Companies that have increased their dividend payments for 50 or more consecutive years. The first company discussed is Procter & Gamble (PG), which is a consumer goods company with a 2.5% dividend yield and a strong brand portfolio.
- To become a dividend King, a company must have at least 50 years of consecutive dividend increases. While the Kings do not require some of the other criteria that are seen in the Aristocrats, increasing the dividend for 50+ years is still impressive, especially considering how many companies were forced to cut their payouts in either the Great Recession or the pandemic. It is a commitment to shareholder cash return that is not seen in most stocks.
The seven best dividend Kings stocks, with over 50 years of increasing dividend payments, will now be revealed. The entire list of 47 dividend Kings will also be provided, along with tips on how to pick the very best. The countdown will begin with Cisco Corporation, ticker symbol SYI, with a 2.5% yield. It is important to note that this is not the tech giant, Cisco. Cisco is the global leader in food service distribution, serving restaurants, healthcare, and educational facilities, including McDonald’s and Chick-fil-A. The company has a strong competitive advantage, with over 190 distribution warehouses, more than twice the number of the next closest competitor, Performance Food Group, which has 74 facilities. This allows Cisco to be closer to customers, reducing transportation costs and improving service. The advantage has helped the company grow at one and a half times the industry average, with a 15.8% sales growth and 17% profit growth in the last quarter. In fact, the company was able to improve its profitability, even against its food inflation of 9.7% in the quarter, because it has built annual inflation escalators into its contracts with customers. Cisco has increased shareholder cash return by 14% annually over the last five years, with 6.4% of that in dividend growth. This cash machine has increased the dividend for 53 consecutive years.
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The first stock on the list is PepsiCo, with its 2.6% dividend and 51 years of dividend increases. Most investors do not realize that Pepsi is much more than just a soft drink leader. The company controls 22% of the $200 billion global snacks market, leading the industry. More than half, 55%, of its revenue comes from that category. It is also the second-largest beverage company in the world, with strong brands such as Pepsi, Gatorade, and Aquafina. This diversification is the reason why shares of Pepsi are preferred over Coca-Cola. Not only does it spread the risk around a little, so if the soft drink segment weakens a little, it still has that snack segment to carry it along, but also because the snack segment is growing at a faster rate. Pepsi has been able to grow sales at a 5.4% annual pace over the last five years, versus just one percent for Coca-Cola. The payout ratio is also slightly better on Pepsi, paying out 68% of its earnings to satisfy that dividend, versus 71% for Coke. The payout ratio is an important measure of dividend sustainability and future growth, as a company paying out less of its profits is holding more back for growth or can increase the dividend more easily. Coke has not been in any dividend danger, but a 71% payout ratio is getting dangerously high. It explains why it has only increased its dividend by 2.4% annually over the last five years, while Pepsi has increased its own dividend by 7.4%.
Stanley Black and Decker
The second stock on the list is Stanley Black and Decker, ticker symbol SWK, with its 3.7% dividend and 55 years of consecutive increases. It is likely the best value stock on the list. A crash in shares of these dividend kings is usually not seen, as that kind of dividend history only comes from old established companies with steady cash.
Abby
Abby, ticker symbol ABBV, is one of the most popular drug makers, with a best-in-class immunology drug company but a strong pipeline in oncology and eye care as well. The company has been able to grow its dividend by 9% a year over the last five years and books a 43% payout ratio, but there are some strong warnings that need to be considered. One of the first things to understand is that drug makers all have lower payout ratios since they have to hold back more of their earnings because they spend billions in drug development, so the ratios need to be compared against other drug makers. A big worry for ABBV right now is its patent expiration on blockbuster drug Humira. Management is already forecasting a 37% drop in sales this year and another decline next year due to biosimilar drugs from other companies. It’s going to be difficult to keep up that sales growth from new drugs, but that’s just the name of the game in Pharmaceuticals. ABBV has a best-in-class pipeline, with more than 20 indications in just phase 3 and submitted applications alone. Salesforce security was up 80% on a year-over-year basis last quarter, and its invoke was up 50%. The record of dividend increases is safe, but it may not grow at 9% annually over the next few years as the company spends more on its research. This next dividend King is also in for a tricky year but could make for a great play eventually.
Leggett and Platt
Leggett and Platt, ticker symbol LEG, has a 5.1% dividend yield and 51 years of increases. LEG is a global leader in manufactured components for home and auto, including bedding, furniture, flooring, and industrial parts. More than 60% of sales are from the home segment, with nearly half of that in bedding. The company does have some diversification, with 35% of sales outside the United States and 40% in the auto and industrial segments. Due to a housing market correction and a slump in auto sales, earnings for the company have been hit hard, and profits are expected to fall 30% to $59/share this year on a 4.6% drop in sales. That’s going to mean the company is probably going to have to take on debt to keep up that $76/share dividend. However much it wants to grow to keep up that 50+ years tradition, there is no danger of a dividend cut. The company has $226 million in cash, and earnings are expected to be back up to $1.83 per share next year, but it already has $2.3 billion in debt and a debt-to-equity ratio of 145%. LEG has grown the dividend by 4% annually over the last five years, but it could grind to a halt in this new environment. The company is loading up on debt to meet that dividend, and shares may get back down to about $30 each over the next year. At that point, shares will be trading at 0.8 times on a price-to-sales basis and set up for a very good long-term investment. So, keep this one on your radar. There are two more of the highest yielding dividend Kings left, but without an exchange-traded fund like we have with the Aristocrats, why would you even bother with this group? Why do I like the dividend Kings versus those dividend Aristocrats and think every investor should add a few of these stocks?
3M
The next dividend King is deemed an interesting short-term and long-term opportunity, as shares of 3M ticker have a 5.3% yield and 64 years of consecutive dividend increases. Shares have declined by 51 since the 2018 high due to slow sales growth and a general market sell-off for conglomerate stocks, as investors are no longer interested in these large hodgepodge companies. The company has four segments, from Industrial Products which accounts for about a third of total sales, to Electronics Healthcare which accounts for about 24% of sales, and consumer products. Although the company has increased its dividend for 64 straight years, it has only been at a rate of about 1.8% annual growth over the last five years. Earnings are expected to be 14% lower this year as inflation continues to eat away at profits. This means that it is going to be paying out 70% of its earnings to cover that dividend. However, the upside is that many conglomerates, like 3M, are spinning off their Healthcare business into a new company by the end of the year. Thus, if one owns shares of 3M, when that spin-off occurs, they will automatically receive shares of the new company. Generally, stocks rise leading up to a spin-off and the new company usually performs well for a year or more afterwards. This is due to the conglomerate discount for evaluation, which 3M is a perfect example of. If one looks at what would be a competitor for its Healthcare business, shares of Baxter International trade for 20 times on that PE basis. The earnings generated by 3M Healthcare segment traded at a discount because it is locked inside this big unwieldy conglomerate. Once that segment spins off and starts trading alone, those earnings could start trading not at that 11.3 times valuation but closer to 20 times. Thus, earnings for all of 3M were about 10 and 10 cents for the last year and the stock trades for about 114 dollars per share or about 11.3 times those earnings. If the earnings from Healthcare segments are about 24 percent of that or about 2.42 cents per share, while the rest of the 3M generated 7.68 in eps, in the spin-off, one would still have that 3M stock generating 7.68 per share value to that probably 11.3 times price to earnings or around 86.78 per share price. One would also have the healthcare stock generating 2.42 cents in earnings but the shares would trade closer to the industry average for healthcare products. That 20 times PE or 48.40 per share. When put together, one has a combined stock price of 135 dollars each, which is 18 times higher than the current combined company.
It is not exactly clear what valuation is going to come out of this and earnings will change over the next year, but it is an example of how these spin-offs create shareholder return through those higher valuations. This potential for short-term return and long-term upside for both companies is definitely worth watching. The highest yielding dividend King is next, but it is worth noting that most of these do not pay very much. Altria Group ticker Mo, with its eight percent dividend yield and 53 years of consecutive increases, is driving hard towards that smoke-free future with heated tobacco and pouch products. Despite a years-long trend of lower cigarette volume, the company has been able to keep revenue consistent. Even against that annual drop of four percent in cigarette volumes, the company has been able to stem that to a decline of just 1.7% on growth in its e-vapor and oral segment.
