Dividends are an often overlooked part of long-term investing, but they are crucially important. According to data from S&P Global, these periodic cash payments have accounted for a whopping 31% of all the stock market's gains since 1926, making them a key part of its total return.
Dividends allow investors to ignore the constant fluctuations of stock prices and focus on fundamentals like profits and future-focused leadership, which are key to the sustainability of the payout.
Let's dig deeper into why The Coca-Cola Company (KO +0.39%) and Phillip Morris International (PM +1.93%) have these characteristics and could make excellent long-term buys.
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The Coca-Cola Company
Blue chip stocks are shares in the largest and most established companies available in the market. Coca-Cola fits the bill with its globally recognizable beverage empire that has delivered decades of consistent dividend payouts. The company looks poised to continue performing well over the long term because of its healthy margins and ability to hold its own in both good and bad macroeconomic conditions.
NYSE: KO
Key Data Points
While beverages are technically discretionary items that people want but don't need, Coca-Cola's brands have become so ubiquitous that people tend to keep buying them even in a bad economy. The company also has surprisingly high pricing power. According to FinanceBuzz, it was able to raise Coke 12-pack prices by a whopping 89% between 2020 and 2025.
Despite these high prices (which are influenced by external factors like aluminum and sugar costs), Coke's loyal customers continue to drink like there's no tomorrow. Third-quarter revenue grew 5% year over year to $12.5 billion. The company also maintains a robust operating margin of 32%, which shows it is successfully passing on rising costs to consumers. Keeping margins high is key to dividend sustainability.
The stock offers a dividend yield of 2.71%, which is modest compared to other income-focused equity options such as real estate investment trusts (REITs). That said, Coca-Cola also generates substantial capital appreciation, with shares up roughly 58% over the last five years.
NYSE: PM
Key Data Points
Phillip Morris International
Like soft drinks, tobacco is another thing people tend to keep buying even in a bad economy. After all, nicotine is addictive. This fact has helped the tobacco industry generate huge profits while also attracting ethical concerns and negative attention from regulators. But Phillip Morris stands out because of its aggressive pivot to alternative tobacco products.
Over the long term, it's reasonable to assume that traditional cigarettes will continue to fall out of favor and potentially become obsolete. Phillip Morris' decision to focus on cigarette alternatives has already led to a widely diverging performance compared to its former peers in the tobacco industry. Over the last decade, the company's shares have risen 97%, while Altria and British American Tobacco have only gained 7% and 11%, respectively, over the same period. The trend looks set to continue.
As of the third quarter, smoke-free products account for 41% of Phillip Morris' sales and are available in 100 global markets. The company's global reach was massively expanded by the $16 billion takeover of Swedish Match in 2022. This deal significantly expanded Phillip Morris' distribution network, especially in the U.S., while giving it more diversification with smoke-free products like Zyn oral tobacco pouches.
While Phillip Morris tends to generate respectable stock price growth, the main appeal of the company remains its dividend. With a yield of 3.3%, the payout far exceeds the S&P 500 average of 1.14%. Management also has a track record of returning cash to investors through buybacks, although these are currently on hold while the company absorbs the costs associated with the recent Swedish Match acquisition.
