These Three Businesses Are Dividend Dynamos

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If you are an investor needing a little extra income that keeps up with inflation over the long haul, one good option is companies that sell large quantities of consumer goods. These businesses tend to generate a healthy cash flow, a portion of which can be used to pay out dividends on a regular basis.

Two companies that feature everyday household goods and one that sells high-tech gadgets fit the bill perfectly.

Pods and Pampers
While the consumer products company Procter & Gamble  sells lots of run-of-the-mill household items that are essential for everyday life is not content to stand pat on its laurels. P&G actually is innovative in its product development process and uses that to help ensure future growth and cash flow.

In early 2012, Procter & Gamble introduced the Tide Pod single-dose packet, which has resulted in a 9% increase in sales of the best-selling laundry detergent, although the overall market was relatively flat. 
And just this past year, the company created a more absorbent Pampers that, while more effective, in fact use less material and will therefore boost profit. 

Those moves and more will allow Procter & Gamble to continue to pay out a nice dividend, which currently yields 2.8% and has been increased every year since 1956.

With a modest payout ratio of 59%, projections that earnings will grow by 5% to 7% per year, and minimal debt, there is ample room for the company to keep growing the dividend.

Attention Wal-Mart investors
Because of a successful business model that it has refined over decades, low-cost retailer Wal-Mart Stores is also a dividend machine. Since the 1970s the Bentonville, Ark.-based giant, ranked as the nation's top company by revenue, has been steadily increasing its payout, now at $1.88 per share for a yield of 2.3%.

Wal-Mart has doubled its dividend over the last five years despite the significant headwinds from the 2008-2009 financial crisis and the expiration of the payroll tax earlier this year, which is impacting the spending power of Wal-Mart's lower-income customer base.

The company's success has come from many areas, including its policy of "everyday low prices" and its aggressive expansion into groceries, online retailing, and new international turf.

And speaking of the company's international operations, the company just announced that its head of that segment, Doug McMillon, will take over the top position next year when current CEO Mike Duke retires. The board of directors must have liked his performance outside the U.S. and is counting on him to improve domestic operations, too. Mr. McMillon is a protege of Wal-Mart founder Sam Walton and a lifelong employee of the company. It's always good to have someone familiar with the company and the market in charge.

The apple of your eye
Apple has had great success selling several different types of consumer devices that people really didn't know they needed until they bought them.

After paying for operating costs, acquisitions, and research and development, Apple uses some of the remaining cash from the sales of iPhones, iPads, iPods, and Macs to fund a generous dividend of about $12 per share for a yield of 2.3%

The most profitable product sold today by any company is the iPhone. Last year, Apple shipped 125 million of the devices and pulled in revenue of $80 billion -- more than half the company's worldwide sales. 

Recent upgrades to the product line should help continue that success. The new models feature innovations such as 64-bit processing, an added motion coprocessor that speeds things up, greater battery capacity, and one-touch access using a fingerprint sensor in the home button.

Another heavyweight product that Apple sells is the iPad tablet. Although not as profitable as the iPhone, it still contributes significantly to Apple's success and should continue to do so based upon the latest product release. In fiscal 2013, more than 71 million iPads were shipped, and the device generated $32 billion in sales.

Apple just updated its tablet line-up, introducing the lighter and faster iPad Air and the new iPad Mini with retina display. These devices have some of the same enhancements incorporated into the new iPhones, such as the 64-bit processor, which eventually will lead to better performance with certain applications such as games.

Foolish conclusion
Apple, Procter & Gamble, and Wal-Mart exhibit the right characteristics when it comes to using large sums of cash received from sales of consumer goods to pay and increase dividends. Investors can look forward to some of the returns generated by these dividend dynamos in the future.

The article These Three Businesses Are Dividend Dynamos originally appeared on

Mark Morelli owns shares of Apple, Wal-Mart Stores, and Procter & Gamble. The Motley Fool recommends Apple and Procter & Gamble. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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