The S&P 500 includes world-class companies with solid return prospects, but income investors might be dissatisfied with the index’s current average yield of 1.3% — the lowest in over 20 years.
Some of the best companies in the index demonstrate solid business performance while also offering better dividend yields. Here are two such stocks that have what it takes to continue rewarding investors for years to come.
1. Coca-Cola
Coca-Cola (NYSE: KO) share prices are hitting new highs, and yet the stock still offers a tempting dividend yield of 3%. This is one of the most iconic brands in the world, and it’s continuing to show it has substantial opportunities to grow for years to come.
Coke’s adjusted revenue grew 15% year over year in the second quarter. The only region that posted a decline in unit case volume was North America. The strength Coke is seeing in international markets like Asia Pacific, India, and Latin America points toward a lot of room for the brand to reach new customers globally.
The double-digit revenue growth is translating to strong growth on the bottom line. Adjusted earnings per share grew 17% year over year on a constant-currency basis, which explains why the stock is hitting new highs. If consumer purchasing power improves and unit case demand picks up in North America, that could further benefit the stock.
Coca-Cola’s growth reflects the strength of its brand. Price increases drove most of the company’s revenue growth last quarter, as inflation continues to weigh on unit sales. This shows that many consumers are so drawn to the brand that they are willing to pay a little extra, and explains why famed investor Warren Buffett has held a large stake in the company for over 30 years.
These solid financial results should support Coca-Cola’s dividend, in which it has increased the payout for 62 consecutive years. It most recently increased the quarterly dividend by 5% in the first quarter, bringing the quarterly payment to $0.485 per share. The company paid out 73% of its trailing earnings as dividends over the last year.
Coca-Cola’s record of dividend increases and strong business performance make it a no-brainer dividend stock to hold forever.
2. Blackstone
If you’re looking for a dividend stock with an above-average yield and room for lots of growth, Blackstone (NYSE: BX) might be what you’re looking for. A $10,000 investment in the stock 10 years ago would be worth $68,000 today with dividends reinvested, and the stock currently pays a dividend yield of 2.3%.
Blackstone is the world’s largest alternative asset manager. It generates revenue and earnings by attracting capital from investors and investing in lucrative opportunities, such as infrastructure, private equity, and real estate. It ended 2023 with more than $1 trillion in assets under management, and the billions of dollars that continue to flow into alternative assets is a huge tailwind for the company.
Blackstone’s total assets under management grew 7% year over year to $1.1 trillion in the first quarter, driven by $39 billion of inflows from investors. The company reported distributable earnings of $1.3 billion, or $0.98 per share. Its dividend policy is to pay shareholders about 85% of its distributable earnings, which means its dividend can fluctuate with the company’s earnings performance. In fact, there are some years when it has declined, but over time, the dividend has increased with the growth of the business.
Its trailing dividend over the last year totaled $3.36 per share — up from $1.92 in 2019. While some years have seen the dividend dip, Blackstone has paid a dividend every year since 2007, and the opportunities that management is seeing to grow assets should lead to more increases over the long term.
The build-out of data center infrastructure for artificial intelligence (AI) is a big opportunity. Blackstone is positioning itself as the largest investor in AI infrastructure, with $55 billion in data centers and $70 billion in prospective pipeline development.
The stock is up more than 35% over the last year and should hit more new highs over the long term, as more investor capital shifts to private equity opportunities.
Should you invest $1,000 in Coca-Cola right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Blackstone. The Motley Fool has a disclosure policy.
2 Magnificent S&P 500 Dividend Stocks to Buy Now and Hold Forever was originally published by The Motley Fool
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