2 Fundamentally Strong Stocks for Consistently Rising Dividends

These brand-name consumer companies are rock-solid income generators that won't disappoint investors in a year that has been highly volatile.
By Chiradeep BasuMallick ,

Economic growth can be difficult to measure, as is the assessment of earnings prospects.

But there are plenty of indicators that show whether a particular business has sustainable momentum as a growth investment.

Here are two companies with deep moats and even deeper pockets. Their stocks are poised to keep rising this year and beyond.

These two brand-name behemoths offer well-paying dividends.

1. McDonald's (MCD) - Get Report

The Golden Arches is an American success story like no other. Selling burgers and chips has always been profitable, but $105.9 billion McDonald's has scaled this simple business idea to epic proportions.

The company has successfully woven the power of franchisees, suppliers and its employees to emerge as the world's leading quick-service restaurant brand.

With more than 36,000 restaurants, McDonald's essentially is a giant entity, composed of tiny units. The majority of McDonald's restaurants -- more than 80% globally and nearly 90% in the U.S. -- are run by 5,000 small- and mid-size owners.

Over the years, McDonald's has become a modern, progressive burger company with an impeccable customer experience track record. By simply sticking to basics such as serving hot and fresh food, fast and friendly service, and a contemporary as well as value-for-money restaurant experience, McDonald's has constantly improved its brand and menu items.

By making operational investments efficient and building a global well-diversified geographic footprint, McDonald's is the Amazon of its segment.

With expected double-digit earnings growth for the next five years on an average annual basis and the fattest profit margins on a trailing 12-month basis in the industry of 19% compared with competitors Domino's Pizza (8.5%) and Restaurant Brands (10.7%), McDonald's is the king of restaurant stocks.

Having paid rising dividends every year since 1977, McDonald's dividend aristocrat credentials are burnished by a 61.4% payout and a 2.82% yield.

Even though the stock has gained more than 26%, investors should load up on the stock for safe and solid double-digit total returns.

2. Philip Morris International (PM) - Get Report

About 5.8 trillion cigarettes are consumed every year, with every sixth cigarette smoked in the world made by this dominant company. 

Philip Morris International's brands include Bond Street, Chesterfield, Lark, L&M and Parliament. Overall, six of the top 15 international brands in the world belong to the company.

In addition, innovations such as slimmer line Marlboro Touch and Marlboro Premium Black for Gulf Cooperation Council countries and important local brands in Canada, Germany, Indonesia, Italy, Pakistan, Philippines and Russia complement the business.

From an investment point of view, Philip Morris International is one of the strongest consumer defensive stocks. The company has clocked above-industry median operating margins of 42.9%, compared with British American Tobacco (34.8%), Imperial Brands (7.6%) and Reynolds American (29.9%).

The company has consistently sought margin-improving sales, even if that meant foregoing revenue. This is why its annual profit is higher than a decade ago.

Annual free cash flow, the best indicator of a growing and money-making company, is now nearing $7 billion a year, comfortably covering the $6 billion-plus in dividends paid each year in 2014 and 2015.

The stock offers a 3.99% yield, which is higher than the 3.67% yield at rival Universal, and has been backed by growing payouts since 2008.

Philip Morris International's earnings outlook is improving to 8.15% annually for the next half a decade, compared with falling growth in the previous five years.

At 20.93 times forward earnings, this all-American company is a consistent and safe dividend grower.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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