This market presents a ripe environment for dividend-paying stocks. With rising interest rates threatening bond valuations, dividends provide income that makes more sense than ever. If you feel the market is due for a correction from its near record levels, dividend payers may also provide some of the safety you seek.
But not all dividend payers are created equal. We want dividend stocks that can increase their payment, so that they can compete with rising interest rates. The best dividend stocks offer a combination of a high dividend yield, a low pay-out ratio, and growth prospects as well.
I’ve compiled a short list of the best stocks with dividend yields over 2%, pay-out ratio’s under 60%, and growth prospects to boot.
Surprisingly, they have a lot more than high yields in common.
Dividends via diversification
Most investors probably think they have Campbell Soup Company (NYSE:CPB) pretty well figured out; after all, the name kind of says it all. What investors may not know, is that Campbell’s is a lot more than great soup these days. This consumer staples conglomerate holds many, wonderful, non-soup food brands in its portfolio, including Prego, Pepperidge Farm, and V8.
Campbell Soup Company (NYSE:CPB)’s fits our criteria nicely with a dividend of $1.16, a 2.76% yield, and a pay-out ratio just below 60%. Stalled growth has lead to a decrease in the stock price, but some carefully planned acquisitions may actually be increasing Campell’s growth possibilities.
Campbell Soup Company (NYSE:CPB)’s has been on an acquisition spree as of late. Over the past year, it purchased organic baby-food maker plum organics, as well as the Kelsen Group A/S, a Denmark based firm that serves up sweets and baked goods.
I like the acquisitions for a few reasons. The food business is not a rapidly evolving one, such as technology, where acquisitions are usually a failed attempt to play catch up. Strong brands can last forever in food, just look at Campbell Soup Company (NYSE:CPB)’s itself, so growing through acquiring strong brands makes sense.
Better yet, Cambell’s is making moves that are on the right side of growth trends. The Kelsen acquisition gives Campbell Soup Company (NYSE:CPB)’s a better international network, as Kelsen serves its goodies in 85 countries, worldwide. The acquisition of plum taps into the rapidly growing organic market, where Campbell’s needs a stronger presence.
I feel these are shrewd moves by Campbell’s CEO Denise Morrison, and I also like the recent announcement that the soup maker is going to be partnering with Green Mountain Coffee Roasters to deliver Campbell’s soup, freshly brewed, via K-Cups and Keurig Machines.
These moves are, in my opinion, just what Campbell’s needs. Increasing international exposure and jumping on two modern trends should help to boost growth. At the same time, using cash to acquire top brands, rather than recklessly paying out too much in dividends, will make Campbell’s food portfolio safer and protect the current dividend.
If you agree that these moves will make Campbell more cash going forward, thus lowering its pay-out ratio and increasing the chance for a dividend increase, I recommend picking up a few shares soon.
Dividend de ja vu
In keeping with the theme of Campbell’s, PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO) both just barely meet our criteria with pay-out ratios slightly below 60%. Since these cola makers are typically in “wars,” beyond just price, with each other it’s no surprise their dividend yields are similar as well. Pepsi pays 2.86% yield, and Coca-Cola’s yield is at 2.91%.
That’s not all these soda giants share in common, or with Campbell’s for that matter, which is wonderful news for shareholders.
Pepsi and Coke, sell a lot more than just Pepsi and Coke these days. Like Campbell’s, the diversification of their collective portfolio may surprise you.
The Coca-Cola Company (NYSE:KO) now sells many leading “healthy” drink brands, that it has acquired through acquisition, such as Vitamin Water, Smart Water, and Odwalla. Pepsi, through Frito Lay and Quaker, is more of a food company today than a beverage company. Over 60% of PepsiCo, Inc. (NYSE:PEP)’s business comes from food products, while only 20% of comes from soda.
In short, through acquisitions, they’ve been able to create competitive moats.