However, the Dow is outperforming the S&P 500 and Nasdaq in 2025 thanks to strong performances from some stodgy dividend-paying companies. Dow componentsProcter & Gamble(NYSE: PG) and Coca-Cola(NYSE: KO) are hovering around their all-time highs. Moreover, both companies have raised their dividends annually for more than 50 consecutive years, making them Dividend Kings.
Here's why these stocks have done well despite the broader market sell-off and why they may be worth buying now.
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Procter & Gamble is the ultimate safe stock
This maker of everyday-use products like laundry detergent, paper towels, and dish soap is trading about 1.2% off its all-time high after returning to volume growth. However, P&G does plenty of business internationally, which makes it vulnerable to headwinds from a strong U.S. dollar or economic slowdowns in key markets like China.
However, the dollar has been weakening recently, which could help ease P&G's foreign currency exchange risk. What's more, China's government is confident that its economy will prove resilient to intensifying trade conflicts -- Beijing projects 5% economic growth in 2025. Throw in a sector rotation out of growth names and into safe stocks, and it's easy to see why P&G has been surging.
P&G is a super-safe dividend stock to buy and hold because it has industry-leading products across a diversified portfolio spanning categories such as beauty, healthcare, grooming, fabric and home care, baby, feminine, and family care, and more. P&G's brand power and elite supply chain allow it to maintain exceptional operating margins relative to its peers.
P&G has raised its dividend for 68 consecutive years -- making it one of the longest-tenured Dividend Kings. However, it also consistently repurchases stock. Reducing the outstanding share count accelerates earnings-per-share growth, making the stock a better value.
Still, P&G's stock price has outpaced EPS growth in recent years -- ballooning its price-to-earnings (P/E) ratio to 28. That's a lofty level even for a rock-solid Dividend King that has historically fetched a premium valuation relative to its peers.
P&G may still be worth buying for risk-averse investors looking for quality companies built to last. However, its stretched valuation makes it less compelling as an investment opportunity.
Coca-Cola isn't just a soda company
Coca-Cola is a consumer staples giant that needs no introduction. But you may be unfamiliar with some of the changes it has made to its beverage portfolio.
The company has long recognized that overdependence on its flagship soda brand is risky because it leaves it vulnerable to changes in consumer preferences. Health-conscious consumers may avoid soda altogether.
To address this risk to its revenues, Coke has done a masterful job of building up its positions in other non-alcoholic beverage categories. Acquisitions of brands like Topo Chico in sparking water and Fairlife protein shakes have been resounding successes -- the values of those brands have increased several-fold since Coke acquired them.
Marketing efforts for Coca-Cola Zero Sugar and other flavors of soda and juice brands have also led to higher sales growth.
Coke expects organic revenue growth of 5% to 6% in 2025, with a 3% to 4% foreign currency headwind. Like P&G, Coke serves end markets around the world, so a strong U.S. dollar hurts its profitability internationally. But because the dollar has been weakening, the currency headwinds this year may not be as strong as expected.
On Feb. 20, Coke announced its 63rd consecutive annual dividend increase -- a 5.2% boost to $0.51 per share per quarter. Coke has a forward yield of 2.9%, which is higher than P&G's 2.3% yield. But Coke's valuation has also gotten more expensive due to the stock's run-up -- it now trades at a P/E ratio of 29.
Two pricey but solid dividend stocks to buy now
P&G and Coke are arguably worth their premium valuations because of their consistency, reliable dividends, and ability to generate earnings growth even during economic slowdowns.
Investors worried about an economic slowdown may be flocking to these names for safety. Still, it's important to remember that it's never a good idea to trade in and out of stocks based on emotion alone.
Therefore, it would be better to approach these safe stocks as foundational holdings for a long-term portfolio.
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
