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
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 2023, we count 47 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. We also added 1 Dividend King from Canada to the list below.
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.
The 2023 Dividend Kings List
Basic Materials
Stepan (SCL)
H.B. Fuller (FUL)
Nucor Corp. (NUE)
PPG Industries (PPG)
Consumer Cyclical
Genuine Parts Company (GPC)
Lowe’s Companies (LOW)
Leggett & Platt, Inc. (LEG)
VF Corp. (VFC)
Consumer Defensive
The Colgate-Palmolive Company (CL)
Hormel Foods Corporation (HRL)
Kimberly-Clark Corp. (KMP)
The Coca-Cola Company (KO)
Lancaster Colony (LANC)
Altria Group (MO)
PepsiCo Inc (PEP)
Procter & Gamble (PG)
Target Corp (TGT)
Tootsie Roll Industries, Inc. (TR)
Sysco Corporation (SYY)
Universal Corp. (UVV)
Energy
National Fuel Gas Co. (NFG)
Financial Services
Commerce Bancshares (CBSH)
Cincinnati Financial (CINF)
Farmers & Merchants Bancorp (FMCB)
Healthcare
Abbvie Inc (ABBV)
Abbott Laboratories (ABT)
Becton, Dickinson And Co. (BDX)
Johnson & Johnson (JNJ)
Industrial
ABM Industries (ABM)
Dover Corporation (DOV)
Emerson Electric (EMR)
Gorman-Rupp Company (GRC)
W.W. Grainger Inc. (GWW)
Illinois Tool Works, Inc. (ITW)
3M Company (MMM)
MSA Safety Inc (MSA)
Nordson (NDSN)
Parker Hannifin (PH)
Stanley Black & Decker (SWK)
Tennant Co. (TNC)
Real Estate
Federal Realty Investment Trust (FRT)
Utilities
American States Water (AWR)
Black Hills Corporation (BKH)
Canadian Utilities Ltd. (CDUAF) (CU.TO… it’s a Canadian stock)
California Water Service (CWT)
Middlesex Water Co. (MSEX)
Northwest Natural Gas (NWN)
SJW Group (SJW)
Technology
none
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
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This workbook is a guide to help you achieve three things:
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- Enjoy your retirement.
Top 5 Dividend Kings 2023
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)
Investment Thesis
JNJ is a powerful engine that is continuously being fueled to perform better and better. An investment in JNJ is an investment in a world-class company that offers a complete brand portfolio with winning products. The company is well diversified among its product offerings. Despite its relatively low yield, the company will not only reward investors with a constant and increasing dividend, but also with steady capital appreciation. We think JNJ’s Pharma segment continues to offer a promising outlook due to strong prospects on existing key drugs such as Stelara, Imbruvica, and Darzalex, along with a robust drug pipeline of 14 novel drugs with launches expected by end of 2023.
Potential Risks
In 2012, JNJ had several quality control issues, which affected sales and potentially hurt some of its brands. Potential lawsuits due to product defects or severe drug side effects could also impact 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 has two competitors), the cancer-fighting drug Zytiga, and HIV drug Prezista. Sales of lymphoma drug Imbruvica struggled in the US in 2022 because of competitive offerings, and margins have struggled across all segments. Increased pressure on drug pricing can also become a concern.
#4 Procter & Gamble (PG)
Investment Thesis
If an investor buys shares of PG, the goal should be to earn a steady and increasing flow of income. Procter & Gamble is probably more stable than most bonds and pays a decent yield. There are no immediate threats that come to mind that will jeopardize its dividend in the future. PG is a strong stock to hold, regardless of how much one pays for it. The company successfully trimmed its brand portfolio and has now reported 12 consecutive quarters of organic growth. Don’t expect a huge price appreciation here, but as the market ebbs and flows, PG is a company that will steadily continue paying its due, even in a recession. PG had a strong start to 2022, demonstrating its best-in-class supply chain and pricing power, and increasing revenues by 7%.
Potential Risks
While PG was focused on diversifying its product mix, it lost market share and sales opportunities in emerging markets. Smaller companies were faster and more flexible in adapting to emerging markets’ needs. Now that PG is ready to take on these markets, it will require substantial sums of cash invested in marketing. Expect management to continue its cost-cutting plan, even if it will be hard to rationalize a spending increase on marketing at the same time; this is a common dilemma faced by large corporations. PG won’t be able to cut costs for many consecutive years, particularly in today’s inflationary environment. Finally, the pandemic concerns seem to be easing, but the economic outlook is uncertain, which could damage PG’s topline.
#3 Sysco Corp (SYY)
Investment Thesis
Sysco is a dominant player in the highly repeatable-purchase business of food distribution. Even better, 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 as large as its largest competitor, US Foods. The company offers a wide variety of products and its network’s quality and reach is unmatched. We believe that Sysco’s growth as it navigates the recovery period and exits the pandemic will be strong. SYY is also looking leaner, with $350M of cost savings and $3.4B of debt paydowns in FY 21. It offers restaurant-quality data as it compiles trends across the world. SYY is also well-diversified as none of its customers represent more than 10% of its sales.
Potential Risks
Sysco thrives in a challenging business environment as many restaurants have had a hard time growing their sales. Now with more and more restaurants open, Sysco can begin to take advantage of “relative” pricing power and maintain healthier margins. On the other hand, food distribution is treated as a commodity with little differentiation and SYY doesn’t enjoy much pricing power. Its recent efforts to manage costs failed to improve margins significantly. Therefore, inflationary pressures could compress margins further. Finally, the SYY stock price has fully recovered from the March 2020 market crash. It was then identified as a great opportunity at DSR.
#2 Genuine Parts (GPC)
Investment Thesis
Over the years, GPC has built a solid reputation through high-level service and high-quality parts. 75% of its auto parts sales come from the commercial segment (garages). This segment lends itself to highly consistent order patterns. Genuine Parts is also known for its never-ending appetite when it comes to buying out its competitors. A winning strategy for any portfolio building method is to pick strong companies with established business models that have become leaders in their industry. GPC is the parent company of NAPA Auto Parts, which is a great performer during recessionary environments. We expect growth to be driven by an increasing U.S. vehicle age, which rose to a record high of 12.1 years in 2021. In 2022, the stock experienced a drop, but has since recovered and seems to be overpriced.
Potential Risks
Because GPC operates in a cyclical market, some investors may get nervous when the economy slows down over the coming quarters. The auto industry isn’t growing, but automobiles will continue to require maintenance. GPC’s primary source of growth is through acquisitions. The more companies they buy, the more expensive those purchases become. This dynamic may reduce GPC’s profitability on future investments. It has become difficult to acquire smaller competitors in the U.S. for that reason. Genuine Parts is now pursuing new acquisitions in the European market. This is a whole new game, and we don’t know if management can replicate their previous successes on another continent.
#1 Abbott Laboratories (ABT)
Investment Thesis
After spinning off its research-based activities into AbbVie (ABBV) several years ago, ABT now focuses on various medical devices, nutritional products, and branded generic medicine distribution. Its major acquisitions in 2014 and 2017 strengthened the company and created numerous growth vectors for years to follow. ABT has successfully integrated St. Jude Medical, which opened the door to the structural heart product industry. ABT has a long history of successful product launches and has aggressively cut its costs and improved its margins (including new facilities in China). You can expect EPS to grow more quickly in the coming years. The company has a strong profile and not including this stock in your portfolio or watch list would be a mistake. The drop in sales of COVID-19 testing kits can be a headwind in 2023, but should subside in the long term.
Potential Risks
No pharmaceutical company is shielded from product quality issues or recalls, and this is something that ABT could potentially face. Another possible downside is the level of competition, and although the players are not numerous in these business segments, each competitor invests heavily in R&D in hopes of developing the next innovation in its niche. ABT is slightly behind some of its competitors when we compare profitability measures, but they are improving in this regard as they allocate large sums of money to R&D. The company must keep performing well and showcasing its strengths to the market, particularly in the molecular diagnostics sector, as it competes with other large players like Roche, Qiagen, and Hologic. Today, a prolonged baby formula recall and lower than expected growth in over-the-counter Covid tests could impact ABT’s bottom line.
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.
