One of the most popular stock market indicators is the Dow Jones Industrial Average, or simply the Dow. It tracks the performance of 30 large-cap companies that represent various sectors of the U.S. economy.
The Dow is widely followed by investors as a measure of the U.S. stock market's strength. In 2024, the Dow has risen by about 3.48% at the time of this writing, while the broader S&P 500 index has soared by an impressive 7.66% so far this year.
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Despite lagging behind the S&P 500, a handful of Dow stocks still scan as compelling buys right now. Two of the most attractive are electronic payments giant Visa (V -0.23%) and beverage behemoth Coca-Cola (KO).
Both stocks are owned by Warren Buffett, the legendary investor who is known for his long-term value investing strategy. These two industry titans sport wide economic moats, consistent dividend growth over long periods, and strong earnings power.
Let's take a closer look at these two outstanding Dow dividend growth stocks, and why they are worth adding to your portfolio right now.
The argument for buying Visa
Visa, the e-payments powerhouse, deserves a spot in most portfolios due to its robust economic moat, sky-high dividend growth rate, and top-tier position in a rapidly expanding market.
That said, Visa's shares do trade at a premium (over 32 times earnings), and its dividend yield of 0.73% is below average for a large-cap U.S. stock. For reference, the benchmark S&P 500 trades at around 23 times earnings, and its dividend yield of 1.43% is nearly twice that of Visa's at the moment.
However, Visa's stock is still worth the price of admission for two reasons.
- Dividend Growth: Visa boasts one of the fastest dividend growth rates in the entire market. Over the past five years, the company has boosted the size of its dividend checks by a tantalizing 15.7%, on average, per year.
- Snowball Effect: Visa's scorching dividend growth rate, coupled with its stellar long-term growth prospects, sets the stage for a potential "snowball effect." In the context of dividend growth stocks, this effect refers to exponential returns on capital over time due to the power of compounding.
Because of these two factors, Visa arguably stands out as one of the best dividend growth stocks available in today's market.
The argument for buying Coca-Cola
Coca-Cola, a formidable player in the non-alcoholic beverage industry, sports a wide economic moat, thanks to its strong and diverse portfolio of brands. Its brand strength allows it to charge premium prices and maintain close relationships with retailers.
Coca-Cola also uses its global distribution system to reach customers in more than 200 countries. These key competitive advantages, along with the company's focus on innovation, are projected to drive revenue growth in the mid-single digits over the next decade, according to analysts who follow the stock.
On the dividend side of the ledger, Coca-Cola has raised its cash distributions to shareholders for 62 consecutive years. It also offers an attractive yield of 3.26% at the current price.
While Coca-Cola's dividend growth rate of 3.92% over the past five years is not nearly as impressive as Visa's, it is respectable for a mature and established company with a global presence. Coca-Cola's shares also trade at around 24 times earnings, which is not exactly cheap, but not overly expensive for a top dividend growth stock, either.
Coca-Cola serves up an attractive blend of steady growth, solid dividends, and brand power. For those with a long-term perspective, this medley promises stellar returns.
