1. Coca-Cola: A Reliable Dividend Giant with Consistent Performance
Coca-Cola (NYSE: KO) offers an attractive forward dividend yield of 2.9%, much higher than the current market average. As a renowned brand with consistent consumer demand, Coca-Cola generates robust revenues, making it a dependable dividend stock.
Coca-Cola’s quarterly dividend stands at $0.485 per share, reflecting a payout ratio of around 68% based on 2024 earnings estimates. This payout ratio, which means the company distributes only two-thirds of its annual earnings as dividends, is a sustainable level for Coca-Cola, given its focus on growth and profitability improvement.
Recent Financial Performance and Dividend Strength
While Coca-Cola’s stock surged to new heights earlier this year, it recently experienced a pullback following its earnings report. The company reported a 9% year-over-year increase in adjusted revenue for the latest quarter, primarily due to price increases. However, its unit case volume, which has shown a negative trend over the past two years, declined 1% year-over-year in Q3 2024. This softness in unit sales stems from weaker consumer spending, impacting the retail sector.
Despite these challenges, Coca-Cola continues to excel where it matters most to dividend investors. The company’s adjusted operating margin improved by one percentage point to 30.7%, and adjusted earnings grew by 5% year-over-year. Analysts anticipate a steady 5% annual earnings growth over the coming years, promising Coca-Cola shareholders sustained dividend growth.
2. UPS: A High-Yield Stock Poised for a Rebound
UPS (NYSE: UPS) boasts an impressive forward yield of 4.76%, nearly double Coca-Cola’s and close to the stock’s all-time high. The logistics giant has increased its dividend for 15 consecutive years and currently pays a quarterly dividend of $1.63 per share. However, its payout ratio stands at a higher-than-ideal 87%, which may raise some concerns. But, several factors suggest UPS could be a valuable addition to any income portfolio.
Growth in the Face of Economic Challenges
After a challenging year of macroeconomic pressures, UPS appears to be on the cusp of a turnaround. While customers have gravitated towards lower-cost shipping options, placing some strain on growth, UPS saw revenue growth in its latest quarter. Additionally, cost management and strong volume growth helped boost adjusted operating income by nearly 23% year-over-year. This progress led management to raise its full-year margin guidance, signaling a possible shift for a company that had seen its margins drop by over 10% in the previous year.
Looking forward, UPS is well-positioned to thrive in a strong economy, with analysts forecasting 4% revenue growth and 18% earnings growth by 2025. With the stock trading 41% below its previous high, now could be an ideal entry point for investors. The high dividend yield, combined with UPS’s recent operating income growth and optimistic margin outlook, suggests that the stock is undervalued, creating a potential opportunity for capital appreciation alongside robust income.
Why Coca-Cola and UPS Are Smart Choices for Income Investors
Both Coca-Cola and UPS present compelling opportunities for income investors looking to boost their portfolios in 2025. Coca-Cola’s stable revenue and strong brand make it a safe choice with steady growth in dividends, while UPS’s high yield and improving operating margins make it a standout for those looking to capitalize on potential stock appreciation. For those focused on reliable, above-average yields in a low-dividend market, these iconic names could be the ideal picks to enhance passive income in the coming year.
