Investing in top consumer brands that pay reliable dividends can be more rewarding than some investors realize. For example, Hartford Funds found that 85% of the S&P 500's return since 1960 would have come from reinvesting dividends.
Regular cash deposits in your brokerage account come in handy when market volatility gears up, as it inevitably will. We'll look at two top consumer goods stocks that offer high yields, making now a great time to buy more shares or start a new position.
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1. Coca-Cola
Coca-Cola (KO 0.12%) is one of the best dividend stocks to hold for the long term. It has increased its dividend for 63 consecutive years, making it one of the elite Dividend Kings (a company with at least a 50-year streak of growing its dividend). After reaching a 52-week high of $74 this year, the stock has pulled back, providing a good buying opportunity.
Coke is a very profitable business that owns dozens of top beverage brands, including Sprite, Dasani, Simply, and several others across different categories. Over the last year, it generated $12 billion in net income on $47 billion of revenue. The company usually distributes around three-quarters of its earnings in dividends.
Coca-Cola has a capital-light business strategy. Finished or bottled products make up only 15% of its unit case transactions. Most of its unit sales, or 85% of the total, come from selling concentrate syrups to its bottling partners. Selling syrup is a lucrative business, allowing Coca-Cola to earn a high profit margin of 25% over the last year.
It has delivered steady sales through many economic cycles, making it a resilient dividend payer. Its local distribution capabilities around the world make it relatively immune to the impact of tariffs on imported goods. Moreover, the strength of its brands allows it to pass higher costs on to the consumer by increasing selling prices that don't materially impact sales volume.
The stock offers solid value right now, trading at almost 23 times this year's earnings and offering an attractive forward dividend yield of 3% based on its current quarterly payout of $0.51.
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2. Constellation Brands
Constellation Brands (STZ 0.46%) has gotten a lot of investor attention this year after Warren Buffett's Berkshire Hathaway disclosed a small stake in Q4 2024. The stock has fallen 37% year to date over weak sales, which has brought the forward dividend yield up to almost 3%. For a long-term shareholder, the dip is an opportunity to invest in this top beer stock at a big discount.
Constellation Brands holds the distribution rights to market and sell top Mexican beer brands in the U.S., including Modelo and Corona. Last year, the company's beer sales totaled $8.5 billion, with sales of wine and spirits coming to $1.4 billion.
The stock is down as consumers have pulled back on discretionary spending, and that has pressured sales of alcoholic beverages. The company's revenues have fallen for two consecutive quarters and were down 15% year over year in fiscal Q2 ending in August. Company guidance calls for full-year adjusted net sales to be down between 4% to 6%.
While the company's sales are dependent on consumer spending trends, people are not going to stop drinking beer and wine over the long term. The company's brands rank toward the top of their categories in market share, making now a great time to take advantage of the higher dividend yield.
Based on the current quarterly payment of $1.02, the stock's recent sell-off has brought the forward yield up to 2.95%. The company is currently paying out 40% of full-year earnings, which is sustainable. This provides ample room for management to maintain, or even grow, the dividend, even if earnings remain under pressure in the near term.
What's more, Constellation continues to buy back shares, signaling that management believes the stock offers good value. The company has retired nearly 10% of the shares outstanding over the last five years, showing its commitment to rewarding shareholders over the long term through a combination of dividends and share repurchases.
