Industry leaders with indestructible competitive strengths are the way to go when searching for companies providing soundness and reliability for your portfolio. Add a growing dividend to the equation, and things become even more interesting for investors: cash flow distributions provide not only regular income, but also transparency on the company´s fundamental quality.
When it comes to the big U.S. banks, no other company has the same level of quality as Wells Fargo & Co (NYSE:WFC). The bank has a simple and straightforward business model: it loans money to deserving clients as opposed to investing in complex derivatives or making low quality loans in the search for a few extra dollars in short term profits.
Thanks to this commonsense approach to the business, Wells Fargo & Co (NYSE:WFC) avoided the expensive and embarrassing mistakes than many of its competitors committed over the last years, and the company has capitalized on its financial strength to make opportunistic acquisitions during rocky times. The purchase of Wachovia back in 2008 provided a big boost to Wells Fargo & Co (NYSE:WFC)´s national footprint, and it positioned the bank as an undisputed leader in key areas like mortgage lending.
Interest rate volatility may create some uncertainty regarding demand for loans in the middle term, but the company will benefit from a recovering real estate market in a big way over the next few years. Wells Fargo & Co (NYSE:WFC) pays a 2.8% dividend yield; considering the company´s financial strength and long term growth prospects, investors have good reason to expect growing dividends from this bank for year to come.
The energy industry is always exposed to several kinds of risks, including geopolitical factors, disruptions to production and fluctuating commodity prices among other things. But Exxon Mobil Corporation (NYSE:XOM) stands out from other integrated energy producers due to its superior profitability and efficiently integrated operations.
After the acquisition of XTO in 2009, Exxon Mobil Corporation (NYSE:XOM) solidified itself as a major player in the natural gas industry. Low gas prices have been a drag on profitability in the last few years, but the company has gained plenty of exposure to a business with promising growth prospects in the middle term. Besides, diversification between oil and gas production reduces the risks coming from price fluctuations.
The company´s financial strength is out of the ordinary; Exxon Mobil Corporation (NYSE:XOM) is one of the last remaining AAA rated firms in the world, and it has an enviable track record of consistent free cash flow generation through the ups and downs of the economic cycle. The company pays a 2.7% dividend yield, and the payout ratio is at a very sustainable 23% of earnings, which leaves ample room for dividend increases in the future.
McDonald’s
No other brand in the industry enjoys the same recognition as McDonald’s Corporation (NYSE:MCD), and the company´s massive scale allows it to invest more than any of its peers in marketing and advertising. Besides, its huge size means more bargaining power when it comes to negotiating with suppliers, many of whom owe their existence to McDonald’s Corporation (NYSE:MCD), and this allows the company to obtain food and other raw materials at relatively low and stable prices.
The company is part of the Dividend Champions, a select group of companies that have been able to increase dividends over the last 25 consecutive years. The firm has raised its payments each and every year since paying its first dividend in 1976, so it has accumulated 37 consecutive dividend increases, and counting. McDonald´s is currently paying a tasty dividend yield of 3.1%.
Industry leaders with dominant market positions may not be the companies with the most explosive growth potential around, but in exchange for that they offer reliability and resilience trough all kinds of scenarios. Besides, rock-solid fundamentals allow for growing dividend payments year-after-year, and this has proven to be a crucial factor when it comes to generating superior returns for shareholders. After all, there is a reason why people say that slow and steady wins the race.
Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends McDonald’s (NYSE:MCD) and Wells Fargo. The Motley Fool owns shares of McDonald’s and Wells Fargo. Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Three High Quality Leaders With Strong Dividend Growth Prospects originally appeared on Fool.com is written by Andrés Cardenal.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
