Cash flow is the lifeblood of durable dividend stocks. When it comes to dividend stocks, there’s an elite tier of companies I like to call the “cash machines.” These stocks have stood the test of time by generating hearty profits on a consistent basis. Further, these companies share that bounty with shareholders year in and year out. I’m talking about dividend aristocrats and kings – the stocks that have consistently raised their payouts for 25+ or 50+ straight years through recessions, wars, inflation spikes, you name it.
These evergreen dividend growers deserve special attention in your portfolio. Not only do they provide much-needed income you can actually live on during retirement, but they also provide your portfolio with some real stability via their steady payouts. And in turbulent market environments like we face today, having rock-solid stocks anchoring your portfolio is critical.
Let’s take a look!
Coca-Cola (KO)
Coca-Cola (NYSE:KO) should be one of the top three stocks on your list when looking for dividend aristocrats that churn out steady dividend income. We all know Coke – it’s a global brand that has stood the test of time. But, many investors overlook this company as a dividend play, even though it’s produced more than 61 years of consecutive dividend hikes. This dividend consistency makes KO an exceptional stock to buy and hold for the long-term.
Beyond its signature sodas, Coca-Cola owns other staple drink brands like Dasani, Sprite, and Fanta. This diversification provides cross-category durability to its cash flows. And despite its household name status, Coca-Cola still has an exciting growth runway. Analysts forecast ~7% annual EPS growth and ~5% revenue expansion through 2030, as emerging markets develop an insatiable thirst for its products.
Coca-Cola’s rock-solid balance sheet and cash flow metrics give me great confidence in its dividend staying power. Year-to-date, operating cash flow rose to $8.9 billion. Meanwhile, free cash flow jumped to over $7.9 million. With boatloads of cash pouring in, Coke has plenty of ammo to pad shareholders’ pockets for decades to come.
Trading at just 22-times earnings with a 3.1% forward yield, KO stock offers a compelling risk-reward option as a low volatility anchor for any dividend portfolio. The company’s brands have dominated for over a century, and Coca-Cola has a long history of raising its dividends over the past six decades. Thus, KO stock deserves its premium. I believe patient investors will be well-rewarded owning this stock for the long-term.
Emerson (EMR)
Lesser-known than Coke, but no less impressive as a cash machine, Emerson (NYSE:EMR) provides impressive dividend stability as one of America’s most diversified industrial giants. Emerson produces automation systems, valves, sensors, and measurement instrumentation across various sectors including oil/gas, chemical processing, food production, and more.
This diversification makes Emerson’s cash flows bulletproof. Even if one industry faces a downturn, Emerson’s clientele diversification will help the company power through challenging times and maintain its impressive 66-year streak of rising dividends.
Like Coca-Cola, Emerson also retains promising growth drivers that should fuel strong profit and cash flow growth for years to come. This year alone, analysts expect 18% earnings per share growth and 14% revenue growth, as industrial activity continues to rebound.
While Emerson’s most recent earnings disappointed due to persistent macro headwinds, I believe these are temporary setbacks. Zooming out, Emerson has historically exceeded earnings estimates by double-digit percentage points over numerous quarters. Its broad portfolio should drive cash flow growth over time, leading to a higher valuation.
Emerson provides tremendous defensiveness in this current market environment. This benefit, combination with the company’s earnings growth potential, means its current multiple of 17-times earnings seems dirt cheap. Set-and-forget dividend investors can count on this cash machine to continue delivering.
Visa (V)
Visa (NYSE:V) might seem like a surprise pick for dividend reliability. After all, its sub-1% yield doesn’t exactly scream “income stock.” But make no mistake about it – Visa is a cash cow that should flood your portfolio with total returns (dividends and capital appreciation) for decades to come. That’s thanks to its shareholder-friendly capital return program.
Raking in profit margins of more than 54% thanks to its duopoly in payment networks with Mastercard (NYSE:MA), Visa has churned out positive cash flow even during periods like the Great Recession and COVID-19 when consumer spending dried up. Because it simply facilitates transactions between merchants and banking partners rather than directly lending, Visa avoids risky credit exposure when downturns strike.
And with cash flows surging 150% over the past two years, what does Visa do with all its excess liquidity? It funnels billions back to shareholders through buybacks and dividends, rather than wasting it on low-return investments.
Buybacks might not provide immediate income like dividends, but they boost Visa’s earnings per share over time by reducing its share count. This should drive consistent capital gains for patient investors. Pair that with 16 years of consecutive dividend growth, and Visa offers reliable long-run returns.
So, while you sacrifice some current yield buying Visa, your total returns should handily beat the market if held for the long haul. Visa’s rock-solid business model and pristine balance sheet mean this cash machine won’t be slowing anytime soon. I’ll gladly let Visa’s management team allocate capital. They’ve done a tremendous job creating value the past decade. Notably, the company also recently announced a $25 billion stock buyback plan, furthering my thesis around this stock as a top shareholder-friendly giant to own for decades.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
