Warren Buffett’s Berkshire Hathaway may not pay a dividend, but it certainly buys stocks that pay them. Getting regular dividend payments certainly has its advantages, particularly when the market is going through turbulent times like it is now.
But blindly following Warren Buffett’s holdings isn’t enough. You have to dig deeper to determine if the stock can keep paying dividends. Perusing the Oracle of Omaha’s portfolio shows these two companies fit the bill.
Coca-Cola (KO 0.72%) has well-recognized and, more importantly, popular brands. It has five out of the top six top-selling soft drink brands. These include Coca-Cola, Diet Coke, and Sprite.
But it doesn’t just sell soda. Consumers have been increasingly turning to healthier options, and Coca-Cola has strong offerings in areas like water, vitamin water, juice, and plant-based beverages. It sells them under brands like Dasani and Minute Maid.
Case volume for water, sports, coffee, and tea grew by 6%, while juice, dairy, and plant-based beverages saw a 3% increase. This came about despite the suspension of Coca-Cola’s business in Russia and pandemic-related shutdowns in China.
With popular brands and the ability to continue adapting to consumer tastes, Coca-Cola has rewarded investors. The board of directors recently raised the quarterly dividend from $0.44 to $0.46, marking 61 straight years with an increase.
It not only has the willingness to pay dividends but also the ability. The payout ratio of about 80% means that Coca-Cola pays out less than it earns.
Mondelez International (MDLZ 1.06%) keeps competitors at bay and wins store shelf space with its stable of established snack brands. These include Oreo, Ritz, and Cadbury.
A global leader with products sold in more than 150 countries, the company is not afraid to make acquisitions. Last year, it bought Clif Bar, a maker of popular organic energy bars, to better position the company to take advantage of consumer trends.
Stripping out foreign currency translations, divestitures, and acquisitions, Mondelez’s sales grew by 12.3% last year. Importantly, it was able to pass along higher costs without denting demand as increased prices accounted for 9.6 percentage points of that increase with the balance coming from higher volume and mix.
While management spent heavily on acquisitions last year, typically there’s plenty of free cash flow (FCF) to pay dividends. Last year’s FCF was $3 billion, and it shelled out $2 billion for dividends.
Coca-Cola and Mondelez have above-average dividend yields when compared to the S&P 500‘s 1.6%. The former yields 3.1%, while the latter has a 2.3% yield.
These stocks may not excite your dinner guests when you bring them up, but there’s a good chance that they use their products. There’s also nothing boring about collecting regular dividends. Fortunately, these companies can support their payouts with earnings and free cash flow, making them worthy investments.
Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.