Bond Yields Are Soaring: These 5 Fortress Dividend Stocks Offer Shelter for Income Investors
With the 10-year Treasury yield punishing rate-sensitive stocks, five consumer staples giants are quietly doing something bonds never can: growing their payouts year after year, backed by the products in every household on earth.
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Bond yields are rising fast enough to rattle stocks. The 10-year Treasury yield now stands at 5.24%. When rates rise and valuations wobble, the most reliable income comes from companies that sell things people buy in any economy: soda, snacks, detergent, diapers and toothpaste. The five consumer staples giants below pair global brands with decades of steady payouts, and their free cash flow funds the checks. Each pick is ranked on how safe its dividend is first, and its yield second.
Procter & Gamble: 70 Straight Years of Raises and Counting
Procter & Gamble (NYSE:PG | PG Price Prediction) yields 2.96%. It pays $1.0885 per share each quarter, an annualized forward dividend of $4.354. The yield is below Treasuries, but no company on this list matches its record. The latest increase marked P&G’s “70th consecutive year of dividend increases and 136th consecutive year of dividend payments.” That puts it well inside Dividend King territory.
Coverage is strong. P&G generated $15.835 billion in free cash flow in the fiscal year that just ended, up 12.74%, from $19.556 billion of operating cash flow. For the coming fiscal year, management plans about $10 billion in dividends plus $5 billion in buybacks. Last year’s free cash flow would have covered that whole program. Core EPS of $6.89 well tops the annualized dividend. Guidance calls for core EPS of $6.89 to $7.11 and adjusted free cash flow productivity of 85% to 90%, so the next raise has a funded path.
For income investors, the appeal is predictability. Tide, Pampers, Gillette and Crest are daily habits. The stock trades at 21x forward earnings, and its beta of 0.377 means it has historically moved far less than the broader market. Shares sit at $145.38, up 3.67% this year.
The warning: management expects about $1 billion in after-tax commodity, energy and transportation pressures next fiscal year. That could keep the next increase modest.
Coca-Cola: Raised Cash Flow Guidance Strengthens the Payout
Coca-Cola (NYSE:KO) yields 2.38% on a quarterly dividend of $0.53, or $2.12 annualized. The payout has risen every year since 2013, from $0.28 per quarter to today’s level. The latest step took it from $0.51 to $0.53.
The dividend keeps getting safer. Coca-Cola raised its full-year free cash flow outlook to about $12.4 billion, up from $12.2 billion. Trailing EPS of $3.33 compares with $2.08 in dividends per share, and interest coverage stands at 8.32x. On the second quarter call, CFO John Murphy put net debt leverage at 1.4 times EBITDA, below the company’s target range of 2 to 2.5 times. He added: “Given the momentum of our business and the strength of our balance sheet, we have increased flexibility and optionality to continue to both reinvest in our business and return capital to share owners.”
Recent results support that confidence. Second quarter EPS of $0.97 beat the $0.9323 estimate, and revenue rose 6.7% to $13.38 billion. The FIFA World Cup campaign helped trademark Coca-Cola volume grow 5%, its strongest growth in 17 years excluding the COVID recovery. Comparable EPS growth guidance now stands at 9% to 10%. Shares are up 25.63% year to date, well ahead of the S&P 500 benchmark’s 13.35%, with a low beta of 0.342.
The warning: Coca-Cola’s tax dispute with the IRS is still open, and it hangs over the company’s cash planning until it is settled.
PepsiCo: A High-Yield Payout Backed by 54 Straight Raises
PepsiCo (NASDAQ:PEP) yields 4.44%, paying $1.48 per quarter, or $5.92 annualized. Its most recent move raised the annualized dividend by 4%, the company’s 54th consecutive annual increase. That makes PepsiCo a Dividend King.
Cash coverage is tight but holding. PepsiCo’s free cash flow yield of 4.46% sits just above its dividend yield, and management targets free cash flow conversion of at least 80%. The company plans to return $7.9 billion in dividends plus $1.0 billion in buybacks this year. Interest coverage of 12.03x and net debt to EBITDA of 2.31 show a manageable debt load for a company this size.
The bull case is a quality payer at a discount. Shares are down 10.45% year to date and trade at 15x forward earnings, which drives the yield higher for new buyers. The business itself is picking up speed. Second quarter revenue rose 6.4% to $24.18 billion, with Latin America Foods up 15% and EMEA up 10%. On the second quarter call, Chairman and CEO Ramon Laguarta called the global volume gains “the fastest growth in volumes since 2022.” Pepsi, Lay’s, Doritos, Gatorade and Quaker give it one of the broadest portfolios in the sector.
The warning: North America is still soft. Core operating margin contracted by 40 basis points in the second quarter, and Laguarta admitted that “the consumer is worse than what we had anticipated and driven mainly by gas prices.”
Kimberly-Clark: Top Yield in the Group After a Sharp Selloff
Kimberly-Clark (NASDAQ:KMB) yields 5.38%. That is the highest of these five and the only yield above the 10-year Treasury’s 5.24%. It pays $1.28 per quarter, or $5.12 annualized. Its 54 consecutive years of dividend increases marks a Dividend King record. Its payment history backs that up: the quarterly dividend rise from $0.26 in 1999 to $1.26 last year and $1.28 now.
Coverage needs some context. Trailing GAAP EPS of $5.06 roughly matches the $5.08 paid in dividends per share. That is mainly because one-time items cut second quarter net income by 32%. Adjusted EPS of $2.12 beat the $2.006 estimate, the fifth beat in a row, on revenue of $4.189 billion. Guidance calls for high-single-digit growth in adjusted EPS. Cash rose 50.8% to $956 million, adding a buffer.
The selloff is where the opportunity comes from. Shares have fallen 12.44% in the past month and 19% over the past year, leaving the stock at 13x forward earnings. Huggies, Kleenex and Scott sell in any economy, and the pending Kenvue acquisition moves the company into consumer health.
The warning: the Kenvue deal is expected to close by year-end and carries real integration risk. Any stumble would pressure the cash flow that pays the dividend.
Colgate-Palmolive: Surging Free Cash Flow Funds a Rising Payout
Colgate-Palmolive (NYSE:CL) yields 2.47% on a quarterly dividend of $0.53, or $2.12 annualized. The next $0.53 payment has already been declared. The quarterly dividend has gone up every year since 2016, rising from $0.38 to the current rate.
Cash generation is speeding up. First quarter operating cash flow rose 24.5% to $747 million, and free cash flow jumped 27.9% to $609 million on just $138 million of capital spending. In the second quarter, gross margin expanded by 140 basis points to 61.5% and operating margin reached 21.4%. EBITDA totals $4.983 billion. Base Business EPS of $0.99 beat the $0.9471 estimate.
For income investors, Colgate’s strength is its brands: toothpaste, soap, Hill’s Pet Nutrition and EltaMD skin care. Latin America sales rose 13.7%. The Base Business EPS growth outlook was raised to mid-single-digit, and advertising was increased by 15% to $777 million to defend market share. Shares trade at 21x forward earnings, have gained 10.14% year to date and carry a beta of 0.323.
The warning: North America organic sales fell 3.0%, with volume down 3.9%. The home market will hold back results until volumes recover.
Five Staples Paychecks Built for a Rocky Market
Procter & Gamble’s 70-year run leads the group. PepsiCo and Kimberly-Clark each bring 54 straight raises along with the highest yields, and Coca-Cola and Colgate-Palmolive have the fastest-improving cash flow. All five sell products shoppers keep buying when markets turn rough, and all five pay their dividends out of free cash flow. Treasuries are drawing money toward bonds, but these payouts can keep growing, which a fixed bond coupon never does. For readers who want to go deeper on this corner of the market, we ranked ten Dividend Kings by valuation in a free report you can grab here.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
