Most people understand it requires patience for an investment to pay off. The saying, “it’s time in the market, not timing the market” underscores that over the long haul, investing in stocks has proved the best way to generate real wealth.

Better than gold, oil, or real estate, stocks have proved to generate the largest returns for investors. 

A 2020 study by Deutsche Bank found that over the past 100 years, stocks outperformed gold by 5.6% a year, oil by 8.4%, and real estate by 6.6%.

While there are many paths to making a profit on Wall Street one of the best ways to go is buying dividend stocks. They beat non-payers by better than two-to-one, so looking for the best income stock to buy is worth the time.

Common characteristics

To find the best dividend stocks, you’ll want them to consistently deliver reliable, growing, and sustainable dividend payments that offer investors a balance of income, stability, and long-term growth potential. 

The typically combine a high or competitive yield with financial strength, a proven track record, and resilience across economic cycles, making them a cornerstone for income-focused portfolios.

Top dividend stocks should share the following characteristics:

• Sustainable Dividend Yield: A dividend stock’s yield should be above the market average that currently sits at 1.4%. But it shouldn’t be excessively high, as yields above 6% to 7% may signal distress. Also look at the payout ratio. A lower percentage suggests sustainability, while high rates risks cuts.
• Dividend Growth History: Look for companies with 10 years or more of consecutive dividend increases. Dividend Aristocrats are a great place to start your search as they have raised their payout for 25 years or more. A growth rate of at least 5% ensures they stay ahead of inflation.
• Financial Strength: Prioritize firms with strong balance sheets and high free cash flow to cover their dividends.
• Competitive Moat: Choose companies with durable advantages, like brand power, market dominance, or proprietary technology that can protect earnings and ensure dividends aren’t cut during downturns.
• Resilient Business Model: Favor defensive sectors (consumer staples, healthcare, utilities) over cyclical ones (energy, materials), as they thrive in recessions due to steady demand, unlike volatile tech startups.
• Reasonable Valuation: Avoid overpaying for the stock. A forward P/E below the industry average or a price-to-free-cash-flow ratio under 25 suggests value.
• Macro Alignment: Consider economic conditions. For example, if the Federal Reserve cuts interest rates, dividend stocks in stable sectors benefit from lower borrowing costs, enhancing their payout capacity.

The dividend stock to rule in 2030

Coca-Cola (NYSE:KO) stands out at the top dividend stock to buy. The beverage giant has an unmatched blend of sustainable yield, consistent growth, financial resilience, and global market dominance. 

Based on its current fundamentals, historical performance, and alignment with future economic trends, KO is poised to deliver superior income and stability for dividend-focused investors. Coca-Cola’s dividend currently yields 2.7% annually, almost twice the S&P 500. 

With 63 consecutive years of dividend increases — making it a Dividend King, or a stock with 50 years of increases — KO demonstrates reliability. 

Coke has grown its dividend 5% at a compound annual rate over the past decade, but has accelerated it in recent years. While its FCF payout ratio of 80% seems high, KO is a mature company that produces an excess of free cash flow to sustain the dividend. In 2024, it generated $10.8 billion of FCF, up 11% year-over-year, while paying out $8.4 billion in dividends.

Coke has it all

Financially, KO is a fortress. It has a AAA credit rating reflecting a solid foundation and a global moat with a 45% market share in carbonated beverages. You can’t buy better brand value than Coca-Cola or its red wave logo. Last year it was able to institute price hikes to offset inflation without losing volume, showcasing its  pricing power.

KO’s defensive consumer staples sector also shields it from volatility. Unlike cyclical stocks, its products are recession-proof, ensuring steady cash flows. Diversification into non-carbonated drinks and emerging markets, where 80% of 2024 volume growth occurred, positions KO for further global expansion. 

The beverage king’s valuation is attractive as well. At a forward P/E of 22 is below its 25 historical average. While risks like health trends or tariffs exist, KO’s sugar-free offerings and global supply chain mitigate these. No single stock, including consumer staple peers like Procter & Gamble (NYSE:PG) or Johnson & Johnson (NYSE:JNJ) offers the full package of KO’s yield, growth, and defensive moat.

It makes Coca-Cola the best dividend stock to buy today to rule in 2030.

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