Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking: Dividend payments have made up about 40% of the market’s average annual return from 1936 to today. But few of us can invest in every single dividend-paying stock on the market, and even if we could, we might find better gains by being selective. That’s why we’ll be pitting two of the Dow Jones Industrial Average‘s dividend payers against each other today to find out which Dow stock is the true dividend champion. Let’s take a closer look at our two contenders now.
Tale of the tape
The Walt Disney Company (NYSE:DIS) is a 21-year veteran of the Dow, and it will be celebrating its 22nd Dow-niversary next month. Hailing from sunny Burbank, Calif., Disney is the largest diversified media company in the United States, with a history of success that spans film, broadcast, theme parks, publishing, and pretty much any other major media segment you can think of.
The Coca-Cola Company (NYSE:KO) is a 26-year veteran of the Dow based in Atlanta, Ga. It’s the world’s largest beverage company, with 400 brands consumed an estimated 1.6 billion times every day. It’s been one of the best dividend-paying stocks on the market for nearly a century, so Disney will have some fierce competition to contend with today.
| Statistic | Disney | Coca-Cola |
|---|---|---|
| Market cap | $108.5 billion | $183 billion |
| P/E | 19.1 | 20.7 |
| Trailing 12-month profit margin | 13.1% | 18.8% |
| TTM free-cash-flow margin* | 8.6% | 16.4% |
| Five-year total return | 113.4% | 58.4% |
Source: Morningstar; YCharts. *Free-cash-flow margin is free cash flow divided by revenue for the trailing 12 months.
It looks like the larger The Coca-Cola Company (NYSE:KO) has the advantage in margins today. Will it come out ahead in the battle? Let’s go down to ringside and get this contest started.
Round one: endurance
According to Dividata, Disney began paying dividends in 1982 and has been paying ever since. An annual payout (last paid in December) gives Disney a 30-year streak. That’s a respectable length of time, but it can’t hold a candle to Coke, which began paying quarterly dividends in 1920. A 93-year payout streak lets Coke take the endurance crown without breaking a sweat.
Round two: stability
Paying dividends is well and good, but how long have our two companies been increasing their dividends? The same dividend payout year after year can quickly fall behind a rising market, and there’s no better sign of a company’s financial stability than a rising payout in a weak market (so long as it’s sustainable, of course). Disney’s annual payouts held firm through the financial crisis, so the House of Mouse has only been increasing its dividend since 2010. Coke, on the other hand, has been paying more each year for the past half-century. This one was over before it even began.
