Dividend Aristocrats to Profit From Everyday
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The S&P 500 Dividend Aristocrats is a collection of large cap companies that have increased their dividend every year for the past 25 years. By returning cash to investors these companies show that they are willing to partner with investors. A quick look at these firms shows that it is simple to build a strong dividend portfolio by just looking at normal, everyday products.
Food and Drinks
Oligopolized markets make for great investments if you can invest the top players. Building a global supply chain the size of PepsiCo's (NYSE: PEP) is no easy task. Billions of dollars in financial and human capital are required to accomplish such a feat, and this helps to keep potential competitors at bay. Years back Pepsi decided to expand from a strictly beverage-only strategy. The diversification into snacks helps to decrease risk, as now the soft drink market only affects a portion of its sales.
Pepsi's return on investment of 13.5% and profit margin of 9.5% are not amazing, but they still provide Pepsi with enough capital to continue growing. It has an EPS growth rate of 4.13% over the past five years. Growth is expected to continue with the company's further expansion into the health food segment. Pepsi's yield of 2.8% will not make anyone rich overnight, but the stability of the company's business means that the company is the quintessential buy and hold stock.
Coca-Cola (NYSE: KO) has taken a very different path from Pepsi. Coca-Cola decided to focus on the beverage market. While it is famous for soft drinks it has a number of bottled water brands like Dasani.
Europe will continue to be a sore point, but growing in developing markets will boost Coca-Cola over the long term. The company is well positioned to benefit from growing per capita GDP in China and India with a wide network of distributors in these nations.
Its return on investment of 17.8% and profit margin of 18.9% are stronger than Pepsi's, but Pepsi is better situated for growth with array of snacks and beverages. Coca-Cola's yield of 2.9% is higher than the S&P 500's yield and the firm's well-known brands give it the strong moat a dividend aristocrat needs.
Colgate-Palmolive Company (NYSE: CL) is not as famous as Coca-Cola or Pepsi, but it has a number of well-known brands in the oral care, personal care, home care, and pet care markets. The company continues to grow with new products like Colgate Optical White that help income constrained consumers who are unable or unwilling to get a professional teeth whitening.
The company as a whole is very profitable with a return on investment of 37.0% and a profit margin of 15.4%. It operates in very competitive markets, but high fixed costs and heavy advertising requirements help to keep competitors out and returns up. One negative is the firm's underfunded pension plan. Colgate-Palmolive's yield of 2.2% is very close to the average of the S&P 500. This company is not as attractive as the other aristocrats, but it is still a strong firm.
The dividend aristocrats are famous for their consistent and high quality dividend. Coca-Cola and Pepsi are two good buys with decades of brand equity and subsequent high barriers to entry. Colgate-Palmolive is not as famous as its beverage based cousins, but it has a number of well-known brands in the personal care market. Colgate-Palmolive is the most expensive firm with the lowest yield. Regardless, it still has well developed brands that investors can profit from.
MrCanadian1 has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. 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!