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Dividend investors looking to really bring home the bacon over an extended time horizon have a number of factors to consider. For one, will a given company simply survive the next 10-20 years? And if they do, will their competitive moat allow them to pay consistent dividends over this time frame? And if they're able to do that, can they continue to provide dividend growth over this time frame?
Those are a lot of questions to be answered, and analyzing the probabilities of respective companies to do so can be a daunting task. One of the easiest shortcuts to improve one's probabilities in all three questions is to simply pick from a growing list of Dividend Kings - or companies that have paid out consecutive annual dividend increases for more than 50 years. These companies have such a long track record that a great deal of their existing value comes from expected dividend increases. Accordingly, there's a meaningful reward for management teams to continue paying out growing distributions over time, leading to some pretty impressive upside for investors who get in at the right price.
Of course, different Dividend Kings have different risk profiles, but most are relatively safe long-term bets. These three companies could be among the best of this bunch, and are near the top of my list right now.
Key Points About This Article:
- Investing in Dividend Kings can provide income investors with the stability and growth profiles they're looking for over the long-haul.
- Any company that increases its dividend distributions each year for more than 50 years has some high expectations to live up to, and will do whatever it takes to keep the streak alive.
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American States Water (AWR)
Image of a scenic lake with very blue water
American States Water ( NYSE:AWR ) is a California-based utility company focusing on water and electricity utilities, as well as wastewater services. Like many utilities stocks, American States Water is up on the year. However, the stock did see a recent drop in its Q1 2024 earnings, meaning this stock has given up much of its year-to-date gains following this report. The company's basic and diluted EPS numbers both declined on a year-over-year basis. And while this quarterly underperformance does appear to be tied to adjustments made from last year's water rate case, as well as estimated refund revenues, it's a factor investors will need to monitor closely in the upcoming quarters.
That said, despite EPS falling to $0.48 from $0.74 per share a year prior, adjusted results were around 17% higher as American States Water secured new military base contracts. Such contracts provide investors with the kind of revenue and cash flow stability they like, particularly for a dividend-paying stock like AWR.
On that note, the company's annualized dividend was recently increased 3.9% from last year, and has increased five times in the past five years (averaging an 8.61% annual move higher). The company's current yield of 2.3% is relatively low, compared to other utilities options out there. However, with a comparatively low payout ratio (around 60%) and strong dividend growth in recent years, once can picture a scenario where American States Water picks up the pace and aims to catch up with its peers on the yield front.
Johnson & Johnson (JNJ)
A Tylenol bottle alongside its packaging in the background
Moving along to a much larger blue-chip giant in the Dividend King space, Johnson & Johnson ( NYSE:JNJ ) continues to be a top option for many investors. Why, you may ask? Well, with 62 years of consecutive dividend increases, JNJ's reliable payout is as about reliable as they come. And the company's 58% dividend payout ratio indicates there's plenty of dividend growth potential moving forward, so long as earnings continue to grow faster than the company's continued dividend increases over time.
As a top healthcare company, Johnson & Johnson's diverse global operations and industry resilience help safeguard its dividend, even during economic downturns. That's partly why this defensive dividend giant should be on every investor's watch list right now, aside from the company's status as a Dividend King (which is something that may fly under the radar for many investors, and rightly so).
The pharmaceutical company offers steady revenue and profits through its diverse portfolio of medicines and medical devices. The spin-off of its slower-growing consumer health unit into Kenvue last year boosted its financials , and was a move many analysts thought would provide increased value. And with recent settlements removing various legal headwinds, it does appear to be blue skies ahead for this long-term dividend growth stock.
With a 3% initial yield and a 6% average annual dividend increase over the past decade, JNJ stock is a great option for investors looking for a dividend-paying stock that can outpace inflation.
Coca-Cola (KO)
A Coca-Cola semi trailer driving down the highway
Coca-Cola ( NYSE:KO ) is among the longest-standing dividend stocks that's worth considering on any major dips. Established in the late-1800s, Coke has become the beverage of choice for millions of households around the world. And with perhaps the most recognizable global brand, Coke is potentially the king of the "affordable treat" so many of us reach for on store shelves after a long day.
Aside from the company's namesake brand, Coca-Cola owns a wide range of beverages and snack lines which tend to outperform in various markets. The company's growth has slowed in recent years, but much of that has to do with Coke's dominant size relative to the market as a whole. At some point, it becomes a law of large numbers game, and Coca-Cola is certainly feeling the effects of growing so large.
That said, one of the benefits of Coca-Cola's massive size and scale is its ability to focus on efficiency, and passing on increased earnings to shareholders. In the company's most recent quarter, Coke noted strong revenue and market share growth as well as a 1 7% profit boost in the second quarter , excluding currency effects. With $3.3 billion in free cash flow for the first half of the year, Coca-Cola comfortably covered its $2.2 billion in dividends and plans to continue hiking dividends moving forward.
Wouldn't wan the Dividend Aristocrat's 62-year streak of dividend increases to go to waste, after all. Currently, KO stock offers a 2.7% yield and a payout ratio of 75.5%, signaling potential for further dividend growth over the long-term.
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