3 Strong Yields From the Market's Biggest and Best Companies

Higher-yielding dividend stocks are all well and good, so long as the dividend is sustainable and the company sticks around long enough to keep paying them out. In the current economy, that's far from a given. In that spirit, following are three stocks with generous, sustainable dividends from companies that look like they're going to be around awhile.

Each is consumer-facing, so the business model is easy to understand. Each is a Rule Maker in its market space that knows how to make, market, and distribute its products with machine-like efficiency. And each is a profit-making dynamo, producing low-priced goods that people around the world buy over and over.

Without further ado, then ...

1. Procter & Gamble (NYS: PG)
Procter & Gamble is a repeat-purchase, low-price, consumer-goods dream. Its iconic brands, including Pampers, Tide, Gillette, and Crest, are purchased countless times a day by consumers around the globe. P&G's not going anywhere anytime soon. By the numbers:

  • I like to see dividend yields of around 3% (an arbitrary threshold, but one I feel separates the wheat from the chaff). P&G's 3.3% tops this nicely, beating peer Colgate-Palmolive's (NYS: CL) 2.5%.

  • I like to see dividend payout ratios of 50% or less (the lower the percentage, the more sustainable). At 50%, P&G makes the grade on this metric.

  • As of their most recent earnings report, the company's gross margin, an indicator of brand strength and pricing power, is a strong 49.5%.

The stock itself trades at $64.50, with a very reasonable P/E of 16.4. Mass-market appeal, strong pricing power, and exceptional top and bottom lines. Plus, a fair valuation, reasonable price, and a generous, sustainable dividend. What's not to like about P&G?

2. Coca-Cola (NYS: KO)
Every day, on every continent (yes, it's available in Antarctica, at McMurdo Station), people queue up to get their hands on the caramel-colored sugar water this 125-year-old company makes. Coke products are perhaps the ultimate example of mass-market, repeat-purchase, low-priced goods. And with the company's big growth in emerging markets, Coke's not going anywhere anytime soon. By the numbers:

  • I said I like to see yields of around 3%. At 2.8%, Coke's is close enough and still generous.

  • The company's payout ratio is a healthy 34%, well below the 50% cutoff point. Well done, Coca-Cola.

  • As of their most recent earnings report (Sept. 30), the company's gross margin is a powerhouse 61%, unbelievable in such a commoditized market space. Peer PepsiCo's (NYS: PEP) is 52%. Good, but not Coca-Cola good.

  • Coca-Cola's top line grew by a staggering 45%, and the bottom by 8%, over this quarter last year. Incredible.

The stock itself trades at $68.50, with a very reasonable P/E of 12.6. Coke has fabulous mass-market appeal, exceptional top and bottom lines, and may be the greatest brand ever. Shares are affordable, attractively valued, and pay a generous, very sustainable dividend. Have a Coke and a smile, Fools.

3. Diageo (NYS: DEO)
If you drink alcohol of just about any variety, it's hard to get away from Diageo's brand reach. The company is home to Johnnie Walker, Tanqueray, Smirnoff, Guinness, and more. Diageo owns nearly one-fifth of the world's top 100 liquor brands, and sells its products in more than 180 countries.

People around the world seem to enjoy a drink now and then, or more, and keep coming back to Diageo. By the numbers:

  • The stock's dividend yield is a very nice 4%, easily topping our goal of 3%.

  • The payout ratio is 51%. Since it's just a hair over our upper limit of 50%, we won't ding Diageo for it.

  • The gross margin for fiscal 2011 was a whopping 60%, versus 39% for peer Anheuser-Busch Inbev (NYS: BUD) . And revenue was up 9% from 2010, versus that of peer Constellation Brands (NYS: STZ) , which was down for the same period.

  • Diageo's net profit was up an unreal 24% for fiscal 2011. Now that's something to raise a glass to.

The stock itself trades for $85.60, with a reasonable P/E of 17.5. Diageo is the king of its market space, with a great gross margin, strong top and bottom lines, and a very generous, sustainable dividend. Cheers, Diageo.

Foolish bottom line
There you are: three killer companies with stocks that offer some of the market's best, most sustainable dividends. For 11 more great dividend stocks from rock-solid companies, specially chosen by our very own Foolish analysts, read this brand-new, special free report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." To get your copy while it's still available, simply click here now.

At the time thisarticle was published Fool contributor John Grgurich enjoys his Diet Coke on ice but his Johnnie Walker stalwartly neat, and he owns no shares of any of the companies listed in this column. The Motley Fool owns shares of Coca-Cola, PepsiCo, and Diageo. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Coca-Cola, Diageo, and PepsiCo. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. 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 scintillating disclosure policy.

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