Everyone likes a steady source of income. With falling yields, growing unemployment and rising prices, investors are looking for instruments that can help turn the tide through these difficult times. Today, we will take a look at some stocks which have maintained steady dividend growth rates over considerable periods of time.
PepsiCo Inc (PEP)
Pepsi is a global food and snack company. Its products include non-alcoholic carbonated beverages, water, salty snacks (under Frito-Lay), and juices. The company is diversified globally with a presence in over 200 countries and by net revenue it is the second largest food and beverage company in the world.
Pepsi over the last 5 years has average revenue growth rate of 11.07%, during the same period its dividend has increased by an average of 11% annually with annual revenue in last financial year at $43 billion. Pepsi has a payout ratio of 51%, which gives management room to increase the payout ratio in the near future.
PEP’s current dividend yield is 3.20% with the last 5 yrs average of 2.55%. Pepsi’s share price of $64.04 is at a P/E multiple of 16.29. PEP has a high ROI of 15.38% and ROE of 33.07%. The company has very high interest coverage of 10.1 and debt/equity of 0.94.
Over the last few years PEP has been very aggressive with mergers and acquisitions, especially into healthy food and snacks segments and promoting healthy lifestyle, which is improving the brand image of PepsiCo. With healthy balance sheet and visionary management, PEP is looking forward to returning cash to shareholders. PEP is in as good of a position for increase dividends as is Coca-Cola (KO) due to its significant free cash flow and building cash horde.
McDonald’s Corporation (MCD)
McDonald’s is a low price value food restaurant chain in the global food industry. It is present in 100 countries and has annual sales of about $24 billion. MCD operates its restaurant by itself, through franchisees or under license agreements.
MCD has a current dividend yield of 2.80% and 5 years average yield of 2.91%. During the last four years MCD has increased it dividend at a rate of 13% annually. MCD’s revenue has grown at a rate of 2.9% annually and net income by 6.89%.
MCD has a very high interest coverage ratio 16.5 and debt/equity of 0.83. MCD’s payout ratio is 0.49.With its strong balance sheet MCD should be able to maintain its current dividend growth rate in the future and also increase the payout ratio.
The company’s current share price is 87.09 and P/E of 17.8. Over the last 5 years MCD has increased its earnings at a rate of 16.80% and is expected to increase at 9.90%. With the 2012 EPS expected to be 5.71, MCD is trading at P/E of 15.25, which is lower then current P/E indicating MCD is undervalued. MCD has significant catching up to do when compared to Yum! Brands (YUM) in overseas markets like China. However, MCD has experience retooling its menu to fit local tastes and thus international expansion should be heady in the coming years.
Waste Management Inc (WM)
WM is a provider of waste management services ranging from collecting, transfer, recycling and disposal services. It is also in the business of waste to energy and landfill gas to energy services.
WM has a market capitalization of $16.84 billion. WM has a current dividend yield of 3.83% and five year average of 3.56%. During the same period WM has raised it dividend at a rate of 9.09% from $0.22 to $ 0.34. WM has a dividend payout of 64%.
WM is trading at price of $35.05 with a P/E of 17.84. However, with FY12 EPS expected to be $2.55 WM is trading at a discount 15%. Waste Management Inc has ROE of 15.27% and debt/equity of 1.46. WM has interest coverage of 4.3.
With Waste Management services, irrespective of the economy and our generosity in generating in trash, they will continue paying dividends in the future. While Republic (RSG) is a fierce competitor in many of WM's markets, economies of scale weigh in the favor of WM.
The Hershey Company (HSY)
This is one name to which no one needs introduction. It is in the business of producing chocolate and sugar confectionery products. It is present in over 60 countries and has market capitalization of $12.95 billion.
Hershey’s over the last 5 years has amplified its dividend at 5% annually. The company has dividend payout ratio of 0.58 leaving it with enough opportunity to increase the payout ratio. Its current dividend yield is 2.40% and the last 5 years average yield has been 2.74%.
Hershey’s is in a very strong financial state. The organization has interest cover of 9.4 and debt/equity of 2.09. HSY’s ROE is staggering 59% and ROA of 12.5%.
Over the last 5 year the company’s earnings grew at a rate of 2.70% and is expected to grow at 7.50% over the next 5 years. HSY has P/E of 21.85.
With the increasing disposable income in emerging markets and the consumption of chocolates and sugar confectionaries going up, Hershey’s in the future will put chocolate in the investors pocket. Hershey's appears to be a better bet than Kraft (KFT) in the confectionary space, due to its growth prospects.
Johnson & Johnson (JNJ)
Johnson & Johnson is in the business of research and development, manufacture and sale of health care products, pharmaceutical products and diagnostic products. The company has operations in over 57 countries, a market capitalization of $178.80 billion and is trading at $65.23 with P/E of 15.62.
JNJ is one of the dividend aristocrats. It has raised dividends for 47 straight years and during the last 5 years it has raised it by 8.7% annually. JNJ has a dividend payout ratio of 0.44 which is likely to be increased in the future. JNJ’s current yield is 3.50% and has averaged 3.04% during last 5 years.
JNJ has a very high interest cover of 33 and very low debt/equity of 0.30, further increasing probability of hike in payout, as the organization has huge amount of assets in cash. JNJ has increased its revenue by 3.31% and net income by 4.81% during the last 5 years. Also JNJ is frequently involved in share buybacks.
For a company of JNJ’s size and exposure its balance sheet is highly conservative. Overall with global presence and diverse product portfolio JNJ is undervalued.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.