Dividend aristocrat stocks can be a rewarding place for investors to find steady income because they represent companies that have consecutively increased their dividend payouts annually for the last 25 years or more. Below, three Motley Fool contributors explain why Coca-Cola (NYSE:KO), Colgate-Palmolive (NYSE:CL), and PepsiCo (NASDAQ:PEP) are three of the best dividend aristocrat stocks money can buy today.
Tamara Walsh (PepsiCo): PepsiCo stands out as one of the top dividend aristocrats today because it offers investors both low risk and high dividend growth for many years to come. True, its dividend yield of 2.69% is slightly below Coke's 2.83% yield. However, Pepsi has grown its dividend by more than 151% in the past decade, compared to 117% growth in Coke's dividend over the same period.
Pepsi increased its dividend by as much as 15% in June 2014 to $2.62 annually, up from $2.27 per share. This too is markedly above Coca-Cola, which currently pays an annual dividend of $1.22 per share. Nevertheless, Pepsi also has other things going for it, such as its robust snacks business. Thanks to its Frito-Lay business, Pepsi is the world's largest snack food company by market share. Moreover, its snack division boasts 22 brands that each pull in annual sales north of $1 billion. This means Pepsi should have plenty of cash on hand to continue rewarding investors well into the future.
Pepsi is now on pace to return a whopping $8.7 billion to its shareholders in fiscal 2014 through higher dividends and share buybacks. Investors will get more color on these returns next month when the company reports its fiscal 2014 fourth-quarter and full year results. Until then, it is encouraging to know that Pepsi has paid a dividend every year since 1952, and has increased its payout for the past 42 consecutive years. This, together with the company's ability to generate strong cash flow, makes PepsiCo one of the best dividend aristocrat stocks to own today.
Dan Caplinger (Coca-Cola): I'm going to take the Pepsi challenge against Tamara here and select rival Coca-Cola (NYSE:KO), a Dividend Aristocrat with a similarly enviable track record of dividend growth. With a 52-year track record of raising its dividends every single year, Coca-Cola beats out the No. 2 U.S. soft-drink seller by a full decade. Its 2.9% dividend yield also inches out PepsiCo.
Admittedly, investors have been far more concerned about Coca-Cola than PepsiCo lately, as Coca-Cola's pure play on beverages has left it more exposed to the backlash against sugary and diet carbonated drinks in recent years. Yet even with PepsiCo's snack business to buffer it from the blow, Coca-Cola has nevertheless made moves to bolster its future growth. In particular, strategic investments in Keurig Green Mountain (UNKNOWN:GMCR.DL) and Monster Beverage (NASDAQ:MNST) have allowed Coca-Cola to profit from the success of both of its peers while also maximizing the value of assets like Coca-Cola's distribution network. Coca-Cola has also made its own moves away from its namesake beverage lines, with water and other still beverages making up a growing portion of the company's overall revenue. With many shareholders having completely discounted the Coke brand's value, just about anything other than a worst-case scenario for carbonated soft drinks could give Coca-Cola stock a big pop on top of its other growth prospects.
Bob Ciura (Colgate-Palmolive): While it often gets lost in Procter & Gamble's shadow, Colgate-Palmolive is a legendary stock on its own. In the 20-year period through the third quarter of 2014, the stock had delivered an amazing 1,166% total return to investors. This dwarfed the 532% return for the S&P 500 Index. Colgate-Palmolive shareholders have enjoyed steady growth thanks to the company's market-leading products, including its namesake Colgate toothpaste, Palmolive dish soap, and a large pet care business.
Colgate-Palmolive is an international powerhouse and grew organic revenue last quarter by 3.5% due largely to the emerging markets. The company derives just 18% of its sales from North America. Its unit volume increased 2.5% in Europe and 1.5% in Latin America. It's true that revenue and earnings from international markets are being negatively affected by currency fluctuations, but the underlying organic growth is strong. The company also performs well in North America -- domestic volumes grew 3% last quarter.
Colgate-Palmolive's regular quarterly dividends and regular dividend increases have added up for shareholders over the years. The company has paid uninterrupted dividends since 1895, and Colgate-Palmolive has increased its dividend for 51 years in a row. With regular earnings growth and a rock-solid dividend, Colgate-Palmolive is a compounding machine, which makes it one of the best Dividend Aristocrats to buy today.
Bob Ciura owns shares of PepsiCo. Dan Caplinger has no position in any stocks mentioned. Tamara Rutter owns shares of PepsiCo. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, Monster Beverage, and PepsiCo. The Motley Fool owns shares of Monster Beverage and PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.