This is a guest post by Josh Arnold for Sure Dividend. I don’t normally accept guest posts but was happy to make an exception for Sure Dividend, since I used to do some shared work with them regarding dividend stock analysis a few years ago.
With stocks selling off, this is a good time to start going through your watch lists to see what types of otherwise high-quality assets are selling off. Josh presents a quick list of companies with at least 50 years of consecutive annual dividend growth that he considers to be long-term “buys” at this time, which you can use for further research.
When it comes to compounding wealth, we feel that buying high-quality dividend stocks and reinvesting dividends over time is the best path. This allows for not only the capital appreciation that great dividend stocks tend to provide over time, but the ability to achieve the double compounding of reinvesting dividends. When executing this strategy, however, it is paramount to find the best dividend stocks that can stand the test of time.
The Dividend Kings are the best-of-the-best when it comes to dividend longevity. They are a group of 44 companies that have paid rising dividends for at least 50 consecutive years. In this article, we’ll highlight why investors would find the Dividend Kings attractive, and note the five best Dividend Kings available in the market today.
Why Dividend Kings?
The reason that an investor would want to consider the Dividend Kings is quite simple; they are the best stocks in the world in terms of dividend longevity and safety. Companies that have been able to raise their dividends for at least 50 consecutive years have withstood competitive threats, recessions, technological changes, and more. That’s why the Dividend Kings are the gold standard for dividend investing, and while the yields the Dividend Kings offer aren’t always the highest available, investors can count on rising income over time very reliably.
Below we’ll take a brief look at the five best Dividend Kings available in the market today.
The Top 5 Dividend Kings Now
Our first Dividend King is Stanley Black & Decker (SWK), the ubiquitous tool and storage maker based in the US. Stanley makes a wide variety of tools and accessories under brands such as BLACK+DECKER, Stanley, Dewalt, Craftsman, Porter Cable, and more. The company was founded in 1843 and has chosen a growth-by-acquisition strategy to augment its robust organic growth over time. We see the company producing 8% annualized earnings-per-share growth in the years to come, meaning it should have plenty of capital to continue raising its dividend.
The current yield is 2.6%, which is very high by historical standards for this stock, and is about double that of the S&P 500. The dividend increase streak stands at 54 years, and the payout ratio is only about one-third of earnings for this year, so there is a huge runway for future dividend growth, as well as a high level of safety.
Our next stock is Tennant Company (TNC), which designs, manufactures, and markets floor cleaning equipment globally. Tennant offers a huge array of cleaning equipment to suit a variety of needs, as well as financing, rental, and leasing programs. Tennant was founded in 1870, and recently became an addition to the Dividend Kings club with its 50th consecutive dividend increase.
We expect Tennant to be able to produce 8% annual earnings-per-share growth, so combined with its 21% payout ratio for this year, the stock sports exemplary dividend safety as well as growth potential. The current yield is 1.6%, which is better than the broader market, but somewhat lower than more traditional high-yield dividend stocks. However, the stock is trading for a decade-low valuation at the moment, so we see strong capital appreciation potential over time as well for buyers of the stock today.
Our next stock is 3M Company (MMM), a diversified technology company that operates globally in a variety of industries. The company competes in Safety and Industrial, Transportation and Electronics, Health Care, and Consumer segments, spanning thousands of products and countless end markets. 3M has made a name for itself in the past 120 years for innovation and quality, and it is constantly revamping its product portfolio to position it well for the coming years.
We see 5% annual growth ahead for 3M, and its current yield is exceptional at 4%. That’s high not only for 3M, but it is also about three times that of the S&P 500. The payout ratio is just over half of earnings, but keep in mind that 3M’s earnings are generally highly predictable, so it can carry a higher payout ratio. We like 3M for its exceptional yield, its 64-year dividend increase streak, and its predictable income streams.
Our fourth Dividend King is Lowe’s Companies (LOW), half of the home improvement duopoly in the US. Lowe’s has about 2,000 home improvement super centers in the US, offering tens of thousands of products to professionals and property owners. Lowe’s has a 59-year streak of boosting its dividend, but despite this, the payout ratio is just 24% on this year’s earnings. That means Lowe’s will continue to have enough capital to keep raising the payout, particularly in light of estimate growth of 6% annually.
The yield is on the lower end at 1.6%, but that is still in excess of the broader market. Lowe’s has managed one of the best dividend growth rates anywhere in the market in the past decade, coming in at more than 17%.
Our final stock is Parker-Hannifin (PH), a manufacturer of motion and control systems for mobile, industrial, and aerospace markets worldwide. The company has more than a century of brand name recognition and expertise, which have helped it boost its dividend for a staggering 65 consecutive years. The yield is currently at 1.9%, following some weakness in the stock. That has also made the valuation attractive given we expect 9% annual earnings-per-share growth in the coming years. Parker-Hannifin’s payout ratio is just 22% for this year, meaning that its projected growth and low payout ratio should provide plenty of fuel for higher dividends in the years to come. The company’s average annual increase in the dividend is just over 10% for the past decade, putting the stock is rare company on that measure.
When searching for a great dividend stock to buy, we believe it is prudent to start the search with the Dividend Kings. They are the class of the field when it comes to dividend safety and longevity, and many of them offer either high current yields – like 3M – or high rates of dividend growth – like Lowe’s. We’ve highlighted five names we believe rise to the top of the highly prestigious Dividend Kings, and we like all of them as buy-rated stocks in today’s market.