If you like dividends, you should like these 3 stocks

Buying dividend-paying stocks can be a lucrative investment strategy. Accumulate enough of it and the passive income streams that flood your portfolio can buy you more stocks or even pay off some of your living expenses. The list of companies that will pay you to own them is extensive, and here are three stocks that could pay dividends for years to come.

1. Colgate-Palmolive

Divide by share Dividend yield Increased years in a row
$ 1.80 2.3% 58

Colgate-Palmolive (NYSE: CL) is a consumer staples company that sells a variety of household products including toothpaste, soap, pet food, cleaning products and deodorants. Its products are sold all over the world with three quarters of sales coming from overseas markets.

The products Colgate-Palmolive sells are low cost items that people use every day. They are bought – often without a second thought – when consumers are short of them. The awareness of brands such as Colgate toothpaste gives the company the opportunity to increase its prices step by step to contribute to steady revenue growth. Think about it: do you notice that the toothpaste you buy each month increases by a few cents each year? Probably not.

Image source: Getty Images

The company achieved sales of $ 17.1 billion in the past 12 months and has grown sales by an average of 2% per year over the past three years. This is modest growth, but its high profitability helps it convert 15% of its revenue to free cash flow – $ 2.6 billion in the past 12 months. This gives Colgate-Palmolive a constant flow of cash.

The company’s 50% dividend payout ratio gives management flexibility to continue increasing the dividend, which has grown an average of 3% per year over the past five years.

2. Walmart

Divide by share Dividend yield Increased years in a row
$ 2.20 1.5% 48

Walmart (NYSE: WMT) is one of the largest retailers in the world and a household name among most consumers. It operates most of its stores in the United States under the name Walmart and Sam’s Club, distributed in such a way that there is one within 10 miles of 90% of the American population.

Retailing is extremely competitive and Walmart is using its massive size to squeeze suppliers at the best possible cost in order to offer the lowest prices to consumers. The company’s operating margin is only 4% after paying its operating expenses.

Walmart had sales of $ 566 billion in the past 12 months. So despite low margins, the company made so much revenue that it still generated $ 17.8 billion in free cash flow. The gigantic retailer has also invested in expanding its e-commerce business to compete with Amazon, but he has always remained a dedicated dividend payer, recently raising it to 2%. Earlier this year, the company also announced a $ 20 billion buyback program.

Investors need to be confident that Walmart will maintain its dividend history despite these changes. Its massive size gives the company great financial flexibility.

3. The Coca-Cola Company

Divide by share Dividend yield Increased years in a row
$ 1.68 3% 59

The Coca-Cola Company (NYSE: KO) is a beverage giant famous for its eponymous brand and its position as a longtime Warren Buffett investment. Its products include a variety of sodas, bottled waters, juices, coffees and more. The company has around 20 brands that each generate $ 1 billion or more in sales each year. In fact, one in five cold non-alcoholic drinks sold worldwide comes from Coca-Cola.

Like Colgate-Palmolive and Walmart, Coca-Cola products are purchased daily and rarely receive a second thought before consumers put them in their shopping cart. Additionally, Coca-Cola’s combined brand portfolio gives it one of the best storage spaces in stores, giving the company a huge advantage that prevents most competitors from threatening to steal market share. .

Coca-Cola does not bottle its products; it sells the syrups and concentrates that the bottlers then use to make and distribute the branded drinks. This makes the business very profitable. Coca-Cola has made $ 36.4 billion in revenue in the past 12 months, generating $ 11.5 billion in free cash flow.

The company spent 81% of that free cash flow on dividends in 2020, so there isn’t much room for management to increase the payout ratio. However, the company is expected to increase its profits by 8% to 9% per year, which could give the dividend some breathing space.

Here is the bottom line

Colgate-Palmolive, Walmart, and Coca-Cola sell products that consumers use every day – and that everyday use has helped these businesses thrive for decades, regardless of the economy. Their large size, competitive advantages, and strong cash flow can fund long-standing dividends that are poised to continue for years to come. If you love dividends, it’s hard to name three best stocks to consider right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Myra R.

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