These companies have excellent records of paying and growing their higher-yielding dividends.
The average dividend stock yields less than 1.5% these days, as measured by the current yield on the S&P 500. However, many stocks offer higher-yielding dividends, enabling their investors to collect more income.
Coca-Cola (KO 0.46%), Southern Company (SO 0.79%), and Sun Communities (SUI 0.71%) all currently offer dividend yields of around 3%, putting them at about double that of the S&P 500. Further, this trio of dividend stocks has a long history of paying resilient dividends that rise over the long term. That makes them ideal for those seeking sustainable income streams.
Dividend royalty
Coca-Cola’s dividend yield is approaching 3%. The beverage giant has an elite record of paying dividends and delivered its 62nd consecutive annual dividend increase earlier this year. That kept it in the select group of Dividend Kings, companies with 50 or more years of raising their payouts.
The drinks giant should have no trouble satisfying investors’ thirst for a growing dividend in the future. Coca-Cola’s business pours out a lot of free cash flow each year ($9.2 billion expected in 2024). It’s enough money to cover its dividend (about $4.4 billion per year) and capital investments ($2.2 billion planned for this year) with room to spare. That enables Coca-Cola to return additional cash to investors via share repurchases while maintaining a strong balance sheet to capitalize on strategic acquisition opportunities as they emerge.
Coca-Cola expects to grow its earnings per share at a high-single-digit annual rate over the long term while converting 90%-95% of its profits into free cash. That should enable the beverage behemoth to continue paying a growing dividend.
As predictable as they come
Southern Company’s dividend yield is currently over 3%. The utility has paid its investors a dividend equal to or greater than the previous quarter’s level for 76 straight years and increased its payout for 23 years in a row.
The company’s business model has been a big driver of its dividend stability over the decades. Southern Company generates very predictable income backed by government-regulated rate structures and long-term contracts. It also benefits from stable, growing demand for electricity and natural gas.
Southern Company invests heavily in maintaining and expanding its operations. The company recently completed the first two new nuclear power-generating units in the country in decades, which will supply it with stable cash flow for years to come. It also invests in other clean energy production, like wind and solar. These investments will grow its earnings, enabling Southern to continue generating a stable and growing dividend.
A very resilient REIT
Sun Communities’ dividend yield is nearly 3%. The real estate investment trust (REIT) has never cut its dividend over its more than three decades as a public company. While it hasn’t increased its payment every year, it has grown over the long term, including in each of the past eight years.
The residential REIT focuses on properties off the beaten path of most investors, like manufactured home communities, campgrounds, and marinas. Those properties tend to be very stable and resilient. For example, the company’s same-property net operating income (NOI) has grown every year since 2000 on a rolling four-quarter period basis.
For comparison, multifamily REITs have experienced three periods of negative NOI growth during that timeframe due to economic downturns. That resiliency has driven higher average growth during the period (5.2% for Sun Communities compared to 3.1% for multifamily REITs and 3.2% for the REIT sector at large).
Sun Communities is in an excellent position to continue growing in the future. It should capture contractual rent increases throughout the economic cycle. In addition, the REIT has a solid investment-grade balance sheet, giving it the financial flexibility to invest in expanding its existing properties and acquiring new locations as opportunities emerge. Those drivers should enable it to continue increasing its dividend over the long term.
Above-average dividend stocks
Coco-Cola, Southern Company, and Sun Communities aren’t run-of-the-mill dividend stocks. They currently boast dividend yields around double that of the S&P 500. Further, they have decades of dividend stability and growth under their belts. They should be able to continue paying durable dividends that rise over the long term, making them excellent additions to any income portfolio.
Matt DiLallo has positions in Coca-Cola and Sun Communities. The Motley Fool has positions in and recommends Sun Communities. The Motley Fool has a disclosure policy.