2 dividend giants to buy before their next payout hike

For some dividend-paying stocks, it is never a question of whether investors will get an annual increase in their payout. Rather, the mystery revolves around the size of the annual increase in income.

Dividend aristocrats have increased their liabilities for at least 25 straight years, and dividend kings are claiming 50 years of straight increases. This decades-long track record essentially eliminates the risk of a surprise drop so that investors can count on steady growth through a wide range of selling terms.

With that in mind, let’s see why you might want to buy two members of these exclusive dividend clubs, PepsiCo (NASDAQ: PEP) and Procter & Gamble (NYSE: PG), before their latest hikes hit portfolios over the next few weeks.

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PepsiCo is rich in cash

PepsiCo has been sending dividend checks since 1965 and is set to become a King of dividends, which requires a sequence of at least 50 years of consecutive increases. Its 2021 boost will mark the 49th consecutive year of increases.

The snack and beverage giant just wrapped up an impressive 2020 fiscal year that saw it outperform in both the soda and packaged food niches. Pepsi’s snacks division contributed strong growth as usual, but the company also saw only a modest drop in beverage volume unlike its peers. Coca Cola (NYSE: KO). In mid-February, CEO Ramon Laguarta attributed the results to “… our diverse portfolio, an agile supply chain … and strong market execution”.

PEP Cash from Operations chart (yearly)

PEP cash from operations (annual) given by YCharts.

Pepsi recently announced that its annual payout will increase 5% to $ 4.30 per share, starting with its June payout. A low stock price in early 2021, meanwhile, pushed that return above 3%, which should be seen as a nice bonus for income investors.

Procter & Gamble has a grip on the industry

Procter & Gamble typically announces its annual payout increase in April, around the time it releases its third quarter tax results. But investors don’t have to wait for this report to buy this dividend giant.

P&G was posting strong operating results even before the pandemic boosted demand for many of its consumer staples. The company continued these positive trends throughout the crisis and thus outperformed its peers as Kimberly clark (NYSE: KMB). Organic sales jumped 8% in P&G’s last outing and are expected to rise for the full year after peaking in fiscal 2020.

Of course, growth will slow down as the pandemic threat subsides over the next few quarters. But P&G expects continued improvement in many of its core niches, including laundry care and home care, as people continue to spend more time at home. But with industry-leading profit margins and cash flow, this business can generate attractive returns even with lower growth.

P&G generated $ 10 billion in operating cash in the past six months, up from $ 8.5 billion a year earlier. This success gives management the opportunity to announce an increase in April which is expected to be at least as large as last year’s 6% increase.

The increase will mark P & G’s 65th consecutive year of annual dividend increases. This kind of streak is only possible because of its dominant grip on several basic consumer niches, including paper towels, detergents and shaving products.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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