Identifying good companies isn't always easy, but there are shortcuts you can take.
One of my favorite is focusing on companies that have a long history of annual dividend increases behind them. After that point, I assess the business and its valuation to determine if it could be a suitable addition to my portfolio.
Right now, Coca-Cola (KO +0.13%), Enbridge (ENB +0.61%), and Medtronic (MDT 0.28%) all appear to be worthwhile.
Image source: Getty Images.
1. Coca-Cola is reasonably priced
Coca-Cola is the one stock on this list that I don't own, but only because I already own its competitor, PepsiCo (PEP +0.57%). If I didn't own PepsiCo, I would probably jump at the opportunity to buy Coca-Cola today.
The company has increased its dividend annually for more than six decades, which is more than the five decades required to gain Dividend King status. It is an industry leader in the beverage space, with marketing, distribution, and innovation skills that stand toe-to-toe with any of its consumer staples peers.
NYSE: KO
Key Data Points
But the real reason to buy Coca-Cola today is its valuation. Although the stock's price-to-sales ratio is slightly above its five-year average, the price-to-earnings and price-to-book value ratios are both below their respective five-year averages. The stock's roughly 2.9% dividend yield, while not historically high, is about middle of the road.
All in, investors are paying a fair to perhaps a little cheap price for an iconic, industry-leading company. That's likely to present a worthwhile buying opportunity for conservative dividend investors.
2. Enbridge is changing with the times
I own Enbridge for two reasons. First is the dividend, which has been increased annually, in Canadian dollars, for three decades. The dividend yield, meanwhile, is a very attractive 5.5%. The North American midstream energy giant's yield compares very favorably to the average energy stock, which is yielding just 3.2%.
NYSE: ENB
Key Data Points
What's interesting here, however, is Enbridge's business model. As a midstream company, it largely charges fees for the use of its energy infrastructure assets. That means volatile energy prices have a minimal impact on its top and bottom lines.
If you are looking for an energy stock, this is a relatively low-risk way to get into the sector. However, the big attraction for me is that Enbridge has a specific goal of adjusting its business along with global energy demand. This has included a shift from oil to natural gas (including regulated natural gas utilities), as well as a small move into renewable power.
In other words, Enbridge is a high-yield, all-in-one investment in the energy sector that is using profits from dirtier fuel options to invest in a cleaner future.
3. Medtronic is trying to jump-start growth
Medtronic is one of the largest and most diversified medical device makers on the planet. The last few years haven't been so great for the business, which has become somewhat bloated over time. That's common with large companies, and the solution is a corporate overhaul.
This is precisely what Medtronic has been doing: exiting less desirable business lines, focusing on efficiency, and striving to boost profitability. The next big step will be the spinoff of the company's diabetes business, which will be immediately accretive to earnings.
NYSE: MDT
Key Data Points
At the same time, Medtronic is introducing some significant new products, including its surgical robot technology. With a streamlined business, these new products should have an extra-impactful effect on the business's profits.
Essentially, Medtronic appears to be at an inflection point. I expect stronger growth and profitability in the years ahead. If you buy it now, like I have, you can collect a historically high dividend yield of roughly 3%. That dividend is backed by 48 consecutive dividend increases, putting Medtronic just two years away from achieving Dividend King status.
There are plenty of dividend options if you look
You don't have to buy Coca-Cola, Enbridge, or Medtronic, but they are, in my opinion, attractive investment opportunities right now. The bigger takeaway, however, is that you can still find attractive dividend stocks today, even with the S&P 500 (^GSPC 0.05%) hovering near all-time highs and offering a tiny 1.2% yield.
So even if you don't buy my trio of dividend picks, don't give up. If you take the time to look, I'm confident you'll be able to find reliable dividend stocks you think are even better.
