The market was on the cusp of bull status when 2023 ended. But the S&P 500 has stalled somewhat as 2024 starts to roll. Hopefully, the market will go back to gains this year. Until it does, now’s a good time for investors to take a step back and make sure they have their fundamentals straight.
Bull markets can be very exciting, and investors can get caught up in growth opportunities and risky stocks. But since you never know exactly how the market will play out, you want to have a diversified portfolio that also contains value and dividend stocks, in addition to growth stocks, to protect your portfolio in any kind of market.
Coca-Cola (KO 0.19%) and Realty Income (O 2.56%) are two top dividend stocks that offer reliable passive-income streams and have long track records of dividend growth. If you’re looking to add dividend stocks to your portfolio, consider these two.
1. Coca-Cola: The classic Dividend King
Coca-Cola has the strong brand and pricing power to effectively manage its business throughout challenging inflationary periods and has reported revenue and earnings increases despite retail pressure. Revenue increased 8% in the 2023 third quarter, and earnings per share (EPS) were up 7%.
Although operating margin was being squeezed, core operating margin widened, and core EPS increased more than the total. That’s because customers are willing to pay for their favorite beverage, even at a slightly higher price, and it’s that loyalty that takes many decades of excellence to build and keeps the company’s future in tip-top shape.
Coca-Cola is well-positioned to benefit from reduced inflation and lower interest rates in 2024. As customer dollars begin to stretch, consumers will feel more comfortable returning to more of these popular beverages.
Management sees a $1.3 trillion market opportunity, up from $650 million in 2017. Industry sales are expected to increase at a compound annual growth rate in the mid-single digits. With its large market share, Coca-Cola will get a large part of that growth organically.
The company shed about half of its brand collection as it restructured a few years ago and is more strategic about acquisitions now. It has 26 brands that each take in at least $1 billion in revenue annually, feeding into a cycle of high cash and earnings, more acquisitions, and lots left over for shareholders.
Coke is a Dividend King and has raised its dividend annually for the past 61 years. Its dividend yields 3.1% at the current price, which is roughly double the yield of the average S&P 500 stock. The dividend yield is not as high as others, but it’s as rock-solid as you can get.
2. Realty Income: High yield, monthly payments
Realty Income is a real estate investment trust (REIT), and one of the best you can buy. It pays a monthly dividend, has a high dividend yield, and is incredibly reliable.
The company leases properties to high-quality retailers like Dollar General and Walmart. These are established companies that can be depended upon to make their payments, and many of them sell essentials. However, through acquisitions, Realty Income has diversified into more industries with more tenants.
That’s good for business. It’s in the process of closing on its $9.3 billion acquisition of Spirit Realty to add 2,000 additional properties to its current total of more than 13,000, and efficiencies between the two companies are good for its margins, as well.
Realty Income has paid a dividend each month for the past 642 months (that’s 53.5 years), which is far longer than it’s been a public company (it IPO’d in 1994). It’s also made 105 consecutive quarterly increases, and its dividend yields 5.3% at the current price, which is higher than usual.
Yield works inversely with price movement, and Realty Income’s stock price fell 10% in 2023. That was due to negative sentiment about the real estate industry, even though Realty Income was in an excellent position, with 98.8% occupancy, plenty of cash to purchase new properties, and a pipeline of quality properties to purchase.
It’s a great time to buy in at this price and reap the rewards that come along with a monthly dividend check.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income and Walmart. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
