Dividend Reinvestment Plans (DRIPs) provide a systematic way to reinvest dividends into additional shares of a company or fund, enabling investors to benefit from compounding returns over time. This approach helps smooth out market volatility through dollar-cost averaging and ensures continuous investment growth even during economic uncertainty.
In this article, we will explore the benefits of DRIPs and analyze three top stocks: Johnson & Johnson (JNJ), The Coca-Cola Company (KO), and PepsiCo, Inc. (PEP), ideal for reinvesting dividends to compound returns.
A dividend reinvestment plan automatically reinvests dividends to purchase additional shares of a security. Through a DRIP, investors can capitalize on the power of compounding their returns. This approach helps build wealth and provides a disciplined investment strategy to enhance long-term financial goals.
Moreover, DRIPs use a dollar-cost averaging (DCA) technique, intended to average out the price at which you purchase stock as it moves up or down over a long period. It is the practice of putting a fixed amount of money into an investment on a regular basis, generally monthly or bi-weekly. DCA makes a volatile market work to your benefit by doing that over time.
Most DRIPs are offered directly by companies and may come with minimal or no transaction fees. The cost-effectiveness enhances the potential benefits of reinvested dividends, allowing investors to accumulate more shares without incurring significant costs.
Thus, stocks like JNJ, KO, and PEP are top choices for DRIPs due to their consistent dividend payments, stable business models, and long-term growth potential. By investing in these companies, investors can harness the benefits of DRIPs to build wealth and achieve their financial objectives. Let’s delve deeper into the fundamentals of these stocks.
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells several products in the healthcare sector worldwide. The company operates through two segments: Innovative Medicine and MedTech. It provides products for various therapeutic areas like immunology, neuroscience, oncology, cardiovascular and metabolism, and pulmonary hypertension.
Last month, Johnson & Johnson’s Board of Directors declared a cash dividend for the third quarter of 2024 of $1.24 per share on the company’s common stock, payable on September 10, to shareholders of record at the close of business on August 27. Its annual dividend of $4.96 translates to a yield of 3.02% at the current share price.
JNJ has raised its dividends for 61 consecutive years. Its four-year average dividend yield is 2.71%. Moreover, the company’s dividend payouts have increased at a CAGR of 5.7% over the past five years.
On July 30, JNJ announced that the U.S. Food and Drug Administration (FDA) approved DARZALEX FASPRO® (daratumumab and hyaluronidase-fihj) in combination with bortezomib, lenalidomide, and dexamethasone (D-VRd) for induction and consolidation in patients with newly diagnosed multiple myeloma (NDMM) who are transplant-eligible.
Patients will have the opportunity to receive this DARZALEX FASPRO®-based quadruplet therapy right from their initial diagnosis, offering a new treatment option that could significantly enhance outcomes.
On July 11, JNJ completed the acquisition of Yellow Jersey, a demerged subsidiary of Numab Therapeutics, to secure the global rights to NM26, a novel, investigational first-in-class bispecific antibody. This strategic acquisition strengthens Johnson & Johnson’s pipeline to lead in atopic dermatitis (AD) and other inflammatory skin diseases involving Th2 inflammation and itch.
JNJ’s trailing-12-month EBITDA margin of 35.85% is 473% higher than the 6.26% industry average. The stock’s trailing-12-month gross profit margin of 69.43% is 21.5% higher than the 57.17% industry average. Similarly, its trailing-12-month net income margin of 43.91% compared to the industry average of negative 4.80%.
During the second quarter that ended June 30, 2024, JNJ’s sales to customers increased 4.3% year-over-year to $22.45 billion. Its gross profit grew 3.5% from the year-ago value to $15.58 billion. The company’s adjusted net earnings from continuing operations rose 1.6% and 10.2% from the prior year’s quarter to $6.84 billion and $2.82 per share, respectively.
Analysts expect JNJ’s revenue for the fiscal year (ending December 2024) to increase 3.9% year-over-year to $88.49 billion. Its EPS for the current year is expected to grow marginally year-over-year to $10.01. Also, the company surpassed consensus EPS estimates in each of the trailing four quarters.
JNJ’s stock has surged 11.6% over the past month to close the last trading session at $161.25.
JNJ’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
JNJ has a B grade for Quality, Value, and Stability. It is ranked #19 out of 153 stocks in the Medical – Pharmaceuticals industry.
Beyond what we stated above, we also have given JNJ grades for Growth, Momentum, and Sentiment. Get all the JNJ’s ratings here.
The Coca-Cola Company (KO)
KO is a leading beverage company that manufactures, markets, and sells various non-alcoholic beverages globally. The company offers sparkling soft drinks, water, sports, coffee, tea, juice, value-added dairy, plant-based beverages, and beverage concentrates and syrups.
On July 29, KO’s Board of Directors declared a regular quarterly dividend of 48.5 cents ($0.485) per common share, payable October 1 to shareowners of record of the company as of the close of business on September 13. The company pays an annual dividend of $1.94, which translates to a yield of 2.80% at the prevailing share price.
In addition, KO’s dividend payouts have increased at a CAGR of 4.4% over the past three years. Coca-Cola has raised its dividends for 61 consecutive years.
KO’s trailing-12-month gross profit margin of 60.53% is 72.2% higher than the 35.14% industry average. Likewise, its trailing-12-month EBITDA margin of 33.61% is 170.3% higher than the 12.43% industry average. Also, its trailing-12-month net income margin of 22.92% is 424.7% higher than the industry average of 4.37%.
For the fourth quarter ended June 28, 2024, KO’s net operating revenues increased 3.3% year-over-year to $12.36 billion. Its gross profit rose 7% from the year-ago value to $7.55 billion. Its operating income grew 9.6% year-over-year to $2.63 billion. Its non-GAAP EPS was $0.84, up 7% from the prior year’s quarter. The company reported a free cash flow of $3.30 billion.
Coca-Cola raised full-year guidance. For the year 2024, the company expects organic revenue growth of 9% to 10%. KO’s comparable EPS (non-GAAP) growth is expected to be 5% to 6%, compared to $2.69 in 2023. It anticipates generating a free cash flow of nearly $9.20 billion.
Street expects KO’s revenue and EPS for the fiscal year (ending December 2024) to increase 1% and 6% year-over-year to $46.08 billion and $2.85, respectively. Moreover, the company topped consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has soared 13.4% to close the last trading session at $68.10. Also, KO’s stock is up 11.2% over the past year.
KO’s POWR Ratings reflect a promising growth outlook. It has a B grade for Stability and Quality. KO is ranked #19 out of 33 stocks in the B-rated Beverages industry.
Click here to access additional KO’s ratings (Growth, Momentum, Sentiment, and Value).
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. It operates through Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, and New Zealand; and China Region segments.
On July 25, 2024, PEP’s Board of Directors declared a quarterly dividend of $1.355 per share of PepsiCo common stock, a 7% rise from the comparable year-ago period. The dividend is payable on September 30 to shareholders of record as of September 6.
PEP has paid consecutive quarterly cash dividends since 1965, and 2024 marked the company’s 52nd straight annual dividend increase. Its annual dividend of $5.42 translates to a yield of 3.04% on the current share price. Its four-year average yield is 2.74%. Over the past three and five years, PEP’s dividend payments have grown at CAGRs of 7.5% and 6.6%, respectively.
PEP’s trailing-12-month gross profit margin of 54.65% is 55.5% higher than the 35.14% industry average. Likewise, its 18.30% trailing-12-month EBITDA margin is 47.2% higher than the 12.43% industry average. Its trailing-12-month net income margin of 10.34% is 136.8% higher than the industry average of 5.79%.
PEP’s net revenue during the first quarter that ended June 15, 2024, increased marginally year-over-year to $22.50 billion. Its operating profit rose 10.6% from the prior year’s quarter to $4.05 billion. Also, net income attributable to PepsiCo came in at $3.08 billion and $2.23 per common share, up 12.2% and 12.1% from the previous year’s quarter, respectively.
For fiscal 2024, the company expects approximately 4% organic revenue growth. Additionally, PEP expects at least an 8% increase in core constant currency EPS. Total cash returns to shareholders are anticipated to be $8.20 billion, comprised of dividends of $7.20 billion and share repurchases of $1 billion.
Analysts expect PEP’s revenue and EPS for the fiscal year (ending December 2024) to increase 2.7% and 7% year-over-year to $93.94 billion and $8.16, respectively. In addition, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of PEP have gained 7.5% over the past month to close the last trading session at $174.04.
PEP’s POWR Ratings reflect its bright prospects. It has a B grade for Stability and Quality. It is ranked #19 out of 33 stocks in the B-rated Beverages industry.
To access PEP’s ratings for Growth, Value, Momentum, and Sentiment, click here.
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JNJ shares were trading at $159.99 per share on Tuesday morning, down $1.26 (-0.78%). Year-to-date, JNJ has gained 3.68%, versus a 11.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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