Coca-Cola Co. (KO +1.82%) is widely considered to be one of the safest and strongest dividend stocks in existence. The beverage maker has a staggering 54-year history of consecutive dividend increases, earning it the coveted "dividend aristocrat" status. Even so, there are several large-cap stocks offering higher dividend yields than Coke's 3.19% right now that may be worth a deeper dive by income-seeking investors. With this in mind, our team of Foolish dividend experts discusses the merits of three such stocks.
George Budwell: British pharma giant GlaxoSmithKline (GSK +2.30%) is a high-yield dividend stock that's been getting the cold shoulder from investors for a while now. But it might be high time that investors took another look at this beaten-down pharma stock.
The short story is that Glaxo's flagship asthma and COPD drug, Advair, has seen its sales plummet because of the introduction of generics. Making matters worse, the drugmaker's product sales in the high-growth Chinese market have also taken a hit in recent quarters, presumably as a result of its well-publicized bribery scandal in the Communist nation.
The good news is that Glaxo is starting to put these problems behind it, evinced by the drugmaker's fairly strong first-quarter numbers. For instance, sales of Glaxo's new products more than doubled from a year ago, helping it to offset a big chunk of Advair's marked decline. Moreover, management reported that vaccine sales also rose by a healthy 14% on a pro forma basis during the three month period, showing that its pivot to the low growth, yet more stable, vaccine market was indeed a smart move.
Turning to Glaxo's dividend, the drugmaker announced in its first-quarter earnings release that it plans to maintain the current quarterly payout of around $0.55 per share (subject to foreign exchange rates) through 2017. At present, this payout gives Glaxo a monstrous yield of 5.27% -- a yield that easily trumps Coke's more modest 3.19%. That said, Glaxo's 12-month trailing payout ratio does stand at a worrisome 634%, reflecting the company's recent struggles and ongoing restructuring process. In short, this high-yield dividend isn't without risk, but things do seem to be turning around for the pharma giant.
Andres Cardenal: The automotive industry is notoriously challenging and competitive, but Ford (F +0.63%) is doing a great job at generating growing sales and profitability for investors. Sales in the U.S. amounted to 231,316 vehicles in April, a 4% year-over-year increase. Retail sales grew 3%, marking Ford's best April performance over the past decade.
Financial performance during the quarter ended in March was remarkably strong. Total revenue grew 11% year-over-year, reaching $37.7 billion on the back of 1,720,000 wholesale vehicle deliveries. The company registered an automotive operating margin of 9.8% during the period, and automotive operating profit was a historical record for the company, at $3.3 billion.
South America remains a challenging market because of unstable macroeconomic conditions, but Asia and North America look remarkably strong, and the company seems to be solidly on track toward improving performance and market-share growth in Europe. Even if demand is cyclical and hard to predict in the industry, Ford looks well positioned for sustained growth.
At current prices, Ford stock is paying a generous dividend yield of 4.5%. Importantly, Wall Street analysts are forecasting that the company will make $2.08 in earnings per share during 2016, and the $0.15 quarterly dividend accounts for less than 30% of the company's forecasted earnings. A conveniently low payout ratio in combination with solid financial performance should allow Ford to continue raising dividends in the future, and this bodes well for investors in the iconic automaker.
Neha Chamaria: A substantial exposure to the oil and gas sector may have hurt Emerson Electric's (EMR 1.43%) bottom line, but its dividends aren't taking any hits: The stock is yielding 3.8%, and CEO David Farr has ruled out any possibilities of a dividend cut.
Farr's confidence stems from Emerson's solid financials, which speak for themselves: It generated free cash flow worth $2.2 billion against net income of about $1.9 billion during the trailing 12 months. Emerson's FCF was nearly 1.8 times its dividend payout during the period, which means there's enough buffer for further dividend increases even if cash flows decline for a couple of years. Comparatively, Coke's FCF covered about 1.2 times its dividends during the past 12 months.
The best part is that Emerson's cash flows should only expand in the coming years as the company aggressively reorganizes its business. So if actions like an intended spinoff or sale of its network power segment is expected to scoop out nearly $6 billion from Emerson's projected $21 billion worth of sales this year, the company is confident of crossing the $20 billion mark again by 2019 with higher margins and cash flows, bolstered by acquisitions.
As sales expand, so should Emerson's profits. There's ample room for dividend growth, as the company currently pays out only about 60% of its net income in dividends. Coke is already giving out 80% of profits to shareholders. Add up Emerson's solid 59-year streak of dividend increases, and you can safely consider it a bigger and better dividend stock than Coke today.
