Key Points
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Mastercard’s quarterly dividend has increased by 358% in the past 10 years, driven by its impressive earnings growth.
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A durable and extremely profitable business, Coca-Cola has raised its dividend for 64 straight years.
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Ford’s 4.74% dividend yield is hefty, but the payout is most at risk of being cut due to the company’s unpredictable financial results.
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Many investors are concerned about the stock market’s valuation right now. The extreme level of concentration among a small group of businesses also adds to the fears that a correction is coming. An income-driven strategy might appeal to these investors in today’s environment.
There are a lot of dividend stocks out there. While the size of the checks they send shareholders gets the attention, there’s always more to the story. Here’s the yearly dividend income that $10,000 generates from stocks that offer three very different yields.
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Mastercard: 0.52% dividend yield
The first business on this list is Mastercard (NYSE: MA). It might be the highest-quality company of these three, as indicated by its durable revenue growth and jaw-dropping Q3 operating margin of 59.8%. However, income investors aren’t lining up to buy the financial stock. It offers a tiny 0.52% dividend yield. If you buy $10,000 worth of shares, you’d make $52 in yearly income.
It’s hard to overlook the growth trajectory, though. In the past decade, Mastercard’s dividend went from $0.19 per share quarterly to $0.87, resulting in a huge 358% gain. Given that the business seems to consistently post double-digit diluted earnings-per-share growth every year, investors can bank on the payout continuing to increase in the future.
Consequently, the yield rises over time compared to the cost basis. Let’s assume that the dividend is hiked at the same pace in the next decade. If you buy the stock today and wait 10 years, the dividend yield explodes from the current 0.52% to a projected 2.38%. Furthermore, investors will probably benefit from meaningful capital appreciation as well.
Coca-Cola: 2.21% dividend yield
Coca-Cola (NYSE: KO) is definitely a better dividend stock than the credit card giant. The leading beverage enterprise pays investors a healthier 2.21% dividend yield. With $10,000 allocated to the stock, you’d capture $221 in annual passive income.
This company is a Dividend King. It has increased its quarterly payout in 64 straight years. That’s a mind-boggling streak. The track record clearly shows how successful Coca-Cola has been for such a long period of time, as it has successfully dealt with wars, recessions, bear markets, and a pandemic. Coca-Cola’s durability is its most compelling trait.
Investors don’t have to worry about the dividend payout coming under threat. This business operates from a position of competitive strength thanks to global customer loyalty and proven pricing power. This is true even in adverse economic times.
And the profits are impressive. Coca-Cola’s operating margin was a reported 33.4% during the third fiscal quarter that ended Oct. 2. This supports the company’s ability to generate sizable free cash flow, which funds quarterly cash distributions to investors.
Ford: 4.74% dividend yield
The heftiest dividend payer on this list is Ford (NYSE: F), which gives its shareholders a dividend yield of 4.74%. This rivals what the 10-year Treasury currently offers U.S. creditors. On a $10,000 investment, Ford shareholders receive $474 in yearly income.
During the trailing 12 months (ended Sept. 30), Ford’s dividend payout ratio was 133%. It paid significantly more than the net income it brought in. Mastercard’s payout ratio was 18%, while Coca-Cola’s was 62%. This leaves plenty of cushion. On the other hand, from a purely financial perspective, Ford’s situation doesn’t appear to be sustainable.
The dividend yield is so high because the share price has been on a wildly disappointing run. They have fallen 32% in the past five years (as of Nov. 4). Investors should take this subpar performance as a signal from the market about the quality of this company.
Ford operates with low growth prospects and weak margins. The competitive landscape is fierce. Demand is sensitive to macroeconomic forces. And the business is capital-intensive. Long-term investors will be turned off by these attributes.
Should you buy stock in Coca-Cola right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard. The Motley Fool has a disclosure policy.
