Dividend Kings are companies that have been showing the longest streaks of dividend increases in stock market history. In fact, they show more than 50 consecutive years with a dividend increase. To be part of this list, the Dividend Kings must show an incredible ability to adapt their business model and constantly innovate to stay relevant and in the game. This is a great example of stability and growth in times of pandemic!
Being in business for over half a century is already hard enough. These companies are not only surviving, but they are thriving and sharing the wealth with shareholders. Investors who were wise enough to buy them decades ago have enjoyed both strong capital appreciation and constant dividend growth. This article covers the following topics regarding the Dividend Kings (click on the title of each to jump directly to this section):
How to Calculate Dividend Kings Valuation
Dividend Kings Portfolio & Performance
Closing Thought on Dividend Kings
What Are Dividend Kings
As mentioned in our introduction, to be named a Dividend King a company must have increased its dividend successfully for at least 50 years. Do not confuse this with 50 years of consecutive payments. There are no other restrictions to be part of this elite list. I guess completing 5 decades of dividend growth is hard enough!
As of 2020, we count 28 Dividend Kings, all of which are trading on the U.S. stock market. Please note some Kings aren’t part of the Dividend Aristocrats list since the Aristocrat list includes only companies trading on the S&P 500.
You will find many “old consumer staples” and industrials among this list. However, you will not find stocks in the energy or technology sectors. You can bet many future dividend kings will eventually come from the tech sector.
Basic Materials
Stepan (SCL)
H.B. Fuller (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)
Altria Group (MO)
Procter & Gamble (PG)
Sysco Corporation (SYY)
Tootsie Roll Industries (TR)
Energy
none
Financial Services
Cincinnati Financial (CINF)
Farmers & Merchants Bancorp (FMCB)
Commerce Bancshares (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
American States Water (AWR)
California Water Service (CWT)
Northwest Natural Gas (NWN)
SJW Group (SJW)
Technology
none
The 2020 Dividend Kings List
This list has been created from the metrics I follow for all my holdings. I use the dividend triangle as my first screener. This implies considering the company’s revenue, earnings and dividend growth over the past 5 years. I’m looking for leaders in their markets showing growth vectors pushing profit higher and rewarding shareholders with consistent dividend increases.
The 2020 Dividend Kings list has been updated on May 22nd, 2020
You can access this free Google Sheet with more metrics.
| Ticker | Name | Yield % | PE |
|---|---|---|---|
| PG | Procter & Gamble | 2.67% | 64.00 |
| FUL | H.B. Fuller | 1.75% | 14.88 |
| ABM | ABM Industries | 2.23% | 15.34 |
| EMR | Emerson Electric | 3.50% | 16.23 |
| PH | Parker Hannifin | 2.09% | 16.55 |
| FRT | Federal Realty Invest. | 5.27% | 17.55 |
| MMM | 3M Co | 3.87% | 17.57 |
| DOV | Dover Corp | 2.14% | 17.82 |
| CINF | Cincinnati Financial | 4.26% | 172.77 |
| CBSH | Commerce Bancshares | 1.70% | 18.51 |
| TGT | Target Corp | 2.21% | 18.78 |
| GPC | Genuine Parts | 3.99% | 18.88 |
| TR | Tootsie Roll | 1.03% | 19.23 |
| KO | Coca-Cola | 3.51% | 19.78 |
| SYY | Sysco Corp | 3.20% | 19.99 |
| SWK | Stanley Black & Decker | 2.15% | 20.84 |
| SCL | Stepan | 1.11% | 20.91 |
| LOW | Lowe's | 1.88% | 21.39 |
| ITW | Illinois Tool Works | 2.55% | 21.4 |
| JNJ | Johnson & Johnson | 2.57% | 23.04 |
| CL | Colgate-Palmolive | 2.45% | 24.05 |
| HRL | Hormel Foods | 1.84% | 26.51 |
| LANC | Lancaster Colony | 1.86% | 28.69 |
| NWN | Northwest Natural Holding | 3.02% | 29.08 |
| NDSN | Nordson Corp | 0.85% | 29.82 |
| AWR | American States Water | 1.56% | 33.76 |
| CWT | California Water Service | 1.82% | 42.13 |
| SJW | SJW Group | 2.12% | 83.32 |
| FMCB | Farmers & Merchants | 1.99% | 9.97 |
| MO | Altria Group Inc | 8.79% | N/A |
How to Calculate Dividend Kings Valuation
The most classic way you can evaluate dividend kings is by using the earnings multiple valuation approach, also known as P/E ratio. This refers to the last column of the Dividend Kings list above. You will notice all kings aren’t trading at a good valuation right now. Many of them show P/E ratios over 15-16 which is considered the S&P 500 long-term average. After all, there is a price to pay for quality!
Another more useful way to determine which Dividend King is the best investment now is to use the dividend discount model (DDM). The DDM is used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate. When you look at companies with 50+ years dividend increase streaks, you can certainly use this model to assess their fair value. Please read the Dividend Discount Model limitations before making any assumptions.
You can use this free DDM spreadsheet for your calculations.
I know how hard it is to invest when stocks don’t seem to trade at their fair value
Don’t you hate not knowing when to buy or sell stocks? There are too many investing articles contradicting one another. This creates confusion and leaves you with the impression you will not reach financial independence. It doesn’t have to be this way. I’ve built a free recession-proof portfolio workbook which will give you the actionable tools you need to invest with confidence and reach financial freedom.
This workbook is a guide to help you achieve three things:
- Invest with conviction and address directly your buy/sell questions.
- Build and manage your portfolio through difficult times.
- Enjoy your retirement.
Dividend Kings Portfolio & Performance
If Dividend Kings are such great companies that lasted so long, would it not make sense to buy all of them and make a SWAN (Sleep Well At Night) portfolio? Out of curiosity, I’ve put together the 28 Dividend Kings and built an equally weighted portfolio that rebalances quarterly. Using Ycharts data, I was able to go back to January 2000 and compare the Dividend Kings portfolio against the S&P 500. If you click on the image below, you will see it in full size. Spoiler: Dividend Kings have beaten the S&P 500 with a royal total return of 628.9% vs 203.9% for the index.
Source: Dividend Kings list & Ycharts
Don’t jump to conclusions too fast, though! The Dividend Kings have done incredibly well in the past, but their recent performance has not been comparably impressive. Between 2010 and 2020, both portfolios show about the same total return. If we look at February-March and April 2020 to see how the Dividend Kings coped with the COVID-19 pandemic, we see they were lagging before the crisis and have not recovered as fast as the S&P 500.
Source: Dividend Kings list & Ycharts
While long-term dividend growth could bring stability to your portfolio and a great source of income, it doesn’t mean you should invest all your money into the Dividend Kings. In fact, while some of them are still great businesses today, some others may not appear as appealing. Here are my favorite Dividend Kings (last updated May 2020).
Top 5 Dividend Kings 2020
Here’s a quick list of my favorite long-term dividend growth companies along with their dividend triangle trend (revenue, earnings per share, dividend for 5 years), my investment thesis and potential.
#5 Johnson & Johnson (JNJ) (57 years)
Investment Thesis
JNJ is a powerful engine that is continuously being fueled to run even faster. An investment in JNJ is an investment in a world class company and a complete brand portfolio with winning products. The company is well diversified among its product offerings with its pharmaceutical division along and its world diversification. Despite its relatively low yield, the company will not only reward you with a constant and increasing dividend, but also with steady capital appreciation. Always keep an eye on their pharmaceutical division, and everything will be good! Speaking of which, the company is among the leaders in the search for a vaccine for the Covid-19.
Potential Risks
Back in 2012, JNJ had several quality control issues which hurt sales and potentially hurt some of its brands. Potential lawsuits due to product misconception or severe drug side effects could also hurt JNJ. The company has had to handle opioid and talc powder related lawsuits. JNJ will face generic competition for many of its drugs, such as Remicade (which currently now has 2 competitors), the cancer drug Zytiga, and the HIV drug Prezista. The company isn’t showing the strongest drug pipeline of late. This could eventually hurt their long-term growth perspectives. We can also see revenue slowing down (along with the interest from the market for the stock!).
#4 Procter & Gamble (PG) (63 years)
Investment Thesis
If you buy shares of PG, your goal must be to earn a steady and increasing flow of income. Procter & Gamble is probably more stable than most bonds and pays a higher yield. There are no immediate threats to jeopardize its dividend soon. PG is a strong core holding no matter how much you pay for it. As the company is about to exit its brand portfolio transition, it may be a good time to initiate or build on a position in this security. We can clearly see a trend developing since mid-2018. As the market goes through its fluctuations, PG is the kind of company that will continue paying its due without a worry.
Potential Risks
While PG was busy growing into a product ogre, it lost market share and sales opportunities in emerging markets. Smaller companies were faster and more flexible to adapt to emerging markets’ needs. Now that PG is ready to fight back, it will require lots of money in marketing. We expect management to continue its cost cutting plan, and it may be difficult to justify a spending increase in marketing at the same time. It’s a classic big corporation dilemma. It wants to make more sales by spending less. PG won’t be able to cut down costs forever and will sooner or later feel the inflation in its cost of operations (transport, raw materials, etc.).
#3 Sysco Corp (SYY) (50 years… newly added!)
Investment Thesis
Sysco is a dominating player in a highly recurring business: food distribution. This market is fragmented in the U.S. with over 10,000 small food distributors across the country. This offers SYY a great opportunity to acquire and integrate smaller players. SYY is more than twice the size of its largest competitor US Foods. The company offers a wide variety of products and its network quality and reach is unmatched. SYY also offers restaurant quality data as it compiles trends across the world. The company is also well-diversified as none of its customers represent more than 10% of its sales. Unfortunately, as the stock surged in the past 5 years, there may be limited short-term upside.
Potential Risks
Sysco is in a challenging business environment as many restaurants have a very difficult time growing their sales. If inflation starts to rise, it is possible that SYY will have to absorb a part of their cost increases as restaurants may not be able to accept price increases. Since food distribution is treated as a commodity with little differentiation, SYY doesn’t enjoy much pricing power. Finally, its recent effort to manage costs failed to improve their margins significantly. Therefore, expect slower earnings growth ahead as inflation will likely dampen those earnings.
#2 Genuine Parts (GPC) (63 years)
Investment Thesis
Over the years, GPC has built a solid reputation through high-levels of service and high-quality parts. 75% of its auto parts sales come from the commercial segment (garages). This segment leads to highly repetitive orders. Genuine Parts is also known for its never-ending appetite when it comes to buying its competitors. A winning strategy for any portfolio building method is to pick strong companies with established business models which have become leaders in their industry. GPC meets all the requirements to be considered as such. It is now after the fragmented European market. This should help support its growth going forward. While you will not see GPC’s stock price expand by 20% in the next 12 months, you can count on a regular and sustainable growth. Benefit from recent market drops by securing some shares at these comparatively low price levels.
Potential Risks
As GPC participates in a highly cyclical market, some investors may bite their nails if the economy slows down over the coming quarters. The auto industry is going sideways, but cars will continue to need maintenance. GPC’s main source of growth is through acquisitions of smaller competitors. But the more companies they buy, the more expensive it gets to source the capital. This may reduce GPC’s profitability on future acquisitions. However, they are masters at their craft, and it’s only a matter of time before GPC’s value rebounds.
#1 3M Corporation (MMM) (61 years)
Investment Thesis
3M’s competitive advantages are legendary. Industrial clients are reluctant to abandon such a world class company for any competitors as they know MMM will always deliver quality products. 3M shows one of the strongest business models among the dividend kings and its dividend growth potential will continue to be one of its most dynamic characteristics for investors. By becoming the leader in R&D in many sectors and offering efficient products that work, 3M has created a unique economic moat that can’t be matched by its competitors. An investment in MMM is like buying the most solid money printing machine available on the markets.
Closing Thought on Dividend Kings
The Dividend Kings list could be a great start to building your own dividend growth portfolio. While screening the dividend triangle metrics, you will notice that some royal stocks offer better growth opportunities. I think some of these so called “Kings” have already seen their best days and continue to exist on aging business models. On the other hand, I think my top 5 highlighted some great buying opportunities during the current pandemic.
I know how hard it is to invest when stocks don’t seem to trade at their fair value
Don’t you hate not knowing when to buy or sell stocks? There are too many investing articles contradicting one another. This creates confusion and leaves you with the impression you will not reach financial independence. It doesn’t have to be this way. I’ve built a free recession-proof portfolio workbook which will give you the actionable tools you need to invest with confidence and reach financial freedom.
This workbook is a guide to help you achieve three things:
- Invest with conviction and address directly your buy/sell questions.
- Build and manage your portfolio through difficult times.
- Enjoy your retirement.
Disclaimer: I hold shares of MMM, JNJ, KO in my dividend growth portfolio.
