Dividend growth stocks can be an attractive option for investors looking for sustainable, long-term income, as they provide a combination of regular income, potential for capital appreciation, and lower volatility compared to other types of investments.

Amid this backdrop, investors could consider buying fundamentally strong dividend growth stocks such as The Procter & Gamble Company (PG), The Coca-Cola Company (KO), and PepsiCo, Inc. (PEP) for long-term income.

Dividend growth stocks are companies that have a track record of increasing their dividend payouts year after year. This consistent growth in dividends can provide a reliable stream of income for investors over the long term. These companies can serve as a hedge against inflation, as they are able to increase their dividends regularly and are often able to grow their earnings.

Compared to non-dividend paying companies, dividend growth stocks tend to be less volatile, as the regular income from dividends can help cushion against market fluctuations, which can bode well for investors looking for stable income in retirement or other long-term financial goals.

Moreover, investors can also choose to reinvest their dividend payouts back into the stock, allowing them to take advantage of the power of compound interest and further enhance their long-term returns.

Considering these conducive trends, let’s examine the fundamentals of the three dividend growth stock picks.

The Procter & Gamble Company (PG)

PG provides branded consumer packaged goods worldwide. It operates through five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.

PG’s dividends have grown consistently for the past 67 years. Its annualized dividend of $4.03 per share translates to a dividend yield of 2.39% on the current share price. Its four-year average yield is 2.41%. Over the past three and five years, PG’s dividend payments have grown at CAGRs of 5.7% each.

PG’s trailing-12-month CAPEX/Sales of 3.89% is 17.8% higher than the industry average of 3.30%. Similarly, its trailing-12-month EBIT margin and net income margin of 25.43% and 17.99% are 172.7% and 257% higher than the industry averages of 9.33% and 5.04%, respectively.

PG’s net sales for the fiscal third quarter that ended March 31, 2024, increased marginally year-over-year to $20.20 billion. Its non-GAAP gross profit stood at $10.35 billion. In addition, its non-GAAP net earnings attributable to PG amounted to $3.76 billion. Also, its non-GAAP net earnings per common share came in at $1.52.

Analysts expect PG’s revenue for the quarter ending June 30, 2024, to increase 1.7% year-over-year to $20.91 billion. Its EPS for the quarter ending September 30, 2024, is expected to rise 5.9% year-over-year to $1.94.

The company surpassed the Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past six months, the stock has gained 16.5%, closing the last trading session at $167.67.

PG has an A grade for Stability and a B for Quality, as reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Within the B-rated Consumer Goods industry, it is ranked #25 out of 52 stocks. Click here for the additional POWR Ratings of PG (Growth, Value, Momentum, and Sentiment).

The Coca-Cola Company (KO)

KO manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors, water, sports, coffee, and tea, juice, value-added dairy, and plant-based beverages, and other beverages.

On April 23, 2024, KO and Microsoft Corp. announced a five-year strategic partnership to align KO’s core technology strategy systemwide, enable the adoption of leading-edge technology, and foster innovation and productivity globally. KO made a $1.10 billion commitment to the Microsoft Cloud and its generative AI capabilities, underscoring KO’s ongoing technology transformation.

KO’s dividends have grown consistently for the past 61 years. Its annualized dividend of $1.94 per share translates to a dividend yield of 3.10% on the current share price. Its four-year average yield is 3.02%. Over the past three and five years, KO’s dividend payments have grown at CAGRs of 4.4% and 3.7%, respectively.

KO’s trailing-12-month levered FCF margin of 23.46% is 310.4% higher than the industry average of 5.72%. Likewise, its trailing-12-month Return on Common Equity and Return on Total Assets of 41.76% and 10.85% are 272.4% and 139% higher than the industry averages of 11.22% and 4.54%, respectively.

For the fiscal first quarter that ended March 29, 2024, KO’s net operating revenues and non-GAAP gross profit stood at $11.30 billion and $6.99 billion, up 2.9% and 4.7% year-over-year, respectively. For the same quarter, its non-GAAP net income and net income per share increased 6.1% and 5.9% from the year-ago quarter to $3.12 billion and $0.72, respectively.

Street expects KO’s EPS for the quarter ending June 30, 2024, to increase 3.2% year-over-year to $0.80. Its fiscal 2024 revenue is expected to rise marginally year-over-year to $45.79 billion. The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters. KO has gained 7.9% over the past six months, closing the last trading session at $62.18.

KO has a B grade for Stability and Quality. It is ranked #13 out of 33 stocks in the B-rated Beverages industry. Get KO’s Growth, Value, Momentum, and Sentiment ratings here.

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes, and sells various beverages and convenient foods worldwide. It operates through seven segments: Frito-Lay North America, Quaker Foods North America, PepsiCo Beverages North America, Latin America, Europe, Africa, Middle East and South Asia, and Asia Pacific, Australia and New Zealand and China Region.

On June 10, 2024, PEP’s MTN DEW unveiled three new limited-time MTN DEW RED, WHITE & BLUE offerings. The drinks will be available in 20 oz. bottles and 12 oz. cans across major retailers and convenience stores nationwide for a limited time this summer.

On May 7, 2024, PEP’s 7-Eleven, Inc. brought the first taste of midnight to stores nationwide with a new limited-edition flavor of Gatorade Thirst Quencher, Midnight Ice. It marked the first time Gatorade was offered in a midnight-inspired color. The new flavor is available exclusively in 28-ounce bottles at participating 7-Eleven, Speedway, and Stripes stores.

PEP’s dividends have grown consistently for the past 51 years. Its annualized dividend of $5.42 per share translates to a dividend yield of 3.26% on the current share price. Its four-year average yield is 2.73%. Over the past three and five years, PEP’s dividend payments have grown at CAGRs of 7.5% and 6.6%, respectively.

PEP’s trailing-12-month CAPEX/Sales of 6.04% is 82.8% higher than the industry average of 3.30%. Its trailing-12-month gross profit margin and net income margin of 54.15% and 10% are 53.7% and 98.3% higher than the industry averages of 35.23% and 5.04%, respectively.

PEP’s net revenue for the fiscal first quarter that ended March 23, 2024, amounted to $18.25 billion, up 2.3% year-over-year. Its non-GAAP gross profit grew 2.9% from the year-ago quarter to $10.16 billion. In addition, its non-GAAP net income attributable to PEP stood at $2.22 billion and $1.61 per share, up 7.2% and 7.3% over the prior-year quarter, respectively.

For the quarter ending June 30, 2024, PEP’s revenue and EPS are expected to increase 1.7% and 3.7% year-over-year to $22.70 billion and $2.17, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained marginally over the past six months to close the last trading session at $166.68.

PEP has a B grade for Stability and Quality. It is ranked #17 in the Beverages industry. Click here to see PEP’s Growth, Value, Momentum, and Sentiment ratings.

What To Do Next?

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PG shares were trading at $168.23 per share on Friday afternoon, up $0.56 (+0.33%). Year-to-date, PG has gained 16.27%, versus a 14.90% rise in the benchmark S&P 500 index during the same period.

About the Author: Neha Panjwani

From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance. More...

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