The U.S. has a sweet tooth. Americans consume 34 teaspoons of sugar each day, according to the U.S. Department of Agriculture. That adds up to more than 100 pounds every year.
That much sugar consumption isn't healthy. However, this sugar addiction is great for the bottom lines of companies focused on making sugary drinks, desserts, and snacks. They generate billions of dollars in profits each year. Many pay a large portion of their earnings to investors via dividend income.
Because of that, sugar stocks can be a great way to generate passive income. Coca-Cola(NYSE: KO), Hershey(NYSE: HSY), and Mondelez (NASDAQ: MDLZ) offer sweet dividends that can help satisfy any investor's desire for passive income.
Add some pop to your passive income
Coca-Cola has an elite record of paying dividends. The beverage giant delivered its 62nd consecutive annual dividend increase in early 2024, raising its payout by 5.4% compared to the prior year's level. That kept Coca-Cola in the elite group of Dividend Kings, companies with 50 or more years of consecutive dividend increases.
Coca-Cola paid $8 billion in dividends to its investors last year alone, boosting its total to $84.7 billion since January 2010. The beverage behemoth currently offers a dividend yield of around 2.7%. That's more than double the S&P 500's dividend yield (recently around 1.3%).
The company is in a strong position to continue growing its dividend. Coca-Cola generates robust free cash flow ($9.2 billion expected in 2024 after covering capital expenditures) and has a cash-rich balance sheet ($17.4 billion of cash, equivalents, and short-term investments).
Meanwhile, the company expects its earnings to continue rising, driven by consumers' sugar addiction and investments to grow its business. Its long-term target is to organically grow its revenue by 4% to 6% annually and deliver 7% to 9% earnings-per-share growth each year. That growing income stream should enable Coca-Cola to continue increasing its satisfying dividend.
A sweet income stream
Hershey has a long history of paying dividends. The chocolatier has increased its payout for 15 straight years, including giving investors a 15% raise earlier this year. Hershey currently offers a tasty dividend yield of 2.8%.
The iconic chocolate company owns top brands like its namesake, Reese's, and KitKat. These brands generate billions of dollars in annual revenue and cash flow for the company. It has rung up more than $5 billion in sales during the first half of this year and nearly $1 billion in income.
Hershey has been investing heavily in growing its business, including adding more salty snacks to its growing mix of sweets. These investments are helping grow the company's earnings and cash flow. Its long-term target is to grow net sales by 2% to 4% per year and deliver 6% to 8% adjusted earnings-per-share growth. Meanwhile, Hershey hopes to increase its dividendin line with its earnings over the long term.
This dividend hits the spot
Mondelez has delivered dividend increases for the past dozen years. The global snacking giant gave its investors an 11% raise in June and delivered double-digit dividend-per-share growth in each of the last five years. It now yields around 2.6%.
The company has a knack for satisfying consumers' desire for a snack. About 88% of consumers have a snack each day, with most of them (76%) loyal to specific brands. Mondelez owns many beloved brands, including Oreo, Milka, Cadbury, Ritz, Chips Ahoy!, and Clif. It's the world's leading cookie/biscuit seller and the second-largest chocolate company.
Mondelez aims to grow its revenue by 3% to 5% per year, putting it on track to deliver high single-digit earnings-per-share growth and strong free cash flow ($3+ billion annually). The company plans to use its free cash flow to make acquisitions, repurchase shares, and continue paying a growing dividend.
These sweet payouts should continue rising
For better or worse, sugar is a big part of the American diet. That's enabling companies that produce sugary drinks, snacks, and treats to earn huge profits each year. They're returning some of that money to investors via dividends. That makes them great options for investors seeking to satisfy their craving for more passive income.
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Matt DiLallo has positions in Coca-Cola and Hershey. The Motley Fool has positions in and recommends Hershey. The Motley Fool has a disclosure policy.
