One of the keys to dividend investing is identifying the long-term trajectory of the company you're investing in. This is vital as it will help clarify the future consistency of dividend payments and the potential for higher yields.
Part of that analysis is determining whether that company has an economic moat. This is a competitive advantage that one company has over other companies in the same industry. This enables it to maintain margins and profitability, which directly impacts its ability to distribute capital to shareholders (dividends).
As usual, we've done the hard work for you. We've identified three companies that not only have at least 10 years of dividend history, are billion dollar companies, and have strong histories, they also have some characteristic that is hard to replicate that prevents other companies from entering or competing in their industry.
Without further ado, here are three dividend stocks with shark-filled moats:
1. Coca-Cola (KO)
KO manufactures, distributes and markets non-alcoholic beverage concentrates and syrups worldwide. It is currently trading at $75 a share with a market cap of $169B. Over the past 10 years, KO's dividend yield has ranged between 2-3.5%; currently at 2.62%.
Analysts suggest an upside of 6% with an average target price of $79.83. For this stock to be fairly valued at its current price, the market is assuming that KO will grow by over 29% annually over the next 10 years. This is highly aggressive. Vuru's Growth Price pegs a fair value of $35.37, meaning KO may be overvalued by 52.89%. View the full report here.
The best part is that Coca-Cola has that elusive economic moat in its branding. Net Profit Margins have averaged a highly respectable 21% over the past 10 years. This is because competitors could spend hundreds of millions on advertising and still struggle to undermine Coke's market-leading position.
2. Bristol-Myers Squibb Company (BMY)
BMY is a global biopharmaceutical company that discovers, develops and delivers innovative medicines that help patients prevail over serious diseases. Current Price is $34.52 with a market cap of $58B. As BMY's price has increased over the past 10 years, its yield has done the opposite. It's now sitting at a respectable 3.93%.
Wall Street doesn't see much opportunity with this stock. It's placed an average target price of $35.10, barely above where it's trading. Vuru's Growth Price is slightly more conservative with a fair value of $32.02. This is based on annual growth of 7% for the next 10 years. View the full report here.
Some might question the decision to include BMY on this list given the risks with its patents. However, it still has a stable of high-quality drugs in its portfolio and combined with its history of innovation, BMY should be able to continue to be the powerhouse it is. For more details, there's a strong analysis on each of the BMY drugs and their future potential here.
3. BHP Biliton Limited (BHP)
BHP operates as a diversified natural resources company worldwide. It's currently trading at $61.65 and has a market cap of $164B. It has a nice and healthy yield out of 3.59%. Over the years, it's ranged between 1.2 and 2.8%.
Analysts are highly bullish on this stock. Their average target price is $88.95, suggesting an upside of 44%. Looks like this is based on -1% annual growth over the next 10 years. Vuru's Growth Price is a lot more aggressive, pegging the fair value at $149.03. This is based on 15% annual growth and means the stock may be undervalued by 141%.
It's unclear which is the more reasonable approach. But, in either case, there's a large margin of safety with this security, in addition to its healthy dividend. View the full report here.
BHP's biggest competitive advantage lies in its diversification across a large range of natural resources. It's not a "gold" stock or a "copper" stock. This means that while it's subject to commodity prices, the future of its business isn't subject to the supply and demand of one resource.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.