With interest rates still near their all-time lows, income investors continue to hunger for anything with a solid and growing dividend. Fortunately, the market is always offering something on sale for investors trying to build a safe dividend portfolio.
Read on to learn about 10 high-quality, high-yield blue chips trading near their 52-week lows, and more importantly, why now could be a great time to add them to your own diversified dividend portfolio.
Several of these companies are in our Top 20 Dividend Stocks and Conservative Retirees dividend portfolios, and most of them have high marks using our proprietary Dividend Safety Scores, which have successfully predicted dividend cuts for major companies such as Kinder Morgan and ConocoPhillips. Investors can learn more about Dividend Safety Scores here.
1. Coca-Cola (KO) : Yield 3.3%
Coca-Cola is one of the greatest examples of blue-chip dividend growth stocks available on the market. In fact, with 53 straight years of dividend increases Coke is among the most elite of dividend stocks, earning a dividend king label.
Of course, with obesity a growing concern worldwide, and U.S. soda sales sales declining for 11 consecutive years, Coke management has to address the market's concern about where its future sales, earnings and free cash flow, or FCF, growth will come from.
Fortunately, management has a solid three-stage plan to keep the dividend growth alive and well for decades to come. First of all, the company is selling off 39 bottling plants through the end of 2017. This will effectively make the new Coca-Cola a smaller, more profitable company, as it will mainly serve as the marketer and distributor of Coke's syrups.
This is less capital intensive, and management expects the company's FCF margin to increase an impressive 50%, from 18% to 27% once the transition is complete.
Secondly, management has also targeted $3 billion in cost cutting by 2019 from its nonbottling operations that should help further boost margins, and strengthen its dividend profile.
Lastly, Coke is focusing more of large cash reserves on acquiring and expanding into water, tea, and juices, whose global sales are projected to grow at a 5% compound annual growth rate over the coming decades.
The combination of all three legs of the company's largest-ever business model evolution should be enough to allow it to continue growing its generous dividend, by around 5.9% annually over the coming years.
This should mean a nice, market-beating 9.2% total return for investors. And since Coke is 31% less volatile than the market overall, this means that on a risk-adjusted basis Coke makes an outstanding long-term core holding for any dividend growth portfolio, especially at the current price.