Looking to Satisfy Your Craving for More Income in 2024? Check Out These Tasty Dividend Stocks

Matthew DiLallo, The Motley Fool

Wed, Jan 10, 2024, 5:05 AM 5 min read

There are many ways to earn passive income. Investing in dividend stocks is one of the easiest ways. Many companies pay their investors a portion of their profits in dividends each quarter. Food stocks can be a great way to satisfy your income craving because many companies in the sector generate lots of steady cash flow, allowing them to pay higher-yielding dividends. Kraft Heinz (NASDAQ: KHC), Coca-Cola (NYSE: KO), and Hershey's (NYSE: HSY) stand out for their tasty dividends.

An appetizing yield

Kraft Heinz currently offers a delicious 4.2% dividend yield. That's more than double the dividend yield of the S&P 500. Because of that, you'll collect a lot more dividend income each year from Kraft Heinz than you'd receive by investing in an S&P 500 index fund (which currently has a 1.5% dividend yield). For example, every $1,000 invested in Kraft Heinz would produce about $42 of annual dividend income compared to about $15 for a similar investment in an S&P 500 index fund.

The company's portfolio of beloved food brands generates lots of cash flow. Kraft Heinz produced $2.6 billion in cash from operating activities through the third quarter of last year. That gave it money to pay dividends ($1.5 billion), invest in expanding its business ($779 million), and strengthen its balance sheet. The company's growing earnings and falling debt allowed it to reach its targeted leverage ratio by the end of Q3 (3.0 times).

With its balance sheet back where Kraft Heinz wants it to be, its high-yielding dividend is on a firmer foundation. The company previously had to cut its dividend in early 2019 (from $0.625 per share each quarter to the current rate of $0.40 per quarter) to retain additional cash to strengthen its balance sheet. With that target achieved, Kraft Heinz is in a much better position to start growing its dividend again in the future.

A satisfying income stream

Coca-Cola's dividend can quench an investor's thirst for income and growth. The beverage giant has increased its dividend for 61 straight years, including by 4.6% in 2023. That puts it in the elite class of Dividend Kings, companies with 50 or more years of dividend increases. At the current stock price, Coca-Cola offers a 3.1% dividend yield, which is more than double the rate of the S&P 500.

The company produces a torrent of cash flow. Its cash flow from operations totaled $8.9 billion through last year's Q3, up $861 million from the year-ago period. Meanwhile, Coca-Cola produced $7.9 billion in free cash after funding capital expenses (up $636 million year over year), easily covering its dividend payments (about $4.1 billion).

Coca-Cola expects its earnings and cash flow to continue rising. It's targeting 4% to 6% organic revenue growth over the long term, which should support 7% to 9% yearly earnings-per-share growth (90% to 95% of which it expects to convert into free cash flow). That growing free cash flow should enable Coca-Cola to continue increasing its dividend.

An increasingly sweeter income stream

Hershey's pays a sweet dividend. The snacking and confectionery company currently offers a 2.5%-yielding payout. While that's lower than the others on the list, Hershey's more than makes up for that with its growth. It gave investors a 15% raise last year and has increased its payout each year since 2010, growing it at a more than 10% compound annual rate.

The company's strong and growing cash flow is a big driver of the rising dividend. Hershey's increased its cash flow from operations at a 13.3% compound annual rate from 2017 to 2022. It pays out about half that rapidly rising cash flow in dividends. That enables it to retain the other half to fund its growth (including making acquisitions), maintain a strong balance sheet, and opportunistically repurchase shares.

The company expects its earnings and cash flow to continue rising in the future. It aims to deliver 6% to 8% annual earnings-per-share growth over the long term. With operating cash flow historically growing faster than earnings, Hershey's is in an excellent position to continue increasing its dividend at a healthy rate each year.

Lot of options to help satisfy your income craving

Food companies tend to be very profitable. That enables them to generate enough cash to fund their growth while distributing a portion of their growing profits to investors via dividends. Kraft Heinz, Coca-Cola, and Hershey's pay tasty dividends, making them delicious options for those seeking to boost their income this year.

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Matthew DiLallo has positions in Coca-Cola and Hershey. The Motley Fool recommends Hershey and Kraft Heinz and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

Looking to Satisfy Your Craving for More Income in 2024? Check Out These Tasty Dividend Stocks was originally published by The Motley Fool

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