NEW YORK (TheStreet) -- With the Federal Reserve indicating interest rate increases, conflict in Yemen, oil price drops, and a bull market that has run for a full six years, positive stock market returns in 2015 are far from guaranteed.
So here are 11 dividend stocks that combine stable cash flows with high dividend yields (all above 3%) and low stock price volatility. The stocks below reward investors each year with steady or rising dividend payments. Each of these 11 stocks has not reduced its dividend payments in over 25 years.
Stocks that score high marks for safety while also offering a strong dividend yield make good choices for investors looking to build a portfolio that performs well in bull markets while providing partial downside protection in bear markets.
Coca-Cola (KO - Get Report) is the world leader in ready-to-drink beverages. The company has a total of 22 brands that each generate $1 billion or more in sales per year. Coca-Cola controls five of the top 10 soda brands in the U.S. The company's dominance in beverages goes beyond soda, however. Of Coca-Cola's 22 billion-dollar brands, 14 are non-carbonated beverages. Coca-Cola's non carbonated portfolio includes: Minute Maid, Powerade, Dasani, Vitamin Water, Simply Orange, Gold Peak Tea, and FUZE Tea.
Coca-Cola grew core earnings-per-share 7% in fiscal 2014. This number is on the low end of the company's long-term expected earnings-per-share growth rate of 7% to 9%. Going forward, Coca-Cola plans to grow earnings in several ways. First, the company is focusing on increasing efficiency by re-franchising its bottling operations in North America and restructuring the global supply chain. Coca-Cola hopes to generate $3 billion in savings per year up to 2019 by focusing on efficiency. Secondly, the company continues to pour money into advertising and acquiring other high quality beverage brands to push growth in both developed and emerging markets.
Coca-Cola currently has a price-to-earnings ratio of 19.8 and a dividend yield of 3.3%. The company's dividend yield is at its highest level since 2010, making now a good time to enter into a position in Coca-Cola. The company has a low stock price standard deviation of 18.5% and a beta of 0.51, which means that the stock tends to be less volatile than the rest of the market (a beta of above 1 indicates volatility greater than that of the market; under 1 indicates less volatility than the market).
Coca-Cola's combination of low stock price volatility, low beta, and stable cash flows make it a good choice for risk averse investors. When the stock market fell 38%% in 2008, Coca-Cola stock fell 28%; a relative improvement of 10 percentage points. The company's relatively lower risk does not mean Coca-Cola offers low returns. The stock will likely give investors total returns of 10% to 12% a year from earnings-per-share growth (7% to 9%) and dividends (3%). Coca-Cola's combination of high total returns and low risk make it a long-time favorite of The 8 Rules of Dividend Investing.
Sysco (SYY - Get Report) is the industry leader in supplying restaurants and other institutions that serve food (schools, hospitals, and others) with food and supplies. Sysco was founded in 1970 and has increased its dividend payments each year for 44 consecutive years.
Sysco currently has an 18% market share of the $255 billion food service market. The company's planned merger with its largest competitor US Foods was recently blocked by the FTC. The five FTC commissioners voted three to two against the deal. Sysco is fighting the ruling. The proposed merger would greatly benefit Sysco shareholders as it would allow the company to achieve significantly greater economies of scale and likely increase operating margins. At this point, however, the merger looks doubtful.
Despite being the largest player in the food-service industry, Sysco has struggled somewhat in recent years. The company has seen earnings-per-share decline from $1.99 per share in 2010 to $1.58 per share in 2014. Inflationary effects on food and an inability to lower operating costs have hampered performance. The company's products and services are in demand, but costs need to be controlled.
The good news for current investors is that Sysco seems to have turned the tide. The company is reporting diluted-adjusted-earnings-per-share growth of 5.7% for the first half of its fiscal 2015 compared to the first half of its fiscal 2014. Cost-cutting measures and efficiency gains have finally taken hold for the company.
Sysco is currently trading at a price-to-earnings ratio of 21.1 and has a solid 3.1% dividend yield. Sysco is predicting earnings-per-share growth in the 4% to 7% range over the next few years thanks to cost cutting measures and growing revenue. If the company is able to reverse the FTC's ruling on the US Foods merger, the company's share price could jump significantly.
The food-service industry is highly competitive and very slow to change. It is very unlikely that technology innovations will cause Sysco's market leadership in the industry to erode. Sysco generates stable cash flows and is likely to continue doing so in the future. The company has a beta of just 0.74 and only lost about 26% in 2008 when the S&P 500 fell 38%.
Consolidated Edison (ED - Get Report) is a natural gas and electricity provider with a $17.5 billion market cap. The company provides electricity to over three million and natural gas to over one million customers in New York State. Consolidated Edison, or Con Ed as it's known to its customers, was founded in 1823, giving it a 192 year corporate history. The company has increased its dividend payments each year for 40 years, making Con Ed a Dividend Aristocrat.
Con Ed's stock price doesn't move around much. The company has one of the lowest price standard deviations of any stock. With that said, the entire utilities industry has suffered in recent months due to interest rate increase fears. As a result, Con Ed stock has fallen nearly 10% over the last three months. The market is giving investors an opportunity to buy one of the most stable utilities at a 10% discount. Con Ed currently trades at a price-to-earnings ratio of 16.1 and has a nice 4.4% dividend yield. The company's high dividend yield should appeal to income oriented investors.
Over the last decade, Consolidated Edison has grown its earnings and dividends in the low single digits. The company's slow growth is due to its status as a highly regulated utility. Investors in Consolidated Edison can expect dividend growth that matches inflation to go with the company's 4.4% dividend yield.
Consolidated Edison has an extremely low stock price standard deviation of 16.5% and a Beta of just 0.1. To say the company is stable is an understatement. Consolidated Edison's stock price performs more like a long-term bond than a stock. The company's stock price fell 20% in 2008 when the market fell 38%, an out-performance of 18 percentage points.
General Mills (GIS - Get Report) sells some of the most recognizable branded consumer food products around: Yoplait, Nature's Valley, Cheerios, Chex, Totino's, Lucky Charms, and much more. The company's health and natural brands include: Annie's, Immaculate, Food Should Taste Good, Cascadian Farms, and LaraBar. General Mills has paid dividends for 116 years without interruption and currently has a market cap of $33.6 billion. General Mills is the largest publicly traded packaged food company in the U.S.
Over the last decade, General Mills has grown earnings-per-share at 8.3% a year. The company has shown weakness over the last two years due to declines in the cereal market. Consumers are demanding healthier options. Brands like Lucky Charms do not appeal to health-conscious consumers.
General Mills management is now embracing the switch toward healthier foods. The company acquired Annie's in 2014. General Mills has seen solid growth in its Chex brand by highlighting that it's gluten-free. From 2005 to 2010, Chex sales fell 4% a year. From 2010 to 2015, Chex sales have grown at 10% a year. General Mills is leveraging this success by rolling out gluten free Cheerios in the first quarter of 2016. Highlighting health benefits across the company's brand portfolio should help General Mills continue to grow sales.
The future looks bright for General Mills. The company's focus on health is beginning to pay off. Management expects long-term earnings per share growth of 7% to 9% a year to go along with the company's 3.1% dividend yield. Together, General Mills' dividend and earnings-per-share growth of 10% to 12% a year.
General Mills has a stock price standard deviation of 17%, one of the lowest of any stock. The company has a beta of just 0.19. General Mills grew earnings-per-share each year through the Great Recession of 2007 to 2009, and saw its stock price increase 6.6% in 2008, when the S&P 500 posted returns of negative 38%. General Mills is among the most recession-proof publicly traded stocks.
Procter & Gamble
Procter & Gamble (PG - Get Report) is the largest personal products company in the world. The company has a market cap of $223 billion and was founded in 1837. Procter & Gamble has paid increasing dividends for 58 consecutive years, and has paid dividends for 125 years.
Procter & Gamble's brand portfolio includes: Tide, Head & Shoulders, Pampers, Crest, Gillette, Pantene, Olay, Old Spice, and Always, among others. Procter & Gamble is undergoing a transition to reinvigorate growth. The company has only managed earnings-per-share growth of about 3.5% a year over the last five years, well below its historical average. To spark faster growth, Procter & Gamble's management is reorganizing the company's supply chain and divesting poorly performing brands.
The most notable divestiture to date has been that of Duracell to Warren Buffett's Berkshire Hathaway (BRK.A - Get Report) (BRK.B - Get Report). In addition, Procter & Gamble has divested its Iams, Eukanuba, and Natura brands to well-known candy maker and consumer product company Mars. Procter & Gamble divested the remaining 20% of its pet care business to Spectrum Brands (SPB - Get Report). These moves are streamlining Procter & Gamble's operations and setting the company for future growth.
Procter & Gamble is expecting double-digit earnings-per-share growth on a constant-currency basis in fiscal 2015. The company's long-term target is to deliver high single digit earnings-per-share growth. Procter & Gamble currently has a dividend yield of 3.1%. Shareholder's can expect total returns over a multi-year period of 10% to 12% a year from Procter & Gamble from dividends and earnings-per-share growth.
Procter & Gamble performs well during recessions. The company's earnings-per-share fell just 3% during the Great Recession. The company's operating stability has lead to stock price stability as well. Procter & Gamble has a stock price standard deviation of 17.6% and a beta of 0.44. The company's stock price fell 15.8% in 2008 when the S&P 500 fell 38%.
Southern Company (SO - Get Report) has a market cap of $40.3 billion, making it the third-largest publicly traded electricity utility in the U.S. Southern Company supplies electricity to about 4.5 million customers in Georgia and the Southeast United States. The company has a long corporate history and has paid dividends each and every quarter dating back to 1948. Southern Company operates under the following names: Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Southern Power, Southern Nuclear, and SouthernLINC Wireless
Southern Company has a long history of growth thanks to population growth and the controlled and highly regulated utilities market in the United States. Like most utilities, Southern Company's growth is relatively slow. The company is projected to grow earnings per share between 3% and 4% over the next several years, in line with GDP growth in the region in which it operates. Utilities tend to grow at about the same pace as GDP in the regions in which they serve. Investors can expect total returns from Southern Company of between 7.7% and 8.7% from earnings-per-share growth (3% to 4%) and dividend payments (4.7%).
The Great Recession of 2007 to 2009 did little to impact the profitability of Southern Company. The company saw earnings-per-share dip just 1.3% in 2008. Southern Company's stock price fell just 4.5% in 2008 while the S&P 500 lost 38% on the year. Southern Company does well during recessions because electricity demand is relatively constant regardless of the economic climate. The company's stability gives it a low stock price standard deviation of 16.8% and a beta of 0.08.
Kellogg Company (K - Get Report) sells branded food products under several well-known brands, including: Pop-Tart, Cheez-It, Pringles, Kellogg's, and Kashi. The company has a market cap of $23 billion and a long corporate history. Kellogg has not reduced its dividend payments since 1959 for a streak of 56 years without a dividend reduction.
Kellogg has experienced difficulty in recent years. Slowly declining cereal sales in the U.S. have slowed the company's growth somewhat. Over the last five years Kellogg has grown earnings-per-share at 5% a year. The company is expected to continue struggling in full fiscal 2015; earnings-per-share growth is expected to be flat or slightly negative. The company's plan to combat declining cereal sales is to focus on healthier brands. The strategy is working for competitor General Mills.
Kellogg's future cereal sales growth depends on growth in its health-oriented Special K, Kashi, and Bear Naked brands. Kellogg's management is correcting course by focusing on what consumers want: healthier products with fewer ingredients. The company's Kashi brand has the highest market share in the natural and organic cereal category at 37%. Bear Naked has the number one share in natural and organic granola at 15%.
The company is trading for a price-to-earnings ratio of 17.2. Kellogg has historically traded in-line with the S&P 500's price-to-earnings ratio -- which currently sits at 19.7. Kellogg appears to be somewhat undervalued at this time.
Kellogg offers investors a 3% dividend yield. After 2015, the company will likely return to 5% or more earnings-per-share growth as the company's focus on health begins to pay off and larger benefits are realized from the company's ongoing "Project K" restructuring plan.
Kellogg did well over the Great Recession of 2007 to 2009. The company managed to increase earnings-per-share each year through the recession. Kellogg's high quality brands in the consumer food industry give the company stable cash flows. Operating stability has resulted in an extremely low price standard deviation of 17.4% and a beta of 0.52. In 2008, Kellogg stock fell 16.4% while the overall market fell 38% for outperformance of 11.6 percentage points.
Altria (MO - Get Report) is the tobacco industry leader in the U.S. The company's premium tobacco brands include Marlboro, Virginia Slims, Skoal, Copenhagen, and Black & Mild. In the growing e-cigarette category Altria owns the Green Smoke and MarkeTen brands. The company has a presence in the alcohol industry as well with its 27% ownership of SAB Miller (SAB) and full ownership of the St. Michelle's Winery brand wine. Altria's high quality brands have allowed it to increase its dividend for 45 consecutive years (excluding spin-offs).
Altria has a strong competitive advantage in cigarettes and smokeless tobacco in the U.S. Restrictions on advertising tobacco products have made it virtually impossible for new tobacco companies to compete with Altria. The company's leading market position is essentially locked-in. Altria's strongest brand is Marlboro. Marlboro has more market share in U.S. cigarettes than the next 10 brands combined.
Altria has grown earnings per share at 7.7% a year and dividends per share at 8.7% a year over the last 5 years. The company's management expects to continue growing earnings-per-share and dividends-per-share at 7% to 9% a year going forward despite slowly declining cigarette volume. Altria currently has a dividend yield of 4.1%. The company's high dividend yield and solid earnings-per-share growth expectations give investors an expected 10% to 13% total return over the next several years.
Cigarette companies tend to do well during recessions. Consumers find it difficult to cut back on cigarettes -- especially during stressful times. As a result, the cigarette industry has historically done well during recessions. Altria has a beta of just 0.55 and a low stock price standard deviation of 19.5%, making it likely the company's stock price will fare better than the overall market's during the next bear market.
Kimberly-Clark (KMB - Get Report) is a branded consumer products company with a market cap of $39.4 billion. A short list of the company's most well known brands include: Kleenex, Viva, Scott, Cottonelle, Huggies, Kotex, and Pull Ups. Kimberly-Clark's disposable consumer brands have allowed the company to raise its dividend payments each year for 43 consecutive years which makes Kimberly-Clark a Dividend Aristocrat.
Kimberly-Clark is focusing on international expansion to fuel growth. In 2014, Kimberly-Clark delivered 25% growth in diapers in both China and Eastern Europe as well as 10% diaper growth in Brazil. The company also saw feminine care products and adult care products growth more than 10% internationally in 2014. Kimberly-Clark's management is expecting 2% to 5% growth in constant-currency earnings-per-share growth in 2015. The company's relatively slow growth shows the company is experiencing slow growth in developed markets. Kimberly-Cark offers investors a 3.3% dividend yield.
Kimberly-Clark currently has an adjusted price-to-earnings ratio of 18.2. The company's price-to-earnings ratio is a bit below the S&P 500's. Kimberly-Clark is likely fairly valued at this time as its price-to-earnings ratio reflects both its relatively slow growth, offset by its low-risk.
What Kimberly-Clark lacks in rapid growth, it makes up for in stability. The company's portfolio of high quality brands that generate stable cash flows make it extremely likely that the company will continue to pay rising dividends for years to come. The company has a stock price standard deviation of 17.2% and a beta of only 0.20. Kimberly-Clark stock fell 24% in 2008, versus 38% for the S&P 500. The company makes a good choice for conservative investors looking for solid dividend payments that are very likely to continue growing in the future.
Verizon (VZ - Get Report) is the largest U.S. telecommunications company with a $200 billion market cap. The company has a 34% market share in the wireless industry. Together with competitor AT&T (T - Get Report), the two companies control 65% of the wireless industry. Industries that are largely controlled by only a few corporations tend to make good investments. The less competitive an industry, the more likely the few companies in the industry are to generate large profits.
Verizon Wireless has been successful in the U.S. telecommunications industry for decades. The company has paid steady or increasing dividends for 31 consecutive years. This long history makes it very likely shareholders will continue receiving steady or increasing dividends from the company. Verizon pays substantial dividends at a 4.5% yield.
In addition to its high dividend yield, Verizon offers investors solid capital appreciation potential from earnings-per-share growth. The company has grown earnings-per-share in double digits in recent years. Going forward, expect the company to grow earnings-per-share at 8% or more a year. Ever increasing smart phone prevalence and data usage are driving growth for Verizon. The company offers investors a 12.5% or more total return from both dividends and growth.
Verizon Wireless's contract-based business and few competitors give it stable cash flows. This has resulted in stock price stability. Verizon Wireless has a stock price standard deviation of 21.7% and a beta of 0.37. As one would expect from a stock with such a low beta, Verizon Wireless outperformed the S&P 500 during 2008. When the S&P 500 lost 38%, Verizon Wireless stock fell 22.4%, a relative out-performance of 15.6 percentage points.
McDonald's (MCD - Get Report) has been a favorite of The 8 Rules of Dividend Investing for much of the last 12 months thanks to its solid growth prospects, high dividend yield, and respectable valuation. On the other hand, McDonald's has faced tough times over that period:
- Tainted meat scandal in China
- Human tooth found in food in Japan
- Negative living wage publicity in the United States
Despite these setbacks, McDonald's still managed to grow revenue per share in fiscal 2014. The company saw earnings-per-share fall in 2014 for the first time since 2002, ending an 11 year streak of rising earnings-per-share for the company.
McDonald's growth prospects are better than its recent history would suggest. The company's growth will come as follows:
- 3% increase in store count per year
- 3% share count reduction each year
- 5% dividend yield
McDonald's will give investors total returns of 9.5% a year even if comparable store sales are flat. If the company can gain traction with well targeted advertising campaigns, investors will see total returns even higher than 9.5% per year.
McDonald's recently got rid of CEO Don Thompson and replaced him with Steve Easterbrook. The move appears to be paying off already. McDonald's recently announced it will be switching to hormone-free milk and chicken raised without antibiotics important to humans. McDonald's is attempting to clean up its operations to appeal to the growing health consciousness of consumers. The company also has an opportunity to boost comparable store sales by switching to all-day breakfast.
The company currently has a price-to-earnings ratio of 20.3 and a dividend yield of 3.5%. McDonald's tends to do very well during recessions. The company grew earnings-per-share each year through the Great Recession of 2007 to 2009. In 2008, the company's stock price gained 5.8% while the S&P 500 fell 38%.