Why Dividend Kings Are Still Great Long-Term Buys

Why Dividend Kings Are Still Great Long-Term Buys

The following guest post was contributed to My Own Advisor by Sure Dividend.

Income investors have many choices when it comes to places to put their money to work. One question that comes up when it comes to income investing is whether dividend kings are still great value and worth a long-term buy.

There are numerous kinds of stocks to consider owning including growth, value, and dividend stocks.

We think the best way to generate long-term wealth compounding is through buying and holding high-quality dividend stocks.

To do this, an investor must narrow down the massive number of possible stocks to buy from a diverse universe of dividend-paying names to a few considerations. In our view, one of the best ways to accomplish this is to focus on companies with the longest dividend increase streaks in the market. The list of companies with the longest histories of annual dividend increases is known as the Dividend Kings.

We already wrote on Mark’s site about Dividend Aristocrats to consider.

In this article, we’ll take a look at why we like the Dividend Kings as a group, and ways to use the list to narrow down your search for quality stocks to hold for income.

Why Dividend Kings?

Dividend Kings have many benefits for income investors. In order to make the list, a company must have increased its dividend for at least 50 consecutive years, a feat which only 31 companies have managed. This is an extremely high bar for dividend growth, and it means only the best, most established companies make the cut.

In order to accomplish this, a business must have a sustainable competitive advantage that is durable not only over time, but through various economic cycles. Without these characteristics, the company wouldn’t be able to generate sufficient earnings over time to continue raising its payout for 50 consecutive years.

Businesses with these advantages tend to be very high-quality names, because lesser companies eventually are overtaken competitively, or struggle heavily during recessions. The Dividend Kings as a group pass these tests, which is important when you consider some stocks to buy and hold for your portfolio.

These characteristics are very valuable for investors. Long-term income-oriented investors want to be certain that the dividend payout is secure, with some room for growth. Those characteristics will need to be present for the company to join (and remain on) this King list. For an income investor, having the peace of mind that comes with knowing that a dividend payout is generally safe and will grow for many years to come, is quite appealing. Mind you, if the pandemic we are dealing with is any lesson – the future is always unknown!

That said, Dividend Kings have also proven to have some ability to outlast recessions and various economic changes. Many dividend stocks cut their dividends during recessions, such as the financial crisis in 2008-2009, as well as the recession that started in 2020 due to the coronavirus pandemic. Companies that don’t offer durable competitive advantages and resilient earnings are caught off-guard during economic downturns, and many are unable to continue raising their dividends. In some cases, dividends are actually cut or suspended altogether. The Dividend Kings, as a group, help investors avoid this pitfall.

Two Dividend Kings We Like

The Dividend Kings as a group offer strong benefits, but not all Dividend Kings are created equal. We’ll now take a look at two Dividend Kings we like and why they differentiate themselves from the rest of the strong pack.

First up is Johnson & Johnson (JNJ), a healthcare leader that operates in medical devices, consumer products, and pharmaceuticals.

We know Mark loves JNJ and wrote about his history in investing with this company (for over a decade now) here.

Johnson & Johnson has boosted its dividend for 58 consecutive years; and did so in part to its recession resistance, but also its constant innovation particularly in its medical device and pharmaceutical portfolios. This history of pushing the boundaries on medical care has afforded Johnson & Johnson very reliable earnings, which leads to the ability to produce reliable dividend growth.

Johnson & Johnson offers investors mid-single digit earnings growth annually moving forward, as well as a yield of 2.5%, which is almost double the yield of the broader U.S. market. The payout ratio is also projected to be just 43% of earnings for this year, so the company has ample room to continue to raise the dividend in the years to come. Not only does that mean the dividend has a lot of room to rise, but it also means dividend safety is exemplary. The company could endure a sizable and sustained downward move in earnings and still be able to afford the dividend payment, so we like Johnson & Johnson for its combination of earnings growth, recession resilience, dividend safety, and dividend growth.

Our other example at Sure Dividend is tobacco giant Altria Group (MO), which has different characteristics to Johnson & Johnson in many ways.

We know Mark doesn’t invest in this company for a few reasons but as an investment, it has been stellar.

Altria is highly leveraged to the cigarette market (which does not appeal to some investors), but it is in the midst of a massive strategic transformation wherein it focuses more on its investments in alcohol, cannabis, and smokeless products. The company’s tobacco portfolio has proven to be a strong winner over time despite flagging smoking rates, because Altria has been able to pass on price increases to consumers with little reduction in demand.

That has helped Altria raise its payout for 51 consecutive years, and we see its transformation as helping to support the next generation of dividend growth. Altria offers investors a very high 6.7% yield. We see Altria’s growth path in the intermediate term as a bit murky considering the transformation it is going through, so we believe it will produce low-single digit growth. However, that should be good enough to support continued dividend raises for years to come.

Final Thoughts

When looking for a dividend stock, investors would do well to start with the highest quality, established names, which we believe at Sure Dividend are represented by the Dividend Kings.

This list of elite dividend payers offers investors access to recession-resilient, high quality businesses that are likely to continue raising their payouts for years to come. Choosing the names from that list depending upon an individual investor’s specific goals can help achieve some positive long-term investor outcomes.

At the time of this post – here is the complete Dividend Kings list for 2021:

Basic Materials:

  • Stepan (SCL)
  • H.B. Fuller Company (FUL)

Consumer Cyclical:

  • Genuine Parts Company (GPC)
  • Lowe’s Companies (LOW)

Consumer Defensive:

  • The Colgate-Palmolive Company (CL)
  • Hormel Foods Corporation (HRL)
  • The Coca-Cola Company (KO)
  • Lancaster Colony (LANC)
  • Procter & Gamble (PG)
  • Tootsie Roll Industries (TR)
  • Altria Group (MO)
  • Universal Corporation (UVV)

Financial Services:

  • Cincinnati Financial (CINF)
  • Farmers & Merchants Bancorp (FMCB)
  • Commerce Bancshares Inc. (CBSH)

Healthcare:

  • Johnson & Johnson (JNJ)

Industrial:

  • ABM Industries (ABM)
  • Dover Corporation (DOV)
  • Emerson Electric (EMR)
  • 3M Company (MMM)
  • Nordson (NDSN)
  • Parker Hannifin (PH)
  • Stanley Black & Decker (SWK)

Real Estate:

  • Federal Realty Investment Trust (FRT)

Utilities & Energy:

  • American States Water (AWR)
  • California Water Service (CWT)
  • Northwest Natural Gas (NWN)
  • SJW Group (SJW)
  • Black Hills Corp. (BKH)
  • National Fuel Gas (NFG)

Further Reading:

We liked Mark’s post about diversification away from Canada – not that we don’t like Canadian stocks – but rather his diversification into more U.S. assets should yield strong returns for years to come.

If you have any individual stock aversion, that’s just fine! We believe dividend ETFs can help investors realize their goals over time as well. Check out Mark’s comprehensive ETFs page for some of the lowest-cost ETFs available, including dividend ETFs we like such as NOBL that avoids any individual stock selection risk.

Sure Dividend is a big fan of Mark’s journey to financial independence. You can follow our stock updates on Dividend Kings, Dividend Aristocrats and many more stocks here.

Thoughts on buying and holding U.S. Dividend Kings for growing income and capital gains with time? Do you own any? Prefer to own ETF NOBL instead to avoid individual stock risk? Share in a comment!

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and I'm now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Subscribe and join the newsletter! Follow me on Twitter @myownadvisor.

11 Responses to "Why Dividend Kings Are Still Great Long-Term Buys"

  1. I own JNJ and plan to hold it forever. Also have a few dividend kings in my portfolio. Both PG and HRL are doing pretty well for me.

    There are stocks I won’t invest for ethical reasons. Cigarettes and weeds are two industrials I will not invest no matter how profitable they are. But I do understand other people like them.

    Reply
    1. Same. Unless the dividend by JNJ is cut I’m holding it for growing income – no plans to sell near term.

      I’m with you on cigarette stocks although I guess I own those indirectly via VTI ETF.

      Reply
          1. I do. Enough to DRIP one share per quarter too.

            I used to own some SYY, and it’s up so much that I am not able to DRIP anymore. I figure it’s over valued and switched to some COST and LMT. So far so good.

            Reply
            1. That’s great. I too owned Sysco many, many years ago and likely should be held onto it since it’s gone from $30 years ago to now, what, $82 or so now. Live and learning! I try and buy and hold my stocks now vs. selling. I own SYY via VTI anyhow!

              Reply
  2. Great info. There comes a time to build wealth through the huge USA. When would it be a time to include King dividends in a Canadian FIRE. I am 65 and living the FIRE path.

    Reply
  3. Suggest one not just accept them all as being good, without looking into their dividend growth rate, especially for the last few years. Dividends are great, but estimating the next few years growth is often the overlooked factor.

    Reply
    1. Great point. It’s very difficult to predict the future (as in impossible) but history can be a guide I think. It is my hope the stocks I own will continue to perform well but never a guarantee of course.

      Still owning the same CDN stocks? 11 or 10?
      Mark

      Reply

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