3 Indestructible Dividend Companies for Times of Uncertainty
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you have been reading the news lately, you most likely know that the conflict with North Korea has been escalating rapidly over the last days. Unfortunately, there is no way to know for certain how these things may turn out, but let´s hope for everyone´s sake that this is just another episode of inflamed rhetoric by a decaying dictatorship and it does not become anything more serious.
And it´s not only the risk of war in North Korea: the financial crisis in Cyprus could extend to Europe and from there the rest of the world, and there is always the risk of a new recession, another financial bubble or any kind of economic crisis. There are even strong rumors, god forbid, about Justin Bieber launching a new album.
The sad truth is that we live in a world full of uncertainty, almost anything could happen, and some bad things will inevitably happen sooner or later. Considering this, it`s understandable to feel concerned about how different scenarios may affect your portfolio. After all, if you don`t take care for your financial future and the wellbeing of your beloved ones, nobody else will.
Just remember that some media outlets are mostly interested in attracting attention by almost any means, not in providing an unbiased and realistic assessment of current events for their audiences. So take those fatalistic reports with a grain of salt: don`t panic, and make your investment decisions with a cool head and a long term focus.
Still, if you are one of those people who believe in hoping for the best but preparing for the worst, here are three rock solid dividend plays which are strong enough to survive under a dire scenario.
Always Coca Cola
The first version of the Coca Cola (NYSE: KO) drink was developed around 1886, so this is a product, and a company, which has proven its capacity to grow and thrive through all kinds of economic, political and even military environments. Coke announced last year it´s fiftieth consecutive annual dividend increase, and it has an active stock repurchase program, so investors are well rewarded for holding this stock for the long term.
According to Interbrand, Coca-Cola is the most valuable brand in the planet, and the company's portfolio features 15 billion dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, Vitaminwater and PowerAde among others. In addition to that, Coke owns a gigantic global distribution network which keeps competitors at bay and can be enormously valuable when it comes to introducing new products on an international scale.
Emerging markets are a huge opportunity for growth, consumption of these kinds of products tends to rise rapidly with growing personal income, so considering population size and economic growth, countries like China, India and Brazil bode well for the company in the middle term. For this reason, Coke is investing heavily in marketing and distribution to capitalize the opportunity for volume growth in emerging nations.
In the US and Europe, where markets are more saturated and consumers are changing their habits towards a healthier lifestyle, the company´s challenge is to adapt and innovate by delivering new alternatives in consonance with the new consumer trends.
But this unique company has successfully gone through much tougher challenges in the past, so it´s cash flows and dividends will most likely continue growing in the long term. Coke`s 2.8% dividend yield is as safe as it gets.
Energy for Your Dividends
The energy business is always exposed to fluctuating profit margins because of volatile commodity prices in an industry characterized by high fixed cost. But ExxonMobil (NYSE: XOM) is by no means an average integrated energy play, the company is well known for its capital allocation discipline and strong focus on efficiency and profitability. This produces profit margins which are well above industry averages.
Exxon is not the alternative with the highest growth prospects in the industry, the company is already huge, and size can be a limitation for growth. Besides, Exxon puts quality over quantity when it comes to developing new projects, so it sometimes bypasses projects that more aggressive competitors undertake.
On the other hand, this conservativeness has its advantages, Exxon is one of the few remaining corporations in the world which has its debt rated Aaa and AAA by Moody’s and Standard & Poor’s, respectively. Not that you should put too much trust on credit rating agencies, but a good rating is certainly better than a bad one, and it also means lower financing costs, a big advantage in a capital intensive business.
Exxon pays a 2.5% dividend yield, and it has consecutively increased its dividend payments for the last 30 years.
A Clean and Shiny Dividend
Procter and Gamble (NYSE: PG) was incorporated in 1890, and has successfully gone through all kind of economic and political scenarios, including deep recessions wars and disasters of different scales all over the world. The company sells things everyone needs and consumes in more than 180 countries. Many of those products are every day necessities, not luxuries that people tend to cut quickly from their budget when the economic situation looks uncertain.
The company owns a strong portfolio of leading brands, 25 of which generate more than $1 billion in annual global sales. Tide laundry detergent, Charmin toilet paper, and Pantene shampoo, are just a few examples. Procter has been “cleaning up the house” in order to reinvigorate growth and increase profitability lately: management has launched an initiative to reduce $10 billion in expenses and double its presence in emerging markets with new facilities in countries like China, Brazil, Nigeria, and Indonesia.
Procter and Gamble has been paying a dividend for 123 consecutive years, and last year marked the 56th consecutive year that the Company has increased its payments with a 7% raise. The stock is currently paying a 2.9% dividend yield.
There is no such thing as the best stock for everyone, it`s always about finding the right investment according to your own necessities and strategic approach. In case you are feeling concerned about what the future holds, or if you simply believe in buying companies with rock solid competitive positions and an immaculate track record of dividend increases, these three indestructible stocks may be convenient alternatives for your portfolio.
Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Procter & Gamble. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!