Three High-Yield "Dividend Champions" to Buy Today

Most people don't think of a 2.5% dividend yield as life-changing. And it's not… at least at first.

But if such a stock can grow its quarterly payouts by 10% or so each year… eventually you'll be receiving an incredible income stream.

Over time, these income streams can become so hefty, Warren Buffett has called them the "secret sauce" to Berkshire Hathaway's extraordinary returns.

Below are three high-yield dividend stocks with a history of big dividend increases each year.

Not only do they offer yields that are higher than the S&P 500 average of 1.39%… they also are well-positioned to keep growing their dividends not just in 2025 but potentially for decades into the future.

Dividend Champion #1: The Coca-Cola Company (KO).

Last May, Coca-Cola (KO) raised its quarterly dividend by 5.6%, from $0.46/share to $0.485/share.

As the world's greatest investor can tell you, Coca-Cola's dividend hikes can really add up over time…

When Buffett completed his purchase of 400 million shares of Coca-Cola in 1994, those shares paid Berkshire Hathaway $75 million in dividends. By 2022, thanks to 28 years of uninterrupted dividend hikes, those shares were sending $704 million in income to Berkshire.

Buffett says KO is likely to keep up its dividend hot streak, and we agree. True, KO pays out 74% of its net income back to shareholders as dividends. That ratio—called the "payout ratio"—is higher than I would like to see.

That's because the higher a company's payout ratio, the more of its income is spent on dividends—which means it's harder to grow payouts. A company paying out only 10% of its net income back as dividends can grow its payouts much more dramatically than one that's already mailing out 74% of its net income.

But this payout ratio is actually an improvement from the 80% payout ratio KO had in May. That's because, while it grew its dividend by 5.6%, it grew its net income even faster.

The company also spent almost $2 billion on share buybacks. That will be a tailwind for the stock price itself… and gives KO much more breathing room when it comes to its dividend.

There's also the size of KO's dividend yield today to consider. Dividend yields are far from the most important metric to examine, since they can be ephemeral if management cuts payouts. But all things being equal, it's better to start out with a higher dividend than a lower one… and KO's dividend of 3.2% is double the S&P 500 average.

All told, Coca-Cola remains a special income opportunity, allowing far-sighted investors to lock in a steadily growing income stream with very little risk. In addition to its generous and growing yield, the company's priceless "moat" around its business that Buffett has repeatedly heralded offers investors great protection in a decade that will be defined by disruption.

Dividend Champion #2: American Express Company (AXP)

In 2024, American Express Co. (AXP)  increased its quarterly dividend by 16.6%, from $0.60/share to $0.70/share.

This increase marks another prediction of Buffett's that came true… In February 2023 he said American Express was very likely to keep growing the dividend checks it sends to Berkshire Hathaway, as it had each year since the mid-1990s.

In the last six years, AXP has doubled its payouts, from $0.35/share in 2018 to $0.60/share today. This growth is possible in part thanks to an extremely low payout ratio of 20%.

The company is also aggressively buying back shares, including buying back 20 million shares in 2022. And despite the monster buybacks, the company's cash position has kept on improving… as of last year, cash and cash equivalents rose four-fold from 2021's levels.

And AXP, like KO, may be in an even better position to increase its dividend again next year. It grew its earnings by 23% last quarter, meaning its earnings growth exceeded its dividend increase. Furthermore, the company is sitting on over $46 billion in cash.

Dividend Champion #3: The Hershey Company (HSY)

To our knowledge, Warren Buffett has never invested in Hershey—though the company has a lot in common with See's Candy, one of his favorite investments of all time.

Within the last year, the stock has actually raised its quarterly dividend twice—from $1.04/share to $1.192/share in August, and then up again to $1.37/share in February 2024.

And Hershey should be able to keep raising its dividend every year for decades to come.

The company enjoys strong brand loyalty. Like Coca-Cola, it has what Buffett would call a "moat" protecting it from competition. Simply put, hoodie-clad disrupters in Silicon Valley aren't inventing chocolate bars to compete with Hershey's—which is why the company had to spend only $46.9 million on research and development in the 2022 fiscal year.

For context, Apple spent $27.6 billion on R&D in the 2022 fiscal year. And every dollar spent there can't be returned to shareholders in dividends. Not having to spend much on research and development, because your product already enjoys strong brand loyalty as it is, is a tremendous advantage for businesses.

Hershey grew revenues last quarter, albeit barely, as bad weather in North Africa has hurt the cocoa crop and sent prices higher.

And its payout ratio is just 49%, meaning it could double its dividend overnight without dipping into its $401 million cash on hand, or taking on more debt or selling assets.

Since 2018, Hershey has more than doubled its dividend. Its current yield of 2.83% is almost double that of the S&P 500 average, making it a more long-term income play. But if Hershey's dividend growth over the next 10 years is even half of what it's achieved in the last decade, shareholders will have big raises to look forward to.

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