As an income investor, I’m constantly looking to add to my positions in top dividend shares.
While the S&P 500 has grown by 7.8% in the last year, I’ve noticed that two of my holdings have significantly underperformed.
Coca-Cola (NYSE:KO) shares have fallen by 5.5% in the same period.
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US Bancorp (NYSE:USB) shares have meanwhile had a much more drastic decline of 27.3%.
However, I believe this represents a great opportunity for investors to consider buying their shares.
Coca-Cola
When analysing top dividend payers, I like to see stable companies that are consistently generating strong profits and growth.
Coca-Cola definitely fits the bill here.
It’s the largest beverage company in the world, pulling in $45bn in revenue over the latest 12-month period.
It’s also generating meaningful growth, with its most recent quarterly revenue increasing by 8% year on year.
Quarterly earnings grew 9.3% to $10.8bn, again consistent growth in profit.
One concern I have is that its shares are a bit expensive, trading at a price-to-earnings (P/E) ratio of 22.7.
However, as Warren Buffett has said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.“
I believe this description applies to Coca-Cola quite well.
Speaking of Warren Buffett, Coca-Cola is Berkshire Hathaway’s longest-continuous holding right now, with its shares first being acquired by the company 35 years ago.
Moreover, with 61 consecutive years of dividend hikes, Coca-Cola can also claim the title of a Dividend Aristocrat.
With a dividend yield of 3.3%, it easily beats the 1.7% provided by the S&P 500 as a whole.
US Bancorp
Meanwhile, US Bancorp shares have been suffering ever since the banking crisis back in March.
The uncertainty regarding the banking sector in the US in general is a risk to holding its shares. And its capital ratios have been under pressure ever since it purchased MUFG Union Bank last year.
Regulators enforce these ratios so that banks have enough set aside to handle any prospective financial distress.
However, I still see this as an opportunity to add to my position.
First, regulators recently released it from certain ratio requirements until the end of 2024. Therefore, this should ease the pressure on its management to meet these thresholds in the short term.
Second, its shares are now trading at a cheap valuation, with a P/E of just 9.4. Amid concern in the US banking industry, it still managed to increase revenue by 11% in the latest quarter. It can be argued that it’s therefore trading at a discount.
Finally, US Bancorp shares now trade with a dividend yield of 6.2%. This makes it a great source of passive income.
Now what?
Both Coca-Cola and US Bancorp are stable companies that are continuing to grow. This is what I like to see when looking at dividend shares.
They’re also trading relatively cheaper than they were a year ago. I’m going to continue buying their shares.
