Three Large-Cap Dividend Dynamos for a Long-Term Portfolio
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Since the beginning of the year, S&P 500 has increased substantially, by more than 14.7%. Many investors have worried that the rapid growth will cause an abrupt fall in the overall market in the near future. However, I personally think that investors will do well in the long run just by sticking to great businesses, which have been paying consistent increasing dividends.
Recently, Fool analyst Travis Hoium wrote about five stocks, which have demonstrated terrific dividend payment record in the past, and have the high probability to continue paying decent dividends to shareholders in a very long period of time in the future. In this article, I will look into three out of those five stocks, including 3M (NYSE: MMM), McDonald’s (NYSE: MCD), and Coca-Cola (NYSE: KO).
3M, incorporated in 1929, is operating in six business segments including Industrial and Transportation, Health Care, Consumer and Office, Safety, Security and Protection Services, Display and Graphics, and Electro and Communications. Most of its operating income, $2.26 billion, was generated from the Industrial and Transportation segment while the Health Care segment ranked second with $1.65 billion in operating income.
3M has paid uninterrupted dividends for 386 consecutive quarters. In the past ten years, 3M has also managed to consistently grow its dividends, from $1.32 in 2003 to $2.36 in 2012. Since 2003, 3M’s share price has advanced by more than 73.6%. However, if 3M’s dividends were reinvested, the return would have been more than 122%. 3M is trading at $111.20 per share, with the total market cap of $76.75 billion. The market values 3M at 15.2 times its forward earnings. At this current trading price, 3M offers investors a 2.3% dividend yield.
A global quick service restaurant chain
McDonald’s is also considered a consistent dividend paying company, with uninterrupted dividends for more than 35 years. McDonald’s increased its dividends from $0.40 per share in 2003 to $2.87 per share in 2012. Long-term investors in this quick service restaurant chain must be quite happy, as since 2003, McDonald’s has gained by nearly 360% in its share price. Including dividend reinvestment during that time period, McDonald’s total gain was more than 500%.
McDonald’s is really a global franchise king, with more than 34,560 restaurants, operating in 119 countries. The company has been trying to be creative with its own offerings on the menu. Recently, it entered a strategic partnership with Barilla, the global leading pasta company, to serve pastas in McDonald’s in Italy for the first time. According to Roberto Masi, McDonald’s CEO in Italy, it was a really “crucial step” for McDonald’s to be closer to Italian cultures with Italian favorite tastes and flavors. McDonald’s is trading nearly $99 per share, with the total market cap of around $99.2 billion. The market values McDonald’s at 15.9 times its forward earnings. Investors could get a juicy dividend yield at 3.1% at its current trading price.
Warren Buffett’s favorite
Coca-Cola might not need any further introduction. It is considered one of the biggest wide-moat businesses in the world, with nearly 42% market share in global soft-drink market share. Legendary investor Warren Buffett loves it. He accumulated Coca-Cola’s shares in 1998, with a $1 billion investment. At that time, Coca-Cola was trading at as high as 14.5 times its earnings and 4.8 times its book value. However, both Warren Buffett and Charlie Munger decided that Coca-Cola was their permanent positions. Buffett once appraised Coca-Cola’s wide moat: “If you gave me $100 Billion and said, ‘Take away the soft-drink leadership of Coca-Cola in the world,' I’d give it back to you and say it can’t be done.”
Coca-Cola has been paying consistent increasing dividends for more than half a century. Consequently, while Coca-Cola increased by more than 70% in the past ten years, its total return, including dividend reinvested, would be much more than that, at 124%. In the past ten years, Coca-Cola’s dividends have increased from $0.44 per share in 2003 to $1.02 per share in 2012. Coca-Cola is trading at $40.40 per share, with the total market cap of around $180 billion. The market values Coca-Cola at 17.3 times its forward earnings. Its dividend yield is quite nice, at 2.8%.
My Foolish take
Going forward, all of those three large sustainable businesses would continue to deliver investors decent returns in a long run. With juicy and consistent dividend growth, those three businesses would fit well in the income portfolio of long-term investors.
If you're an investor who prefers returns to rhetoric, you'll want to read The Motley Fool's new free report "5 Dividend Myths... Busted!" In it, you'll learn which stocks provide premium growth and whether bigger dividends are better. Click here to keep reading.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends 3M, Coca-Cola, and McDonald's. The Motley Fool owns shares of McDonald's. 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!