Many investors enjoy receiving dividends. After all, paying out a portion of profits is one of the most direct ways a company can reward shareholders.
However, if you are an income-focused investor, it is important to buy shares of companies that are able to pay consistent dividends and invest in their businesses to ensure continued growth. If a company cannot remain competitive in the long term, simply paying high dividends is not enough.
These two companies top my list of dividend stocks that investors should consider making a core part of their long-term portfolio. In fact, I can’t see any of them being sold.
Image source: Getty Images.
Coca Cola (NYSE:KO) Selling its first drink in 1886, you can now find its products in more than 200 countries around the world. Its product range extends well beyond soda, water, juice, tea, dairy and plant-based beverages.
Although its days of rapid growth appear to be over, Coca-Cola’s revenue is still growing steadily. In the third quarter, the company’s revenue increased 6%, when adjusted to eliminate the impact of currency changes and acquisitions and divestitures.
The increase was due to a combination of price increases and changes in sales mix. Ideally, higher trading volumes would contribute. Nonetheless, this is not worrisome in the long term, as stagnation on this front is likely due to widespread feeling of high cost pressures and concerns about macroeconomic headwinds. Once economic conditions improve, the company may become even stronger as Coca-Cola continues to gain market share.
At the same time, it generates plenty of profits to support its dividend: its payout ratio is a comfortable 67%.
It’s not just about keeping spending the same, either. It’s a dividend king, one of a small group of companies that has increased its dividend for at least 50 consecutive years. The board increased the quarterly dividend by more than 5% in early 2025, marking the 63rd consecutive year of increases.
At the current share price, Coca-Cola’s dividend yield is 2.9%, which is higher than The Coca-Cola Company’s dividend yield. S&P 500 Index The index’s average is 1.1%.
home depot (NYSE: HD) It is the largest retailer in the home improvement industry by sales. While it has long catered to do-it-yourself customers and professional contractors, it has recently made moves to strengthen its presence with professionals, including the acquisitions of SRS Distribution and GMS.
Home Depot sales have been sluggish as many homeowners put off major projects. In the fiscal third quarter ended November 2, same-store sales grew just 0.2%. Failed customer traffic reduced total sales by 1.6 percentage points, while increased spending increased it by 1.8 percentage points.
However, Home Depot’s performance is cyclical. When consumers feel comfortable with their financial situation, they purchase homes and make major renovations. When they do, homeowners and contractors will inevitably turn to Home Depot for much of what they need, given its massive presence in the field.
While waiting for housing-related spending to rebound, shareholders can collect dividends with confidence. That’s because Home Depot generated $10.4 billion in free cash flow, which gave it plenty of cushion to pay its $6.9 billion dividend.
Management also places a high priority on dividends. The company said it plans to use cash flow first to pay dividends and then to share buybacks after reinvesting in the business.
Home Depot also has an impressive dividend history. The company has increased its dividend every year since 2010. Even during the tough years of the Great Recession (2007 to 2009), the company kept its dividend unchanged.
At the current share price, Home Depot offers a market-beating dividend yield of 2.6%.
Before buying Coca-Cola stock, consider the following factors:
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool holds a position and recommends Home Depot. The Motley Fool has a disclosure policy.
The Two Best Dividend Stocks to Buy Now and Hold Forever was originally published by The Motley Fool
