Three High Quality Dividend Stocks to Buy in an Economic Crisis
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is something beautiful about certain high quality companies: you can rest assured about the fact that they will keep increasing their earnings and cash flows over the long term. When a corporation has rock solid competitive advantages, and the financials are strong enough to go through any possible crisis, a pullback is a buying opportunity, and the investor can sleep smoothly at night knowing that his money is well protected.
Every company may face transitory slowdowns when the economy is weak; no business is completely immune to the economic scenario. But as long as the business has what it takes to survive and keep growing over the years, price declines or economic hurdles are no reason to sell the stock at all. Even better, long term investors should stay alert in order to increase positions when the market gives them an opportunity to add to high quality businesses at convenient entry prices.
In order to identify a business which is strong enough to survive any economic complications, the first and most important condition is an irreplaceable competitive advantage; an individual characteristic of the company which protects it against competitors in the long term.
A strong brand is my favorite kind of competitive advantage, that is something which everyone can identify and understand, and it usually doesn´t change with time. Other types of competitive advantages, like patents or advanced technologies, are more easily replaced by competition, and you need specific technical knowledge in order to understand their value and dynamics.
But you don´t need to be a genius to understand the tremendous value of the Coca-Cola (NYSE: KO) brand. Most people get familiarized with Coke when there are small kids, and it would be practically impossible to build another brand with the same historical presence and marketing power. Also, sales of soft drinks are usually quite stable during the economic cycle, and Coca-Cola has been able to keep growing through the worst recessions in history.
Coca-Cola pays a 2.7% dividend yield, and it has increased dividend payments in each of the last 49 years, so investors have every right to expect growing dividends from this mature company in the foreseeable future. Consumer trends are constantly changing, and Coke will need to adapt to healthier lifestyles in the future, but the company is already working on it via products like bottled water, juices and sports drinks.
If consumers change their tastes, Coca-Cola will change with them, just like McDonald´s (NYSE: MCD) is adapting to healthier eating habits via offering a wider variety of products and low fat alternatives. You just can´t beat McDonald´s when it comes to brand recognition in the fast food industry, and the company has already secured locations in the most important streets of every major city in the world.
McDonald´s knows how to go through difficult economic times by offering low product prices and keeping care of its customer´s pockets when they need it the most. The fast food giant pays a 3.1% dividend yield, and the company has raised those payments for 35 consecutive years, so it’s quite safe to say McDonald´s can raise its dividends even under the most challenging economic circumstances.
Speaking about safe dividends, Procter & Gamble (NYSE: PG) pays a 3.5% dividend yield and has increased dividends through 55 consecutive years in a row. The company sells things everyone needs and consumes in more than 180 countries; many of those products are every day necessities, which makes PG quite a resilient company in the face of economic uncertainties.
Procter & Gamble has 50 leadership brands that are some of the world's best known household names. Within those 50 brands, 24 of them generate more than $1 billion in annual sales. A unique brand portfolio, enormous economic scale and abundant financial resources make Procter & Gamble one of the safest alternatives for long term investors concerned about the economic environment.
I have no idea about how the European financial crisis will play out. I wouldn´t like to guess how long it will take for the markets to regain their optimism or the global economy to get into better shape. But I believe these three companies are solid enough through the worse economic times and continue rewarding shareholders with higher cash flows and growing dividends over the long term.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company. Motley Fool newsletter services recommend McDonald's, The Coca-Cola Company, and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.