Matt DiLallo, The Motley Fool
5 min read
I’m not predicting another stock market crash anytime soon. However, I already know which dividend stocks I’ll be looking to buy if it does. Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), and Waste Management (NYSE:WM) operate resilient businesses with impressive dividend-growth track records. The only thing holding me back from buying more shares today is their valuations.
Here is what I’d love to pay to boost my positions in these top dividend stocks.
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Coca-Cola: I’d love to buy this Dividend King below $80
Coca-Cola is one of the world’s strongest consumer brands. It generates durable, steadily rising cash flow, driven by volume growth and its pricing power. Both were on full display during the third quarter. Coke’s revenue grew 7%, driven by 5% growth in global unit case volume and continued price growth. That drove an 11% increase in its comparable earnings per share (EPS). The company’s strong performance gave it the confidence to raise its full-year outlook. It’s now targeting at least 11% comparable EPS growth.
The company’s steady earnings growth has supported its rising dividend. Coca-Cola has increased its payment for 64 straight years. That easily qualifies it as a Dividend King, a company with 50 or more years of annual dividend increases.
I think Coca-Cola is a wonderful business. My issue is that it’s a very expensive company. At its recent price of around $98 per share, Coke trades at nearly 30x earnings (and a 2.2% dividend yield). That’s a premium compared to both the S&P 500 (22.4x) and Nasdaq-100 (27x).
I’d be much more interested in buying Coca-Cola if its share price dropped below $80. That would provide both a higher starting dividend yield (around 2.7%) and a more attractive valuation for long-term earnings growth (around 24x). At that level, Coke would be better positioned to deliver total returns closer to my long-term target of 10% annualized.
Procter & Gamble: An opportunity to buy everyday essentials at a discount
P&G owns a portfolio of essential consumer brands that people continue purchasing even when economic conditions weaken. Its scale, pricing power, and productivity initiatives support earnings and dividend growth. Like Coca-Cola, it’s a Dividend King (70 years of annual increases).
