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Dividend Kings

The Dividend Kings Index is a list of stocks that have consecutively increased their dividend payments for at least 50 years. More about Dividend Kings.

CompanyDividend YieldAnnual PayoutPayout Ratio3-Year Dividend GrowthYears of Dividend GrowthP/E Ratio
American States Water logo
AWR
American States Water
1.78%$1.3462.91% 26.91% 9 33.55
Dover logo
DOV
Dover
1.60%$1.9833.39% 12.79% 58 26.93
Northwest Natural logo
NWN
Northwest Natural
3.88%$1.9287.67% 1.60% 15 24.65
Emerson Electric logo
EMR
Emerson Electric
2.58%$2.0258.38% 3.41% 58 24.12
Genuine Parts logo
GPC
Genuine Parts
3.21%$3.1655.54% 15.97% 58 -73.40
The Procter & Gamble logo
PG
The Procter & Gamble
2.28%$3.1661.72% 10.61% 58 26.50
Parker-Hannifin logo
PH
Parker-Hannifin
1.29%$3.5232.62% 34.92% 2 29.43
3M logo
MMM
3M
3.32%$5.8864.62% 29.73% 58 20.74
Cincinnati Financial logo
CINF
Cincinnati Financial
3.08%$2.4057.14% 16.67% 38 16.04
Johnson & Johnson logo
JNJ
Johnson & Johnson
2.81%$4.0446.54% 19.05% 58 22.64
The Coca-Cola logo
KO
The Coca-Cola
3.11%$1.6477.73% 14.29% 58 27.45
Lancaster Colony logo
LANC
Lancaster Colony
1.64%$2.8056.80% 29.27% 25 35.28
Lowe's Companies logo
LOW
Lowe's Companies
1.55%$2.4041.96% 63.49% 46 20.57
FMCB
Farmers & Merchants Bancorp
N/AN/AN/AN/AN/AN/A
Colgate-Palmolive logo
CL
Colgate-Palmolive
2.07%$1.7662.19% 10.32% 58 27.12
Nordson logo
NDSN
Nordson
0.76%$1.5626.58% 43.14% 11 35.73
Hormel Foods logo
HRL
Hormel Foods
1.97%$0.9353.45% 15.86% 52 27.60
ABM Industries logo
ABM
ABM Industries
1.85%$0.7436.10% 37.12% 1 -443.95
California Water Service Group logo
CWT
California Water Service Group
1.69%$0.8564.89% 14.49% 1 26.93
Tootsie Roll Industries logo
TR
Tootsie Roll Industries
1.15%$0.36N/AN/A 1 33.08
Federal Realty Investment Trust logo
FRT
Federal Realty Investment Trust
4.80%$4.2466.98% 7.81% 48 38.09
Stepan logo
SCL
Stepan
0.92%$1.1021.48% 32.26% 25 24.92
SJW Group logo
SJW
SJW Group
1.91%$1.2871.91% 48.15% 1 73.52
Stanley Black & Decker logo
SWK
Stanley Black & Decker
1.49%$2.8033.33% 19.47% 53 35.75
Target logo
TGT
Target
1.51%$2.7242.57% 12.07% 49 25.94
Commerce Bancshares logo
CBSH
Commerce Bancshares
1.59%$1.0830.17% 15.56% 1 24.13
Altria Group logo
MO
Altria Group
8.52%$3.4481.52% 39.57% 11 112.14
Sysco logo
SYY
Sysco
2.53%$1.8089.55% 25.81% 40 187.48
H.B. Fuller logo
FUL
H.B. Fuller
1.21%$0.6521.96% 15.45% 13 24.42
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Why Invest in Dividend Kings

Dividend kings are companies who have increased their dividend payout for at least 50 consecutive years.  In addition to the long track record of increasing its dividend, a dividend king must have a market cap of at least $3 billion.

There are many metrics that investors can use to evaluate a company. But for income investors, the ability of a company to pay, and in many cases, to increase its dividend is a key indicator of financial strength. A dividend is a percentage of a company’s profit. So when a company issues a dividend it indicates that they have enough cash on hand to meet short-term liabilities and want to reward shareholders.

Many dividend kings are mature companies in mature industries. For example, you won’t find any of the FAANG stocks in the list of dividend kings. These companies are still considered growth companies. They are frequently reinvesting their profits back into their businesses or into acquisitions that grow their companies.

This points out the fundamental trade-off between growth stocks and dividend kings. Growth stocks are high on the risk/reward scale. Investors can get a significantly higher total return when the stock is performing well. On the other hand, these stocks can also go down further than other stocks during a market correction.

Dividend kings, on the other hand, can provide capital growth, and frequently do, but without the dividend payout, they will usually have a return that is lower than a pure growth stock. However, during economic downturns, they tend to perform “less bad” than a pure growth stock.

Introduction

Dividend stocks have a place in any investor’s portfolio. However, not all dividend stocks are the same. Like any retail purchase, investors frequently get what they pay for. And this could be for better or for worse.

A dividend is a portion of a company’s profit. The calculation for a  dividend is very straightforward. You simply take the amount of a company’s annual per share dividend and divide it by its current share price. So a company that pays out $25 in dividends per share on an annual basis and has a $25 share price would have a 1% dividend yield.

However, if the company’s stock price drops to $12.50, the dividend yield would rise to 2%. Conversely, if the company raises its dividend to $30 and their share price rises to $50, their yield would go down, but their stock may be a much better investment. The question an investor has to ask is why is a company’s dividend yield increasing or decreasing?

Some companies that are financially troubled will have an enticing dividend yield. But that’s only because their stock price is going down. And that may signify that the company is in trouble. At the very least it suggests analysts and institutional investors may have concerns about the stock.

In this article, we’ll break down a specific category of common stocks known as the dividend kings. We’ll provide a definition of dividend kings, explain why they’re important, why they should be considered as a part of every investor’s portfolio, how dividend kings are different from dividend aristocrats and whether there are any risks involved in investing in these dividend-paying stocks.

What is a dividend king?

A dividend king is a company whose common stock has posted an increased dividend payout at least once a year for at least 50 consecutive years. In addition, a dividend king must have a market capitalization of at least $3 billion.

 Why are dividend kings important?

A company’s willingness to issue dividends is an indication of financial health and stability. The commitment to increase that dividend every year encourages long-term investors who can expect an increase in shareholder value as well as an increase in share price. Dividends unlike other metrics (like free cash flow and even revenue) are difficult to manipulate. Issuing a dividend means the company has enough cash left over after they have covered their short-term liabilities. More importantly, for investors it signifies a belief that the company will continue to have excess cash into the future. This highlights another benefit of dividend stocks in general – once a company begins to issue a dividend, they will generally make maintaining that dividend a priority. Dividend kings take that commitment to the next level by increasing the payout to shareholders.

Why invest in dividend kings?

First and foremost, dividend kings are dividend stocks. And while dividend stocks can play a role in any investor’s portfolio, it’s important to understand that stocks of dividend kings put value above growth.

However, that’s not to say investors should not expect some growth. Dividend kings have historically higher overall returns over extended periods. Dividend kings are also proven to have less volatility. This is important because some financial professionals are still in disagreement over the significance of dividend distributions to the company’s long-term total returns.

However, no financial professional would quarrel with the fact that reinvesting a steady stream of rising dividend income will produce a steady cash flow for investors. The rising dividend will usually exceed any inflationary effects.

But how do you know a dividend king’s dividend is stable? To do that you should pay attention to the dividend payout ratio. The dividend payout ratio is simply the amount of a company’s earnings that they apply to its dividend. Some sectors, like utilities, are known to pay a high percentage of their earnings as a dividend. But in general, you will want to make sure that whatever payout ratio a company has is sustainable over time.

Among current dividend kings, the lowest dividend payout ratio is 28% and the highest is 80% with the average being 54%.

Another important benefit to investing in dividend kings (as well as any dividend stock) is the opportunity to have income gains achieved taxed at a lower rate that is similar to the long-term capital gains rate. If investors hold the stock for a specified length of time prior to the ex-dividend date, their dividends will be considered to be qualified dividends which means that instead of the gains being taxed as ordinary income, they will be taxed at a lower rate.

Are there ETFs or dividend king indexes?

Due to the small sample size (less than 30 companies are dividend kings) there is no index specifically for dividend kings. However, investors can invest in a number of ETFs that follow dividend aristocrats. Since dividend aristocrats are similar in character to dividend kings, there is a similar degree of safety. Plus, like any index fund, investing in a dividend aristocrat mutual fund or ETF can help boost overall return while reducing risk.

There are currently approximately 70 U.S.-listed ETFs that invest in dividend stocks. Investors can sort these funds by market cap to emerging markets. Essentially, investors can cut their investment objectives to the objective of the fund.

Do dividend kings outperform the market?

History favors investors who invest in dividend kings. To illustrate this, the web site Simply Safe Dividends provided this illustration of investors who invested $200,000 at the beginning of 1991.

In the illustration, the investors put one half (or $100,000) in the S&P 500 Index and the other half equally across each of the dividend kings that trade on the major stock exchanges. In this example, investors did nothing more than reinvest their dividends. They didn’t buy or sell the stock to rebalance and did not invest any new money. The example spans 27 years.

The money that was invested in the S&P 500 Index compounded at an annual rate of 10.2% giving investors almost $1.4 million by the end of 2017. That’s impressive.

By contrast, the dividend kings portfolio compounded at a 13.8% annual rate, giving investors nearly $3.2 million over the same time. Now there is some bias to this number because the data doesn’t account for dividend kings that ultimately fell off the list. But it’s still a powerful example of the importance of reinvesting dividends.

But the other thing the study showed was that investing in dividend kings results in lower volatility. Lower volatility means that the value of an investor’s portfolio will fluctuate less. Specifically, the dividend kings portfolio had an annual volatility of 12.5% as opposed to the S&P 500 Index portfolio that had a 17.3% annual volatility. It doesn’t mean that the dividend kings portfolio never suffered a correction. But over time, it had lower highs but higher lows.

For example, in 2008, an absolutely brutal year for the market, the dividend kings portfolio returned a negative 14% while the S&P 500s total return was down 37%. One of the reasons for this is that dividend kings usually possess defensive characteristics that allow them to “outperform” in bear markets.

How are dividend kings different from dividend aristocrats?

The only difference between the two is in the number of years of dividend growth. Dividend aristocrats have the distinction of increasing dividends for over 25 years. The easy way to think about the two groups is that every dividend king is a dividend aristocrat, but not every dividend aristocrat has risen to the level of dividend king. Either way, these companies are regarded as some of the most sought after stocks for income-oriented investors.

What are the dividend kings by sector?

As of April 2020, here is a list of the current dividend kings and the sector they are in.

Sector

Company

Energy

None

Consumer Discretionary

Genuine Parts Company

Lowe’s

Consumer Staples

Altria Group
Hormel Foods

Lancaster Colony

Procter & Gamble
Colgate-Palmolive
Coca-Cola
Sysco Corporation
Tootsie Roll Industries

Industrials

3M Company
Emerson Electric
Dover Corporation
Nordson
Parker-Hannifan
ABM Industries
Stanley Black & Decker

Financials

Farmers & Merchants Bancorp
Cincinnati Financial

Commerce Bancshares

Healthcare

Johnson & Johnson

Basic Materials

H.B. Fuller Company
Stepan Company

Technology

None

Utilities

American States Water Company
Northwest Natural Holding Company
SJW Corporation
California Water Services

Real Estate

Federal Realty Investment Trust

 

Source:SimplySafeDividends.com

 

Risks of investing in dividend kings

While no investment is ever without any risk, dividend kings are about as risk-free as you can get. These companies have a history of increasing their dividend every year since the 1970s. Think about everything our economy has gone through. These are not fly by night companies. They are companies that have shown they are well run.

But remember the primary reason you are investing in a dividend king is for the security of that dividend. These stocks are not known for spectacular growth, although any individual stock may outperform the market at any given time. 

The final word on dividend kings

Dividend investors know that the one thing that truly matters when evaluating a company’s dividend is stability and growth. Dividend yields go up and down. And frequently a high dividend yield is a signal of a company that is having financial problems, not financial strength.

Companies that not only pay out a dividend on a regular basis but also increase their dividend show a commitment to building shareholder value. And while there is no direct correlation, dividend kings typically show healthy balance sheets.



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