Dividend champions sought? In times of crisis, quality stocks are more in demand than ever. By definition, these stocks are in fundamentally strong firms that grow sustainably and generate appropriately high returns on capital due to their competitive position.
It is not surprising that most of these companies also pay reasonable dividends to their shareholders. Not infrequently, they also belong to the so-called dividend growth stocks. Such stocks have been increasing their dividends non-stop for decades.
Two quality stocks that have the potential to double their dividends again while still paying a decent return today could be Medtronic (WKN: A14M2J) and the soft drink producer Cola (WKN: 850663).
The Irish company Medtronic unheard of among the heavyweights of the medical technology industry with a market value of $ 118 billion.
The company offers products for cardiology such as pacemakers and stents. But the areas of neurology, diabetology and surgery are also supplied with medical technology products from Medtronic.
In the surgical field, Medtronic has its own system for robot-assisted surgery, Hugo – a direct challenge to the market leader, Intuitive Surgical.
COVID lockdowns in China and bottlenecks in the supply chain are currently weighing on the stock. It is traded at an extended price-to-earnings ratio of 16 and a dividend of 3.1% per share. 7/18/22, Reuters.
Yields have been continuously increased in the past. on mThe company comes after 45 years with constant dividend increases. Just a few more years and Medtronic may become one of the few Dividend kings to have risen up.
The Coca-Cola stock has a higher number of years with stable dividend increases and is already a real dividend king. In February 2022, the dividend was increased for the 60th time in a row. There are few companies with such a dividend history.
Unfortunately, with a current dividend of 2.8% and a forward-to-earnings ratio of 25.4, there is also a larger premium for quality shares of Coca-Cola.
The first quarter of 2022 was convincing with a volume increase of 8%. Revenue and comparable EPS (non-GAAP) increased 16%.
While things will not continue quite so strongly for the full year 2022, the Coca-Cola stock should be one of the few quality stocks that still represents a fundamental investment for long-term investors.
After all, Coca-Cola is one of those companies with a high pricing power. This means that in times of inflation, Coca-Cola has a really good chance of passing on the rising input costs to end consumers. The strong brands and the first-class sales network allow such customizations.
Both stocks enjoy a high degree of confidence among dividend investors when it comes to future dividend payments. Of course, there is no guarantee that yields will continue to rise. Personally, though, I remain convinced that it may double in the next decade.
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Frank Seehawer owns shares in Medtronic and Coca Cola. The Motley Fool does not own any of the listed shares.