2 Rock-Solid Dividend Stocks With Room to Grow

Dividend stocks are excellent foundational holdings for any portfolio. They provide stable income and a base return. That's a key reason why, historically, dividend stocks have outperformed non-payers with less volatility.

Two companies that exemplify the strength of dividend investing are Coca-Cola (NYSE: KO) and Chevron (NYSE: CVX). Both are rock-solid dividend stocks with attractive payouts that have room to grow.

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Coco-Cola

For 63 straight years, Coca-Cola has increased its dividend -- one of the longest current growth streaks. This record places Coca-Cola among the Dividend Kings, companies with over 50 years of annual dividend increases. Currently, the company's dividend yields 3%, more than double the S&P 500's 1.2%.

The global beverage giant produces very durable and rising cash flows to support its dividend. It expects to produce about $11.7 billion of cash flow from operations this year. That's more than enough to cover the capital spending needed to maintain and grow its operations and its dividend payment, with room to spare. The company uses its surplus cash to repurchase shares and maintain its fortress balance sheet. Its leverage ratio is at the low end of its 2.0 to 2.5 target range.

Coca-Cola's growth investments position it to achieve its long-term targets: 4% to 6% annual organic revenue growth and 7% to 9% annual earnings-per-share growth. These growth rates support the company's ability to continue raising its dividend each year.

Additionally, the company uses its balance sheet flexibility to make strategic acquisitions as opportunties arise. Since 2016, acquisitions such as Costa Coffee, Fairlife, and others have contributed a quarter of the company's earnings growth. Future deals would help further enhance the company's ability to grow its dividend.

Chevron

Chevron has increased its dividend for 38 consecutive years -- the second-longest streak in the oil sector. The consistency is impressive, especially given the sector's historical volatility.

The global energy giant has built its business to navigate the sector's unpredictability. It has an integrated business model (upstream oil and gas production assets, midstream infrastructure operations, and downstream refining and chemicals businesses). The downstream assets act as a natural hedge against lower commodity prices while enabling Chevron to maximize the value of its upstream production. Meanwhile, it has the lowest-cost upstream business in the sector with a $30-a-barrel breakeven level. These features enable Chevron to produce more resilient cash flows compared to others in the sector.

Chevron also has one of the strongest balance sheets in the oil industry. It ended last quarter with a sub-15% net debt ratio, well below its 20% to 25% target range. This gives Chevron the flexibility to take on debt during an oil market downturn to fund growth capital projects and shareholder returns.

The company's growth investments should give it plenty of fuel to continue growing its dividend. Recently completed growth capital projects in Kazakhstan and the Gulf of Mexico (also known as the Gulf of America) and other internal initiatives will help add as much as $10 billion to its free cash flow next year. Meanwhile, the company's recently closed acquisition of Hess will add an incremental $2.5 billion to its free cash flow next year, while extending its production and free-cash-flow growth outlook into the 2030s. Chevron is also building out several lower-carbon energy businesses to bolster its long-term growth profile, including recently expanding into the U.S. lithium supply sector.

Unshakable dividend stocks

Over the past several decades, Coca-Cola and Chevron have proven to be two of the most reliable dividend stocks. With resilient cash flows and fortress balance sheets, they continue to protect their dividends and grow their businesses. Looking ahead, their growth potential makes them great dividend stocks to own long term.

Matt DiLallo has positions in Chevron and Coca-Cola. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.