Big and growing dividends are a nice thing to have; they provide a transparent measure about the company´s financial strength in addition to regular cash payments in your brokerage account. But dividends don´t come from thin air, companies need to have the fundamental qualities and competitive strengths to generate the cash flows for distributions, and these three dividend stocks are supported by powerful brands.
Clean and shiny
Procter & Gamble (PG +2.67%) owns a diverse portfolio of leading brands in areas like fabric and home care, baby care, beauty, grooming and health care. Some of the company´s billion dollar brands include names like Head & Shoulders, Duracell, Pantene, Gillette, Oral-B, Ariel and Pampers among many others.
The company has operations in more than 180 countries, a diversified portfolio of products and sells everyday necessities, this provides reliability and stability to its cash flows under fluctuating economic conditions. Procter & Gamble is a mature company in a stable industry, so growth potential is limited, but Foolish investors would be hard pressed to find a more sound operation.
Procter is working on reigniting growth and increasing profitability lately, management has launched an initiative to reduce $10 billion in expenses over five years starting in 2012. At the same time, the company is refocusing on product innovation when it comes to both existing products and new launches.
The company has paid regular dividends for 123 years, and it has raised those payments over the last 57 consecutive years. Procter & Gamble carries a 3.2% dividend yield and has a moderate dividend payout ratio below 60% of earnings, so investors have good reason to expect higher distributions from this rock solid global powerhouse for years to come.
Mouth watering dividends
McDonald´s (MCD +1.43%) is the unquestionable leader in the global fast food industry; the company has nearly 35,000 restaurants in 120 countries, 80% of them operating via its franchise and affiliate system, which produces rents and royalties with minimal capital expenditures. Besides, the firm has placed its stores in many of the most desirable locations in major world cities, and that´s an invaluable asset that provides a big advantage versus the competition.
No other brand in the industry enjoys the same recognition as McDonald´s, and the company´s scale advantages allow it to invest more than any of its peers in marketing and advertising. Besides, scale advantages mean more bargaining power when it comes to negotiating with suppliers, and this allows the company to obtain food and other raw materials at relatively low and stable prices.
Healthier eating habits around the world represent a serious long term challenge for Mc Donald´s, and same-store sales have been lackluster due to growing competition in a saturated market lately. But the company is finding ways to adapt with new products like its new 250-calorie egg-white sandwich and providing healthier alternatives in its happy meal menus.
McDonald's has raised its dividend each and every year since paying its first dividend in 1976, including a recently announced increase of 5% for 2013. Paying a dividend yield of 3.4% and with a payout ratio of 55%, this fast food powerhouse is looking quite tasty.
iDividends
Apple (AAPL +2.65%) is not a typical name that comes to mind when thinking about dividend growth stocks, the Cupertino, CA giant reinstated its dividends in 2012 and raised them 15% in 2013. Apple doesn't have the same track record as traditional dividend growth stocks like Procter & Gamble or Mcdonald's, but the company does have what it takes to pay growing dividends for years to come.
Apple generated more than $43.7 billion in cash flows from operations over the last nine months, and investments in fixed assets absorbed only $6.2 billion of that money. This allowed Apple to allocate $7.8 billion to dividends and $17.9 billion to share repurchases in the last three quarters.
Products like the iPhone and the iPad are moving beyond their initial growth stages, but Apple is still the leader in the high end segment of market, and the company´s brand differentiation generates superior profitability for shareholders. According to Interbrand Apple has become the most valuable brand in the world this year, and this has important implications when it comes to product pricing and profit margins.
Apple pays a dividend yield of 2.5%, this is not particularly high in comparison to other options. However, considering that the payout ratio is comfortably low at less than 27% of earnings, the company will most likely deliver big dividend increases for investors in the coming years.
Bottom line
Dividend growth companies are great, and when those dividends are backed by strong brands they can be even better. Procter & Gamble, Mcdonald's and Apple all provide the powerful combination of growing dividends and a rock solid brand name. All three are worth a look by Foolish investors looking for dividend paying stocks for their portfolio.
