Motley Fool cofounders David and Tom Gardner once referred to Coca-Cola (NYSE: KO) as the First Federal Bank of Coca-Cola because of its strength, stability, and durability. It's why Warren Buffett has made the beverage giant a cornerstone of his portfolio for decades.
Its dividend has been just as reliable, and for 56 years straight, it has increased its payout to shareholders. But Brookfield Property Partners (NASDAQ: BPY), Petmed Express (NASDAQ: PETS), and British American Tobacco (NYSEMKT: BTI) offer dividends that pay you even better than Coca-Cola, so let's see why you might want to add them to your portfolio.
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This dividend's too good to pass up
Neha Chamaria (Brookfield Property Partners): Coca-Cola's incredible dividend streak is hard to match up for Brookfield Property Partners, one reason being that the company started paying out a dividend only as recently as 2014, soon after it was spun off from Brookfield Asset Management. Yet this stock not only offers a juicier yield of 8% but has been growing dividends at a much faster pace than the consumer giant.
Brookfield Property Partners has increased its dividend every year since 2014, growing it at a compound annual rate of 6% since, backed by 9% compound growth in cash flow from operations. The growth is here to stay, with management targeting cash flow growth of 7%-9% in the next five years. Shareholders can expect dividends to grow by 5%-8% annually during the period.
What's behind management's confident financial goals, you may ask? To start, Brookfield owns a strong portfolio of real estate assets primarily in commercial, retail, industrial, and hospitality sectors that it leases under long-term contracts. Its business model, therefore, ensures a steady stream of income and cash flow. Furthermore, management actively pursues opportunities to offload mature, low-margin assets and reinvest the proceeds into higher-potential properties. So since 2014, if Brookfield's total asset base has tripled to nearly $90 billion, it also raised $47 billion in gross proceeds from asset sales during the period.
Given the visibility in Brookfield's dividends going forward, the stock's recent drop and hefty yield should attract any income investor's attention.
This high-yield dividend stock is an incredible bargain
George Budwell (Petmed Express): Coca-Cola has long been a favorite name among income investors, and for a host of good reasons. However, there are a handful of lesser-known stocks with far higher yields and better near-term outlooks than Cola-Cola. The online pet supply and medicine company Petmed Express, for instance, is arguably a better buy at these levels for income investors.
Why is Petmed's stock worth owning right now? First off, the company's stock took an absolute beating last year, thanks to concerns about its shrinking profit margins and new competitive threats. As a result, Petmed's shares now sport a whopping 4.51% yield and currently trade at a rock-bottom price-to-sales-ratio of 1.67. That's an exceeding rare combination for a healthcare stock with a thriving underlying business.
The particularly interesting part, though, is that these putative competitive threats aren't expected to result in any drop-off whatsoever in Petmed's business. In fact, Wall Street has the company's top line rising by another 7.8% this year and by a healthy 6.3% in 2020. Best part of all, Petmed has ample room to hike its stately yield even more this year -- at least based on its trailing payout ratio of only 46.3%.
What's the catch? The big concern appears to be Petmed's real-world ability to continue offsetting its eroding margins through higher sales. Over the next decade, after all, the online pet supply space is likely to attract more big name competitors that could displace smaller entities like Petmed. That said, Petmed has proven that it has a loyal and growing customer base, suggesting that the market might be overcompensating for this particular risk factor.
A chance to smoke the doubters
Rich Duprey (British American Tobacco): Beaten down, but still hugely profitable and increasing its market share in its primary market, British American Tobacco (NYSEMKT: BTI) ought to provide investors with a chance for outsize capital appreciation opportunities while paying them a mouthwatering 8.4% dividend yield.
Although Altria's (NYSE: MO) Marlboro brand owns the traditional cigarette market with about a 50% share, British American's Newport brand is the second biggest with a 14% share overall and a 33% share of the menthol market. Adding in Camel, which has a 12% share, and British American owns half the menthol market.
While the FDA moved in November to ban menthol cigarettes because of their popularity with teens, the industry has vowed to fight the move, and it's likely a middle ground will be struck. The agency has restricted where flavored electronic cigarettes can be sold to limit teen access, and a compromise along those lines might be attainable.
The FDA is part of the reason British American Tobacco has lost half its value over the past year, along with a recall of its Vuse electronic cigarettes early on and a slowing e-cig market in Japan. Although these are no minor issues, volumes for its Vuse e-cig were up 30% in the most recent period, and it's rolling out a new e-cig product that has already reached some 15,000 markets.
With the potential for a heated tobacco e-cig to be marketed in the U.S., British American will follow Altria and Philip Morris International (NYSE: PM) in having reduced-risk products as a dominant revenue generator in the future.
Without question there is risk associated in an investment here, but there is also the potential for much reward if those issues are mitigated, which may very well happen. In the meantime, collecting the juicy dividend while waiting for the problems to be resolved is a salve to the wound.
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George Budwell has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of Brookfield Asset Management. The Motley Fool has a disclosure policy.