Everybody loves dividend stocks, and for good reasons. Dividends provide income to investors, and a company must have a successful and solid business in order to distribute consistently growing cash flows over time. Apple (AAPL +0.11%), PepsiCo (PEP +1.47%), and Colgate-Palmolive (CL 0.32%) are three powerhouse dividend stocks offering extraordinary financial strength, and they have what it takes to continue distributing growing payouts for years to come.
Apple produces tons of iCash flow
Apple sold a massive 39.27 million iPhones during the quarter ended in September, a 16% increase from the same quarter in 2013. Sale-through growth rose by 26% year over year. Revenue during the quarter and forward guidance were above Wall Street analysts' expectations, confirming that the company is entering the crucial holiday quarter with strong sales momentum.
Due to its tremendous scale and unique pricing power, Apple is a remarkably profitable business that generates tons of cash flow. Apple delivered $59.7 billion in operating cash flow during the fiscal year ended in September. Taking out $9.6 billion directed toward capital expenditures, the company produced a jaw-dropping $50.1 billion in free cash flow during the 12-month period.
Source: Apple.
Management is generously rewarding investors: Apple allocated $45 billion to share buybacks and $11.1 billion to dividends during the last 12 months. Large and growing cash flows, in combination with an active capital distribution policy, mean Apple investors have solid reasons to expect continued dividend growth in coming years.
Apple reinstated its dividends in 2012, and it has rapidly increased payments from $0.38 to $0.47 per quarter since then. This equates to a dividend yield of 1.7% at current prices.
Delicious dividends from PepsiCo
Dividend Aristocrats are companies that have proven their financial strength by raising dividends over 25 consecutive years or more. PepsiCo has an extraordinary track record of 42 consecutive years of dividend increases, making it one of the most distinguished names among the Aristocrats.
PepsiCo is a global powerhouse that benefits from a tremendously valuable portfolio of brands in the snacks and nonalcoholic drinks industries. The company owns 22 brands that make over $1 billion each in annual sales, and its gigantic distribution network protects PepsiCo from competition and enables it to rapidly and efficiently introduce new products on a global scale.
Source: PepsiCo.
Consumers are increasingly health conscious when it comes to the food and drinks they consume, and this represents a challenge for companies in the industry. But PepsiCo is smartly adapting to this trend with healthier product alternatives such as its Gatorade, Tropicana, and Quaker brands.
PepsiCo announced better than expected earnings for the third quarter, including organic revenue that increased 3% year over year, fueled by an 8% increase in organic revenue in emerging markets. In a sign of confidence, management also raised its earnings per share guidance for the full year.
PepsiCo stock pays a dividend yield of 2.7%, and the payout ratio in the neighborhood of 57% of earnings forecasts for 2014 is comfortably sustainable for this solid dividend juggernaut.
Colgate-Palmolive makes dividend investors smile
Colgate-Palmolive is an undisputed global leader in the oral care industry: the company owns a global market share of 44.6% in toothpastes, 33.4% in toothbrushes, and 16.9% in mouthwashes. In addition, Colgate-Palmolive has a sizable presence in industries such as pet nutrition, home care, and personal care.
The company does business in more than 225 countries, generating over 80% of its revenue outside the U.S and nearly 50% of total sales in emerging markets.
Source: Colgate-Palmolive.
Colgate is the most recommended toothpaste by dentists around the world: 47% of dental care professionals recommend the brand over competing alternatives. This provides brand differentiation and pricing power for Colgate-Palmolive, which the company translates into growing dividends for investors.
Colgate-Palmolive has paid uninterrupted dividends since 1895, and it has raised those payouts over the last 51 consecutive years. The dividend yield is about 2.2%, and the payout ratio is quite safe in the area of 48% of earnings estimates for 2014.
The Foolish final word
Solid dividend stocks tend to produce consistent returns over time, and they allow investors to sleep smoothly at night knowing their capital is well protected. Companies such as Apple, PepsiCo, and Colgate-Palmolive could be interesting candidates for investors looking to position their portfolio in dividend powerhouses with indisputable fundamental strength.
