
Walgreens Boots Alliance is a prime example. The pharmacy retailer slashed its payouts this year, breaking a dividend growth streak that was closing in on five decades.
Rather than focusing on the past, investors should carefully consider which stocks are safe buys for the future, and whose payouts could rise in the years to come. While there are never any guarantees when it comes to dividends, three stocks I expect should increase their payouts for years and be able to pay you for the rest of your life are Coca-Cola (KO +0.33%), Costco Wholesale (COST -0.61%), and Apple (AAPL -1.17%).
1. Coca-Cola
Coca-Cola has a hugely successful business that it has been able to expand and transform over time. As consumers have become more health conscious, the company came out with healthier product choices. In 2023, for example, sales of Coca-Cola Zero Sugar grew at a rate of 5% -- higher than trademark Coca-Cola sales, which were up by just 2%.
NYSE: KO
Key Data Points
While investors may be most familiar with the company's Coca-Cola line of products, the business is far broader, with hundreds of brands in its portfolio, including Powerade, Fanta, Minute Maid, and Dasani. Coca-Cola's strong diversification makes it likely that the business will continue growing steadily over the years to come. And as consumer tastes evolve, so too will the business.
Last year, the company's earnings per share rose by 13% to $2.47, which is well above the rate of its annualized dividend of $1.94. This month, Coca-Cola announced it was increasing its dividend for the 62nd consecutive year. And given the company's impressive results, there's little reason to doubt that streak will continue for the foreseeable future.
2. Costco Wholesale
Costco doesn't have a long dividend streak like Coca-Cola, but Costco has been raising its payouts since 2005. And occasionally, the shopping club giant has also rewarded its shareholders with special dividend payments. The company's approach to dividends is why I'm confident this can be a reliable dividend stock to own forever.
NASDAQ: COST
Key Data Points
In its most recent quarter, which ended on Nov. 26, 2023, Costco reported $56.7 billion in net sales, which was up 6.1% from the prior-year period. During the 12-week period, the company generated 11.2% comparable revenue growth in international markets and 6.3% revenue growth in e-commerce. Those are two areas of its business I expect will drive growth in the future, as there's still plenty of room for Costco to grow internationally (750 of its 874 warehouses are in North America) and for it to develop a greater presence online.
The stock still has a fairly modest payout ratio of just 27%, leaving plenty of room for Costco to continue growing its dividend. Although its yield of 0.6% may look underwhelming, this could be a key dividend stock for investors to hold for the long haul.
3. Apple
Another low-yielding stock (0.5%) on this list is Apple. And like Costco, it's one that investors should expect to increase for decades. The tech company has only been increasing its payouts since 2013 but because of the iPhone maker's incredibly large profits and significant free cash flow, it's highly probable that Apple will pump more money into its dividend in the future.
NASDAQ: AAPL
Key Data Points
At 15% of earnings, its payout ratio is the lowest on this list. The company reported a profit of $33.9 billion during the last three months of 2023, rising by 13% even amid challenging economic conditions. And its operating cash flow during that period totaled $39.9 billion. While the company is investing in growth opportunities, and a chatbot may even be on the horizon, Apple used up just $2.4 billion on capital spending during the period.
Apple's strong financials make it highly probable that the company will continue raising its dividend in the future. And while dividend investors may not target this stock today, that could change in the future.
