If you are trying to create generational wealth through your investments, you should probably try to find boring and reliable companies. Look for businesses that have proven they can keep chugging along through good times and bad, since life always gives you both.
On that score, Procter & Gamble (PG 0.71%), Coca-Cola (KO 0.01%), and Hormel Foods (HRL 0.93%) all have 50 or more annual dividend increases behind them. Here's why you might want to own all three for the long term.
1. Procter & Gamble is always looking to justify its value
With a market cap of $155 billion and an investment grade rated balance sheet, Procter & Gamble, or P&G as it is also known, is both large and financially strong. That's important because it gives the company the foundation it needs to invest heavily in research and development. The company's consumer staples products are largely found at the higher end of the market. It wants to ensure that its toilet paper, toothpaste, and laundry detergent, among other things, offer enough value to justify their high prices.
Image source: Getty Images.
The company also has the financial wherewithal to support its products with sufficient marketing that draws customers to stores and with efficient distribution that gets its products into people's hands. Retailers see the company as a valued partner with brands that they can't afford not to have in their stores.
As for investors, the company's core strengths have resulted in P&G earning its place among the Dividend Kings, with an impressive 68 consecutive annual dividend increases. That makes P&G a boring, necessity business that has survived and thrived for decades -- exactly what you'll want to own if you are trying to create generational wealth.
NYSE: PG
Key Data Points
The dividend yield today is roughly 2.5%, which is about average for the stock. A yield above 3% would be more attractive, but if you are OK with paying a fair price for a great company, it probably wouldn't be a bad time to buy the stock.
2. Coca-Cola is a Warren Buffett favorite
While it is a mistake to simply buy a stock because some other investor does, even if they are a professional, saying that Warren Buffett has owned Coca-Cola for decades is still pretty notable. At its core, the company sells flavored liquids, but that doesn't do justice to the brand value and business that has been created here. Coke is a global icon, the company has a massive distribution network, and it has the financial strength to support its products with strong advertising. Like P&G, it is a valuable partner to retailers around the world.
Coca-Cola is very large, with a market cap of $250 billion, and it has an investment-grade rated balance sheet. Notably, while it isn't always at the leading edge of its industry, it has a long history of buying smaller companies with up-and-coming products. It then plugs those products into its industry-leading distribution system to boost growth. The story is roughly similar to that of P&G, only Coca-Cola sells beverages.
NYSE: KO
Key Data Points
Coca-Cola's dividend yield is currently around 3.3%, which is toward the higher end of the historical yield range. A yield above 3.5% would be more appealing, but the current price is still pretty attractive if you plan to hold the stock for the long term. The dividend, meanwhile, has been increased annually for 62 consecutive years.
3. Hormel is on the sale rack
Hormel is a protein-focused food maker. It is smaller than P&G and Coca-Cola, with a market cap of "only" $18 billion. However, the stock's 3.3% dividend yield is near the highest levels in the company's history. If you have a value focus, Hormel looks like it is on sale right now. The dividend has been increased annually for 52 consecutive years, so like the two companies above, it, too, is a Dividend King. Consistently increasing a dividend like that doesn't come about by accident.
NYSE: HRL
Key Data Points
But every company eventually has to deal with hard times. Hormel is doing that right now, as it faces weak pricing power, adverse effects from the latest avian flu, a slow pandemic recovery in China, and weak demand for nuts. Any one of these issues alone wouldn't be too big a deal, but all of them at the same time have investors worried that Hormel has lost its way. History suggests this reliable dividend payer will muddle through to better days. Management is, indeed, working on cutting costs, product innovation, and streamlining the business to improve results.
In the meantime, investors willing to buy and hold will have a chance to add a historically well-run company while it is offering a historically large yield. That's a great way to build generational wealth if you have the stomach for a little near-term uncertainty.
If you're thinking in generations, think boring
At the end of the day, there's really nothing exciting about the businesses that P&G, Coca-Cola, or Hormel run. The key is that they have proven that they can do boring things very well over long periods of time. If you are looking to create wealth that you can pass down to the next generation, these are the types of foundational companies you will want to have in your portfolio.
