McDonald’s Corporation (MCD), The Coca-Cola Company (KO): Four Suggestions for Dividend Growers

I’m loving it

The fast food giant McDonald’s Corporation (NYSE:MCD) is another dividend grower to look at.

Customers have been flocking to the Golden Arches for many decades and buying boatloads of Big Macs, French Fries, and milk shakes.

That has allowed the company to increase its dividend each year since it initiated it in 1976. The current payment is $3.08 per share per year which has doubled in the last five years.

With a payout ratio of 55%, earnings are projected to keep growing (even though they have slowed a bit in the recent past) and with over a billion dollars in free cash flow, McDonald’s Corporation (NYSE:MCD) has ample room to keep the payments coming.

As a means of reviving growth, McDonald’s Corporation (NYSE:MCD) is in the midst of revamping its ad campaign and menu which are emphasizing the lower price dollar menu instead of the premium Extra Value meals. Preliminary indications are that the new focus is working so far.

I’d like to buy the world a Coke

Another dividend grower and maker of one of the most profitable products around is The Coca-Cola Company (NYSE:KO). The company has a presence in nearly every country. It is selling more than 500 different products right now and possesses one of the world’s most recognized brands.

The Coca-Cola Company (NYSE:KO)’s signature drink provided an operating profit margin of about 25% last year. The company sells millions of them and that generates tons of earnings and cash that are used to fund a healthy $1.12 dividend every year, and which has increased by 50% over the last five years.

The dividend is likely to keep growing since the payout ratio is reasonable at 55% and the company has a good balance sheet with long-term debt less than half of equity, regularly develops new products, and usually grows earnings every year.

Conclusion

For those investors that need dividends to supplement other forms of retirement income, looking at companies that use a tried and true formula for success that includes consistent earnings growth, lots of cash flow, lower payout ratios, and debt levels and products that consumers need regularly is a good starting place.

Companies like The Procter & Gamble Company (NYSE:PG), Chevron Corporation (NYSE:CVX), McDonald’s Corporation (NYSE:MCD), and The Coca-Cola Company (NYSE:KO) seem to have mastered the equation pretty well.

The article 4 Suggestions for Dividend Growers originally appeared on Fool.com and is written by Mark Morelli.

Mark Morelli owns shares of Coca-Cola, McDonald’s, and Procter & Gamble. The Motley Fool recommends Chevron, Coca-Cola, McDonald’s, and Procter & Gamble. The Motley Fool owns shares of McDonald’s. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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