Three Dividend Stocks for Life
Ishtiaq is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the current economic conditions, it is extremely important for a lot of investors to have a passive stream of income. Current low levels of interest rates take bonds out of the equation as a viable investment choice for income investors. As a result, the focus turns to dividend stocks. However, investing in stocks for the dividend is no small deal, and most investors would like to pick stocks for the long-term. In order to commit funds for such long-term investment, we should be absolutely sure that we will be able to enjoy dividend income for longer than the foreseeable future.
In an effort tofind three perfect dividend stocks; I came across these three companies, that I believe are stront candidates to be the best dividend stocks. I believe these stocks will continue paying and growing dividends in the future. All of these companies have strong global brands, solid earnings and an impressive mix of products. For this piece, I did not focus solely on dividend yields. In fact, these stocks do not have high dividend yields; however, there is potential for dividend growth.
Corning (NYSE: GLW) creates leading-edge technologies for the fastest-growing markets of the world's economy. Its products include optical fiber, cable and photonic products, high-performance displays and components for television and other communications-related industries.
Revenue growth is solid for the company despite an expected decline in global demand for glass. Its revenue over the trailing twelve months stands just below $7.8 billion reported at the end of last year. However, the company expects strong fourth quarter LCD glass sales. Corning expects the sales of Gorilla glass to reach $1 billion. As a result, the company is set to have a successful fourth quarter. Furthermore, analysts expect the company to perform better during 2013. Consensus estimates provided by 23 analysts at Bloomberg indicate that earnings will rise significantly during 2013. Analysts expect Corning to generate $1.38 per share in earnings, compared to $1.28 per share the previous year.
At the moment, Corning pays an annual dividend of $0.36 per share, yielding 2.86%. Recently, the company increased its quarterly dividends by $0.015 per share. The earnings payout ratio for Corning is 24%, an easily manageable payout ratio. It means that there is still significant room for the company to grow its dividends. In addition, the payout ratio based on free cash flow is also very low, and currently stands at 42%. The company paid $456 million in cash dividends during the trailing twelve months and generated $1.082 billion in free cash flows. Capital expenditures have been considerably high during these past two years. As a result, free cash flows have come down for Corning. However, there is still substantial room for the company to grow its dividends.
At the moment, demand is increasing for larger screen sizes. As a result, the problem of oversupply will be addressed, which contributed towards poor earnings. However, in the long-term, increases in screen size will allow the company to increase its market share. Furthermore, the global economy is on the path to recovery, which will increase the disposable income of consumers. An increase in disposable income will drive the demand for LCD applications, such as televisions, desktop monitors, mobile phones and laptops.
I believe the culture of innovation will drive growth for the company. I expect this pick to be one of the star dividend payers in the future.
Over the past three years, Coca-Cola (NYSE: KO) has shown remarkable revenue growth. At the end of 2009, the company reported consolidated revenues of $30.9 billion, which went up to $46.5 billion by the end of 2011. For the trailing twelve months, the company has already surpassed the revenue figure of last year by reporting $47.6 billion.
The company can drive future growth from emerging markets. At the moment, a lot of Asian, South American and African markets are largely untapped. There is substantial potential for growth in these markets. Coca-Cola has made significant investments in Africa and Asia; recently, the company announced its plan to invest an additional $3 billion in India for sustained long term growth.
Coca-Cola expects its earnings per share to grow by about 10% in 2013 and sales to grow at 4 percent to 6 percent. In addition, Coca-Cola’s board approved a new $1.5 billion stock repurchase program. The company plans at least $500 million in buybacks next year. Coca-Cola repurchased $780 million worth of its stock in 2012.
The company has extremely impressive cash flows. For the trailing twelve months, Coca-Cola generated $10.5 billion in operating cash flows, $1.1 billion more than the last year. It pays an annual dividend of $1.02 per share, yielding 2.73%. The company has been increasing its dividends in each of the previous fifty years. For the past twelve months, cash dividends for Coca-Cola were $4.44 billion while free cash flows were $7.5 billion. The payout ratio based on free cash flows is just above 59%.
Exxon (NYSE: XOM) has increased its dividends for thirty years in a row; the last dividend increase came in April this year. At the moment, the stock pays an annual dividend of $2.28, yielding 2.60%. The company increased its dividends by 21.30%. For the past 30 years, Exxon's dividends have increased at an average annual rate 6%.
In the past four years, the company has spent almost $100 billion in capital expenditures. The company is clearly looking at building for the long-term. Shrewd investments over the past four years have set this giant up nicely for growth in years to come.
The company generates massive amounts of cash through its operations. At the end of 2011, Exxon generated cash flows from operations of $55.3 billion. However, for the trailing twelve months, the operating cash flows have come down slightly to $53.7 billion. Nonetheless, cash flows from operations still remain strong.
At the end of 2011, Exxon paid cash dividends of $9.3 billion and generated free cash flows of $24.3 billion. However, for the trailing twelve months, free cash flows have come down for the company. Exxon paid cash dividends of $10 billion, whereas it generated free cash flows of $20.8 billion. Free cash flows have come down, but the free cash flows to dividend coverage is still very strong. The payout ratio based on free cash flows is still below 50%, which gives the company enough room to grow dividends.
The global energy landscape will evolve significantly as regional demand-and-supply patterns shift in the coming decades, creating new opportunities for international trade and economic growth. Demand for energy will always be there, especially as the global economy starts its journey towards recovery. The global economy will recover in the next two to three years and increased economic activity will increase demand for energy. I believe the investment of $100 billion in the past four years have set the company up nicely to exploit the increase in demand.
Earnings growth has been poor for the company over the past four years due to the global economic slowdown. However, I expect the earnings growth to pick up in the next two years. Regardless of slow growth in earnings, the company is an ideal investment for an income investor. The payout ratio is low for the company, which should allow it to grow its dividends in the future. I believe this is the best time to establish long positions in the energy company.
The best thing about these companies is that they provide steady growth opportunities along with solid dividends. We want to invest in stocks, that can provide solid long-term growth in these uncertain times. There are a lot of stocks with blockbuster dividend yields; however, high dividend yield can sometimes prove to be a trap. We need to beware of the yield trap and find stocks that can be solid long-term investments. I believe these companies above can preserve your investment and provide a steady flow of income along with solid growth. If I had to choose three stocks to hold for life, the above mentioned three would be my choice.
IshtiaqAhmed has no positions in the stocks mentioned above. The Motley Fool owns shares of Corning and ExxonMobil. Motley Fool newsletter services recommend Corning and The Coca-Cola 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!