NEW YORK (TheStreet) -- There is a select group of stocks that have increased their dividend payments each and every year for 50 years in a row. For a business to adapt and grow its dividend each year for 50 years, it must have a strong competitive advantage and great management. These ultra-high quality businesses are called "Dividend Kings" and there only 16 of them.
You may already know that stocks with long dividend histories have historically outperformed the market. The Dividend Aristocrats Index, which is comprised of businesses with 25 or more years of consecutive dividend payments, has outperformed the market by 2.88% a year over the last decade, according to S&P. Finding businesses with 25 or more years of dividend payments without a reduction is the first rule in dividend investing. Investing in high quality companies with long dividend histories does more than give you investing peace of mind; it has historically led to outperformance.
Several of the Dividend Kings are businesses with strong franchises that are well-known to people around the world. The Dividend Kings list counts well-known companies like Coca-Cola (KO) , Johnson & Johnson (JNJ) , and Colgate-Palmolive (CL) among its ranks. Keep reading to see the only 16 companies in the U.S. stock market that have paid increasing dividends for 50 consecutive years.
Coca-Cola has increased its dividend payments for 54 consecutive years. The company currently trades at a price-to-earnings ratio of 23.4 and has a dividend yield of 2.90%. The company's relatively high dividend yield and virtual guarantee of increasing dividends in the future should appeal to investors looking for rising income.
Coca-Cola controls 17 brands that sell over $1 billion each annually. These brands include: Sprite, Fanta, Minute Maid, Dasani, and Simply juices. Coca-Cola has become the global market leader in both carbonated and non-carbonated (and here you thought Coca-Cola was just soda) non-alcoholic beverages through its excellence in advertising. The company spent over $3 billion dollars on advertising in its last full fiscal year. That buys a lot of brand recognition.
Coca-Cola still has a long growth runway ahead. The company has managed to grow its dividends at about 9.33% a year over the last decade. Future growth will be driven by the company's continued leadership in juice. Coca-Cola has captured an amazing 33% of global juice growth since 2007. The company will also benefit from further expansion into emerging markets. Additionally, Coca-Cola has partnered with both Monster Beverage (MNST) and Green Mountain Coffee Roasters (GMCR) to align itself with current trends in the beverage business.
There are no signs that the company will not be able to continue growing its dividend payments.
Johnson & Johnson (JNJ)
Johnson & Johnson is a truly amazing business. The company has increased its adjusted-earnings-per-share for 30 consecutive years. To have that level of earnings stability is virtually unheard of for any business. Additionally, the company has 52 consecutive years of dividend increases. Johnson & Johnson currently has a price-to-earnings ratio of 17.2 and a dividend yield of 2.7%.
Decades of success has grown Johnson & Johnson to enormous heights. The company 's $290 billion market cap makes it the largest health care corporation in the world and seventh largest publicly traded corporation in the U.S. Johnson & Johnson splits its operations into three separate segments that could each easily be stand alone businesses: consumer, pharmaceutical and medical devices and diagnostics. The company's consumer segment generates about $14 billion a year in revenue; the pharmaceutical segment generates about $32 billion in revenue a year; and the medical devices and diagnostics segment generates about $27 billion a year in revenue.
Johnson & Johnson controls some of the most well known health brands including: Neosporin, Listerine, Tylenol, Visine, Pepcid, and Motrin. Johnson & Johnson's growth is being propelled by favorable macroeconomic tailwinds. The company is benefiting from rising health care spending, which is far outpacing GDP growth in most developed nations. Health care spending is on the rise in the developing world as well. Johnson & Johnson will likely continue to grow its earnings and dividends as global populations and demand for healthcare rise.
Procter & Gamble (PG)
Procter & Gamble is a diversified consumer goods corporation. The company has paid dividends for 124 consecutive years, and increasing dividends for 58 consecutive years. The company serves about 4.8 billion people around the world through its many well-known brands including: Bounty, Charmin, Crest, Dawn, Gillette, Head & Shoulders, Oral-B, and many more.
The company's stock currently has a price-to-earnings ratio of 25.4 and a dividend yield of 2.86%. Procter & Gamble's strong brands have grown it to a market cap of $243 billion which is good for the thirteenth largest publicly traded corporation in U.S. markets.
Procter & Gamble is currently restructuring its operations. The company is divesting itself of less profitable or slow-growth brands and focusing on its core brands that have driven results over the last several years. To this end, Procter & Gamble is selling its Duracell brand to Berkshire Hathaway. Streamlining operations should increase Procter & Gamble's profit margins and reward shareholders with increases earnings-per-share and growing dividend payments.
Having less brands will give the company more advertising spending on each brand. Procter & Gamble spent $9 billion on advertising in its last fiscal year. Going forward, expect Procter & Gamble's growth to be driven by rising global populations and a more streamlined operations with fewer brands but better focus on each particular brand.
3M is the second largest publicly traded diversified machinery company, behind only General Electric (GE) . 3M has a market cap over $100 billion and has paid increasing dividends for 56 consecutive years. 3M currently has a price-to-earnings ratio of 22 and a dividend yield of 2.1%.
3M operates in 5 distinct manufacturing segments: Industrial, Electronics & Energy, Safety & Graphics, Health Care, and Consumer. The company's Industrial segment is its largest, based on revenue, generating over one-third of total revenue for the company. The Industrial segment's main products are transportation equipment and adhesives/tapes. 3M's most well known segment is its consumer segment, despite generating the least amount of revenue for the company. 3M's consumer segment owns well known brands that include: Post-It, Scotch, Command, and Filtrete.
Earnings per share are expected to grow at a robust 9%-to-11% a year for the next several years at 3M. The company has a long history of growing through innovation and new products. 3M currently spends about 6% of its revenue on research and development. In addition to its strong research and development department, 3M also benefits from its manufacturing expertise. The company's long history and technical know-how give it an edge in gaining contracts and working with large governments and customers.
Colgate-Palmolive has paid dividend for 119 years and has 51 years of consecutive dividend increases. The company currently has a market cap of $62 billion with a price-to-earnings ratio of 30 and a dividend yield of 2.1%. Colgate-Palmolive is trading well above its historical price-to-earnings ratio at this time. Historically, the company has traded at about a 1.15 premium to the S&P 500's price-to-earnings ratio. This implies a fair price-to-earnings ratio of around 22 to 23 for Colgate-Palmolive at current market levels.
Putting valuation aside, Colgate-Palmolive is a fantastic business. The company is the undisputed global leader in toothpaste with a 44% market share. None of its competitors have a market share above 15% in toothpaste. Colgate-Palmolive supports its high market share with continuous innovation and strong advertising spending. The company spent just under $1.9 billion on advertising in its last fiscal year as well as $250 million on research and development.
Colgate-Palmolive will likely continue to increase its dividend payments. The company has solid growth prospects in emerging markets. As emerging markets' GDP per capita continues to rise, their consumers will upgrade from regular to premium branded toothpaste and household products. Emerging market growth is the biggest long-term growth driver for Colgate-Palmolive. In developed markets, the company will continue to support its strong brands which include: Hill's Pet Nutrition, Science Diet, Colgate, Palmolive, SpeedStick, and Soft Soap.
Lowe's is the second largest home improvement store in North America with a market cap of $64 billion. It trails only rival Home Depot (HD) which has a market cap of $133 billion. Lowe's stock has a price-to-earnings ratio of 26 and a dividend yield of 1.4%. Lowe's has increased its dividend payments for 52 consecutive years. The company's success is largely due to the near-duopoly it shares in the home improvement industry with Home Depot.
Lowe's operates nearly 1,800 stores under the Lowe's and Orchard Supply names throughout North America. In addition, the company controls a 33% stake in the home improvement store operations of Woolworth's in Australia. Lowe's decades of growth in the home improvement industry make it extremely difficult for new entrants to challenge its established supply chain and business model. The company's size and reach gives it its competitive advantage.
Lowe's growth comes in spurts. The company typically grows rapidly when the U.S. economy in general, and housing in particular, is expanding. When the U.S. falls into a recession, Lowe's sees its earnings-per-share fall. As a result of the cyclical housing market which drives home improvement sales, Lowe's stock price is more volatile than most other Dividend Kings. Still, the company makes a solid investment for those who can handle negative growth during recessions but double-digit growth during times of economic prosperity.
Genuine Parts Company (GPC)
Genuine Parts Company generates over half of its revenue from its well known NAPA auto parts stores and brand. The company also owns Motion Industries which is an industrial parts supplier. Genuine Parts Company has managed to grow its dividend payments for 58 consecutive years by focusing on supply chain efficiency.
Genuine Parts Company currently trades at a price-to-earnings ratio of 23.5 and has a dividend yield of 2.2%. Genuine Parts Company's future growth will likely come from organic growth through new store openings of its flagship NAPA brand. Additional growth will come through bolt-on acquisitions. In 2013, the company expanded outside North America by acquiring Exego, an auto parts store located in Australia and New Zealand. The company is experimenting with international growth. If Genuine Parts Company can build a strong supply chain in Australia and New Zealand, it may be able to export its business model to other faster growing markets.
Dover Corporation (DOV)
Dover Corporation is a diversified manufacturer with a market cap of $11.5 billion, smaller than many of the other Dividend Kings. Dover has increased its dividend payments for 59 consecutive years. Dover currently has a price-to-earnigns ratio of 14.2 and a dividend yield of 2.3%. The company is cheap compared to other many other Dividend Kings. Dover's price-to-earnings ratio is less than half of Colgate-Palmolive's, for example.
Dover breaks its operations down into four segments. Each segments manufacturers for a different industry: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. The company's two largest segments are its Energy and Engineered Systems segments. The Energy segment specializes in artificial lift technology for the oil and gas industry, as well as bearings and compressions. The Engineered Systems segment is a 'catch-all' segment that serves the aerospace, printing, vehicle, and waste management industries.
Dover Corporation's competitive advantage stems from its long history and intellectual property it has developed. Dover's corporate knowledge combined with its highly regarded name have given it 20% operating margins. Margins have been expanding over the last several years, a positive sign for Dover shareholders. Going forward, Dover will likely grow earnings-per-share at between 5% and 9% a year. Growth will come from share repurchases (2%), organic growth (3% to 5%) and an increase in margins (0% to 2%).
Emerson Electric (EMR)
Emerson Electric is a $42 billion manufacturing corporation. The company has managed to increase its dividend payments for 57 consecutive years. It currently has a dividend yield of 3.1% and a price-to-earnings ratio of 19.8.
Emerson Electric employs over 130,000 people and has more than 230 facilities around the world. Emerson Electric's largest segment is Process Management. The Process Management segment produces devices and provides services that help other businesses regulate, control, and analyze their manufacturing or automated processes. The company's second largest segment manufactures heating, ventilation, and air conditioning products under the Emerson, Browning, Copeland, Dixell, and White-Rodgers names. In addition, Emerson Electric manufactures several consumer products including InSinkErator, ClosetMaid, ProTeam, and RIDGID.
Emerson Electric has seen relatively slow growth over the last decade. The company has managed to grow revenue-per share at just 4% a year over the last 10 years. Emerson Electric's future growth will come from worldwide GDP and capital investment growth. The company is somewhat affected by recessions, but remained profitable through the Great Recession of 2007 to 2009.
Emerson Electric is not a fast growing company. It does possess a competitive advantage in manufacturing that has driven growth over decades.
Parker Hannifin (PH)
Parker Hannifin is another diversified manufacturer (joining 3M, Dover, and Emerson Electric) with a 50-plus-year history of dividend increases. The company has raised its dividend payments for 58 consecutive years. Parker Hannifin has a dividend yield of 2% and a price-to-earnings ratio of 17.4.
Parker Hannifin is the leader in the highly fragmented motion and control industry. Parker Hannifin has a market cap of $18 billion, making it one of the smaller Dividend Kings. The company has several innovative new products that are driving growth. Parker Hannifin has developed a hydraulic hybrid drive system that lowers fuel consumption for waste disposal trucks between 30% and 50% a year. The company has also developed a fly-by-wire flight control system for commercial airliners. Finally, the company has developed a commercial airliner fuel cell that provides electrical power with greater efficiency.
Parker Hannifin's long history and strong research and development department will continue driving sales. The company has a conservative payout ratio of just 32%. Expect Parker Hannifin to continue raising its dividend going forward as it slowly increases its payout ratio and delivers sales growth through product innovation.
American States Water Company (AWR)
American States Water is a utility company with a market cap of just $1.4 billion. The company's stock has a dividend yield of 2.3% and a price-to-earnings ratio of 24.7. The company provides water utility services to 257,000 customers in California as well as electricity utility services to 24,000 customers in California. In addition, American States Water Company serves 9 U.S. military bases with water and waste water utility services. The company's military base customers are locked into 50 year contracts.
American States Water Company's operations are extremely stable. As a result, the company has managed to increase its dividend payments for 60 consecutive years without a reduction. American States Water has a payout ratio of only 56%. This is unusually low for a utility company. As a result, American States Water has a goal of growing dividend payments by at least 5% a year. The company has ample room to do so with its low payout ratio.
The company's future growth will likely be driven by growth in its military operations. American States Water Company's California operations are highly regulated and have a cap on the maximum amount of margins the company can generate. The military business does not have such a cap.
Cincinnati Financial (CINF)
Cincinnati Financial is a property and casualty insurer operating in the U.S. with a market cap of $8.3 billion. The company currently has a price-to-earnings ratio of 17.5 and a dividend yield of 3.46%, much higher than most insurance stocks. Cincinnati Financial also has a payout ratio of about 60%.
Cincinnati Financial holds about 27% of its investment float in blue chip stocks. As a result, the company tends to report better results during bull markets than bear markets. Cincinnati Financial relies on investment gains; the company has maintained combined ratio above 100% for the last several years, which means the company is not taking in enough premiums to cover its combined expenses and claims.
Despite the added risk of maintaining a combined ratio above 100% for long periods of time, Cincinnati Financial has managed to increase its dividend payments for 53 consecutive years. However, the company has struggled in recent years. It has yet to eclipse its high book value per share mark it set in 2006. Cincinnati Financials' streak of consecutive dividend increases could be in jeopardy if the economy sours. Cincinnati Financials' reliance on investment gains to cover its 100%+ combined ratio will prove to be short-sighted when investment gains turn into investment losses (in bear markets). The company's relatively high payout ratio means it may not be able to sustain its dividend through the next recession.
Lancaster Colony (LANC)
Lancaster Colony sells consumer food products under the Marzetti, New York, and Sister Shubert's brands. The company was founded in 1961 and has paid increasing dividends for 52 consecutive years. The company's stock currently has a dividend yield of 2% and a price-to-earnings ratio of 25.4.
Lancaster Colony appears overpriced at this time. The company has historically traded about in line with the S&P 500's price-to-earnings ratio. Lancaster Colony is currently trading at a 25% premium to the overall market. The company's higher-than-average price-to-earnings ratio does not appear warranted. Lancaster Colony has only mediocre growth prospects.
The company has managed to grow revenue per share at under 1% a year over the last decade. Earnings per share have increased at over 5% a share as the company has seen significant margin growth. Margin enhancement cannot continue indefinitely. Lancaster Colony will have to find a way to increase sales in a meaningful way to justify its rich valuation. The company has no debt and about $230 million in cash on its balance sheet. Potential acquisitions are difficult to find in the food industry, as larger competitors will pay premium prices for quality brands.
Lancaster Colony has a solid management well versed in capital allocation. The company has stopped share repurchases, likely due to the stock being overvalued. Management may resume share repurchases when the stock drops to or below fair value.
Nordson Corporation (NDSN)
Nordson designs, manufactures, and sells industrial application equipment. The company operates in three primary segments: Adhesive Dispensing Systems, Advanced Technology Systems, and Industrial Coatings Systems. Nordson has a market cap of $4.7 billion. The company is the fourth manufacturing company on the Dividend Kings list (the others are 3M, Dover, Emerson Electric, and Parker Hannifin).
Nordson has a price-to-earnings ratio of 19.7 and a dividend yield of only 1.16%. The company has a payout ratio of about 23%. Nordson has managed to grow its dividend for 51 consecutive years. The company has been able to adapt and thrive in the manufacturing industry for 5 full decades.
Since 2011, Nordson has repurchased 11% of shares outstanding. The company has paid out over twice as much in share repurchases than as in dividends. Share repurchases boost shareholder return by reducing share count thereby making each share outstanding own a larger proportion of the business. In addition to share repurchases, Nordson has used about 50% of its cash flows to acquire smaller businesses. The company will likely continue growing constant currency revenue in double digits, barring an economic downturn.
Even if the economy does turn south, Nordson will likely not incur losses. Over 40% of the company's revenue comes from adhesive products on consumer food packaging. This revenue will likely remain constant regardless of the economic climate. Over the Great Recession of 2007 to 2009, the company remained profitable but saw earnings per share decline from a high (at that time) of $1.77 to $1.20 before recovering.
Northwest Natural Gas (NWN)
Northwest Natural Gas is a gas utility provider for the Pacific Northwest. The company serves Portalnd and Eugene, Oreg., as well as Vancouver, Wash. Northwest Natural Gas has increased its dividend payments for 59 consecutive years. The company currently has a dividend yield of 3.8% and a price-to-earnings ratio of 22.3.
Northwest Natural Gas operates in a highly regulated industry that caps its maximum profit margins. Regulatory barriers work well to impede competition, but also slow growth. Northwest Natural Gas has managed to grow earnings per share at less than 1% a year over the last decade. The company has grown dividends at about 3.8% a year over the same time. Northwest Natural Gas cannot increase dividends faster than earnings per share growth indefinitely. The company already has a payout ratio of about 85%. Dividend payments will likely grow in line with earnings per share in the future. Growth will be slow going forward.
Shares of Northwest Natural Gas may appeal to investors looking for high yields and safety, with no need for growth. There are serious doubts about whether the company will be able to raise its dividends faster than inflation. The most recent 1% dividend increase in 2014 did not cover the inflation rate of 1.3% in 2014.
Vectren Corporation (VVC)
Vectren is a diversified utilities business with a market cap of $3.8 billion. The company has a dividend yield of 3.3% a year combined with a price-to-earnings ratio of 23.5. The company currently has a payout ratio of about 78%.
Vectren provides gas utility services in North Indiana, gas and electric services in South Indiana, and gas services in Ohio. In addition, the company operates two non-utility businesses: infrastructure services and energy services. The infrastructure services segment constructs and provides maintenance work on oil and gas pipelines. The energy services segment focuses on developing, designing, constructing, and operating large scale energy projects.
Vectren has grown earnings-per-share at just 1.4% a year over the last decade and dividends-per-share at 2.2% a year. The company's sluggish growth is due to its presence in the highly regulated utility industry. The company is expected to grow faster going forward than it has in the past thanks to its non-utility businesses. Still, Vectren is not a strong candidate for investors looking for dividend growth. It is a suitable investment for investors looking for 3%+ dividend yields that will grow at or slightly faster than inflation.