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Love Dividends? 3 Stocks You Might Want to Buy

By Andrés Cardenal – Mar 11, 2016 at 1:55PM

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These high-quality companies with big and growing dividends can be remarkably profitable investments.

Everybody loves dividend stocks, and for solid reasons: Investing in high-quality companies that make regular and growing quarterly payouts is one of the most powerful strategies for obtaining superior long-term returns from your portfolio.  If you are looking for attractive opportunities among dividend stocks to buy right now, consider candidates such as Coca-Cola (KO 0.88%), Ford (F -1.56%), and IBM (IBM -0.33%)

Sparkling dividend growth from Coca-Cola
Coca-Cola is one of the most renowned dividend stocks in the market, with an amazing track-record of dividend growth over the long term. It has paid uninterrupted dividends since 1920, and it has increased its payouts in each and every year over the last 54 years. In the last six years alone, Coca-Cola has distributed $29 billion to investors via dividends, including $5.7 billion in 2015.

Coca-Cola enjoys unparalleled brand power in the non-alcoholic drinks market.  Coke is the most popular soft drink brand in the world by a wide margin, and the company owns an enormously valuable portfolio featuring 20 different brands making over $1 billion each in global revenue. 


The company also has a gargantuan global distribution network and abundant financial resources to invest in areas such marketing, advertising and R&D. These additional layers of competitive advantage for Coca-Cola can be enormously valuable when it comes to efficiently introducing new products on a global scale.

Coca-Cola announced its latest dividend increase on Feb. 18, raising payments by 6%, from $0.33 to $0.35 quarterly. This brings the dividend yield to 3.1% at current stock prices -- not bad at all.

Ford is gaining speed
The automotive industry is remarkably challenging and competitive. Demand tends to fluctuate considerably with the business cycle, profit margins are low, and automakers face considerable capital hurdles, as they need to make big investments in plants and equipment to produce the right vehicles for the right markets at the right times.

Nevertheless, Ford has made impressive progress over the last several years. It's building better and more efficient cars and trucks, and this is being reflected in vigorous financial performance and growing dividends for investors.

Sales volume during 2015 was the highest in a decade, while revenue hit a 12-year high for the company. Ford produced $7.3 billion in automotive-related operating cash flow during  2015, the best result the company has generated since 2001. Operating profit margin was a healthy 6.8% of revenue last year, a material increase from 4.6% of sales during 2014.


Ford reinstated its dividend in 2012, and the company has rapidly increased distributions since then; what started as regular quarterly dividend of $0.05 has now tripled to $0.15. The increase for 2015 was a generous 20%, and management announced in January a new special dividend of $0.25 per share.

Considering only regular dividends, Ford stock is yielding an attractive 4.6%, which increases to a smoking-hot yield of 6.5% when the special dividend is added to the equation. 

IBM: Increasingly Big Money
IBM is going through a difficult period. Global corporate spending has been unimpressive through the ongoing economic recovery, and currency headwinds in Europe and emerging markets are hurting the company's bottom line. Besides, IBM is also moving away from its hardware-related businesses and segments with low profit margins, which is putting additional pressure on revenue.

In this context, IBM is delivering stagnant or even declining sales; constant currency revenue from continuing operations declined by 2% during the fourth quarter of 2015, following a trend that has been in place for several years now. Investors are not particularly excited about IBM stock, so shares of Big Blue have underperformed over the last five years.


On the other hand, management is now focusing on a set of high-growth businesses it calls its "strategic imperatives": the cloud; big data and analytics; mobile; social; and security. Revenue from strategic imperatives came in at $28.9 billion in 2015, amounting to 35% of total sales and up by 26% in currency-adjusted terms. Chances are that the strategic imperatives segment will continue outgrowing the rest of the business in the coming years, which could be a substantial growth driver for IBM in the middle term. 

While investors wait for IBM to jump-start growth, they are being rewarded with a generous dividend yield of 3.7%. Besides, IBM has an impeccable track-record: It has paid uninterrupted dividends since 1916, and it has increased payments for 20 years in a row, including a big dividend increase of 20% for 2015.

Andrés Cardenal owns shares of Ford and International Business Machines. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends Coca-Cola. 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.

Stocks Mentioned

International Business Machines Stock Quote
International Business Machines
$148.67 (-0.33%) $0.49
Coca-Cola Stock Quote
$64.35 (0.88%) $0.56
Ford Motor Stock Quote
Ford Motor
$13.86 (-1.56%) $0.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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