The 5 best dividend kings now
This is a guest post by Josh Arnold for Sure Dividend. I do not usually 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 being sold out, this is a good time to start going through your watch lists to see what types of otherwise high quality assets are being sold. Josh presents a quick list of companies with at least 50 years of continuous annual dividend growth that he considers to be long-term “purchases” at this time, which you can use for further research.
-Lightning
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When it comes to mixing wealth, we feel that buying high-quality dividend stocks and reinvesting dividends over time is the best way. This allows not only the capital growth that large dividend stocks tend to provide over time, but the ability to achieve the dual composition of reinvestment of dividends. When carrying out this strategy, however, it is important to find the best dividend stocks that can withstand the test of time.
Dividend Kings are best-of-the-best when it comes to long-term dividends. They are a group of 44 companies that have paid rising dividends for at least 50 years in a row. In this article, we will highlight why investors will find Dividend Kings attractive, and note the top five Dividend Kings available on the market today.
The reason why an investor wants to rate Dividend Kings is quite simple; they are the best stocks in the world in terms of longevity and security for dividends. Companies that have been able to raise dividends for at least 50 years in a row have withstood competition threats, recessions, technological change and more. This is why Dividend Kings is the gold standard for dividend investing, and although the returns Dividend Kings offers are not always the highest available, investors can rely on increasing income over time very reliably.
Below we take a brief look at the five best Dividend Kings available on the market today.
Our first dividend king is Stanley Black & Decker (SWK), the ubiquitous tool and storage manufacturer based in the United States. Stanley makes a wide range of tools and accessories under brands such as BLACK + DECKER, Stanley, Dewalt, Craftsman, Porter Cable and more. The company was founded in 1[ads1]843 and has chosen a growth-for-acquisition strategy to increase its robust organic growth over time. We see that the company produces 8% annual growth in earnings per share in the years to come, which means that it should have enough capital to continue to increase dividends.
The current return is 2.6%, which is very high in the historical standard for this stock, and is about double the S&P 500. The dividend increase is 54 years, and the payout ratio is only about a third of the income for this year, so it is a huge runway for future dividend growth, as well as a high level of security.
Our next stock is Tenant company (TNC), which designs, manufactures and markets floor cleaning equipment globally. Tennant offers a wide range of cleaning equipment to meet 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 50sth subsequent dividend increase.
We expect Tennant to be able to produce 8% annual growth in earnings per share, so combined with a 21% payout ratio for this year, the stock provides exemplary dividend security 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 at a decade-low valuation at the moment, so we see a strong appreciation potential over time also for buyers of the stock today.
Our next stock is 3M company (MMM), a diversified technology company operating globally in a variety of industries. The company competes in security and industry, transportation and electronics, healthcare and consumer segments, and spans thousands of products and countless end markets. 3M has made a name for itself over the last 120 years for innovation and quality, and it is constantly renewing its product portfolio to position it well for the coming years.
We see 5% annual growth going forward for 3M, and the current return is exceptional at 4%. It’s high not only for 3M, but it’s also about three times as much as for the S&P 500. The payout ratio is a little over half of the revenue, but keep in mind that 3M’s revenue is generally very predictable, so it may have a higher payout ratio. We like 3M for its exceptional returns, its 64-year dividend increase range and predictable revenue streams.
Our fourth dividend king is Lowes companies (LOW), half of the U.S. renovation duopoly. Lowe’s has around 2,000 home improvement centers in the United States, offering tens of thousands of products to professionals and property owners. Lowe’s has a 59-year range of increasing dividends, but despite this, the payout ratio is only 24% of this year’s earnings. This means that Lowe’s will continue to have enough capital to continue to increase its payout, especially in light of the estimated growth of 6% annually.
The yield is in the lower part of 1.6%, but it is still in excess of the broader market. Lowe’s has managed one of the best dividend growth anywhere in the market over the last decade, with more than 17%.
Our final inventory 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 recognition and expertise, which has helped it increase dividends for a staggering 65 years in a row. The yield is currently at 1.9%, after a certain weakness in the stock. It has also made the valuation attractive, since we expect 9% annual growth in earnings per share in the coming years. Parker-Hannifin’s payout ratio is only 22% for this year, which means 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 dividends is just over 10% for the last decade, and it is rare that the stock is on that target.
When we are looking for a great dividend stock to buy, we think it makes sense to start the search with Dividend Kings. They are the class in the field when it comes to dividend security and longevity, and many of them offer either high current returns – like 3M – or high dividend growth – like Lowes. We have highlighted five names we believe are coming to the top of the highly prestigious Dividend Kings, and we like them all as buy-rated stocks in today’s market.
