The Very Best Of Blue Chip Dividend Stability
If you haven’t noticed a change in the investing environment you aren’t paying attention. Times have changed. No longer is high-risk growth in vogue. Far from it. What investors need to focus on now is long-term dividend stability and nowhere is that better found than in the Dividend Kings.
The Dividend Kings are an informal group of stocks that share a common quality; at least 50 years of consistent annual dividend growth. You might think meh, so what, lots of stocks have impressive statistics and it didn’t help them during the crash. I’d advise you to think again. The Dividend Kings is an impressive title when you think about what it really means.
Dividend Kings have been increasing their dividend payouts for over 50 years. 50 years. That means they’ve lived through oil booms and busts, bull markets and bear, times of economic growth and times of recession and through it all, their businesses have survived and thrived. Along with it, they’ve paid consistent steady dividends and built value for their shareholders.
No Fizz For Coke, But It’s Still Time To Buy
Coca Cola (KO) reported first-quarter earnings this morning to mixed applause. The company reported net YOY declines in revenue that were offset by other news. To start, adjusted revenue came in flat to the previous year producing substantial growth in earnings at the bottom line. The earnings per share grew 65%, largely due to acquisitions and improving margins, but even adjusted organic growth showed a solid 8%.
James Quincey, chairman and CEO of The Coca-Cola Company
“We’ve been through challenging times before as a company, and we believe we're well-positioned to manage through and emerge stronger. The power of the Coca-Cola system is our greatest strength in times of crisis. The resilience of our people, the equity of our brands and the strength of our bottling partners continue to be competitive advantages in the market."
The biggest headwind for the quarter was currency conversion. The impact of FX cut operating income from 11% to -2%, an impact that is not expected to ease up in the present quarter. Looking forward, the company says volume is off as much as 25% in the current quarter because of social distancing so revenue for the year will be off significantly. A rebound is expected in the second half but that outlook relies heavily on the duration of social distancing.
The 3.5% dividend is quite safe despite the high payout ratio. In normal times, the company’s well-managed free cash flow is more than enough to cover the payout. In these troubled times, while consumer trends are still in flux, the company’s rock-solid balance sheet and strong cash position ensure distribution stability.
Emerson Electric, This Is Why You Own Dividend Kings
Emerson Electric (EMR) reported a mixed bag of results this morning, too, and gave a textbook example of why you own Dividend Kings. Emerson began a cost-saving initiative way back last October. Outlined in detail in February of this year, the plan has the company set up to weather the pandemic with ease. The company’s CEO says they’re adjusting to the conditions and positioned to emerge stronger in the post-viral world.
CEO David Farr.
" … We remain confident that our aggressive cost control reset measures already underway, initiated in the third quarter of last year and outlined in detail in February, combined with our strong balance sheet and disciplined operating philosophy, will provide the foundation required to continue to serve our customers and emerge stronger in the long run."
As for the dividend, Mr. Farr made it quite clear in the press release that there is no change to the dividend plan. The company’s near-4% yield is safe and on track for a 63rd consecutive increase. The new guidance calls for EPS in the range of $3.00 to $3.20 which keeps the payout ratio safely in the range of 65%. And, if that isn’t enough, there is ample cash and a fortress balance sheet to back it all up.
Shares of the stock appear to be bottoming. Today’s news has price action just below the short-term EMA with bullish indicators. If the market is able to push prices above the EMA a move up to the $56 level is likely. Resistance at $56 may be stronger but, once surpassed, could lead this stock up to $60 or higher.
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