DIVIDEND “VIKING” KINGS
There are certain companies called “Dividend Kings” because they are categorized as the safest dividend producing stocks one can invest in. They have increased their dividend for 50 or more years. This means the company has demonstrated growth, reliability and stability.
There are also “Dividend Aristocrats” who have demonstrated a 25 year streak of dividend increases. In my view, as part of a balanced and managed portfolio, it is hard to go wrong with these stellar companies. There is of course risk associated with all investing, but these tend to be the tried and true companies that have a long productive life.
In order for a company to be a Dividend King or Aristocrat, they typically need to exhibit the following attributes:
- A sustainable business model. (Do they make a product people want or like?)
- Financial fortitude. (Do they have reserves?)
- Efficiency in allocation of capital (Are they putting their money into the right internal investments, machinery, marketing, etc.)
- Committed to the shareholder (Do they feel an obligation to take care of the shareholders and hold their interests in high regard?)
- Good management teams (Are the right people with the right skills sets in the right place?)
THE LIST OF DIVIDEND KINGS
1. American States Water (AWR) – 66 years
2. Dover (DOV) – 65
3. Genuine Parts (GPC) – 65
4. Northwest Nat. (NWN) – 65
5. PG – Proctor & Gamble – 65
- PG is one of the great American Dividend Kings, with 65 years of ever-increasing dividend payments to investors.
- Its business model and balance sheet are very strong, positioning the company to grow dividends for years to come.
- It might be fully valued, but could also serve as a wealth preserver and hedge against any turbulence in the market. Any dips could be considered good entry points for this dividend stalwart.
- In the short run there is some inflation risks that could impact the company, but over the long run PG has proven to be a winner.
Defensive Wealth BuilderYesterday Bob illustrated through charting how the SPY (tracks the S&P 500) appears either fully valued or a bit over valued. So what is an investor with a diversified portfolio and exposure to the S&P to do?
Market TimingMarket timing can be hard and not advised. No one really knows that the market will do in the short run, but it typically performs well as an asset class in the long run. This is why many investors are well served through continual dollar cost averaging into their 401k S&P 500 index over a couple decades. But if one is concerned that equities are highly valued and wants to reduce risk, one could search for stocks such as Proctor & Gamble. PG is up there with JNJ in my book as a classic buy and hold dividend payer and wealth preserver.
A Vast Empire Of Products
With products such as Tide, Bounty, Charmin, Crest, Dawn, Always, this company is built for good times and bad in the economy. These are all products that consumers cannot easily give up on, even in the event that times will get tough. There can be some product substitution, for instance, Bounty paper towels may be substituted with cheaper alternative paper towel brands. I don’t believe that the substitution effect for most of its products would ever become so significant that it would cause a severe decline in revenues or profits.
P&G net earnings are up 12%, even though its revenue has been flat for the latest quarter, compared with the same quarter from last year. In terms of profitability as a percentage of revenue, it is looking rather solid, with $3.2 billion in net earnings. Other important measures such as interest on debt are looking good as well. Interest costs came in at $129 million, which is less than 1% of revenue. Procter & Gamble offers 3.2% dividend yield. P&G is quite simply a defensive stock.
6. Parker Hannifin (PH) – 65
7. Emerson Electric (EMR) – 64
8. 3M (MMM) – 633M boasts a hugely diversified product portfolio. There are the well known brands such as Scotch tape, Post-It notes and Scotch Brite cleaning sponges. Their materials and products are used for thousands of applications in particulate control, bioprocess monitoring, single use storage, commercial HVAC filters, sterilizing grade filters, buffer and media filtration (I wish I knew what that meant). 60,000 products sold in 70 countries! Not really “sexy” products, but great products that the modern world demands. 3M is one of only a handful of companies to increase its dividends for over six decades.
9. Cincinnati Fin. (CINF) – 61
10. Johnson & Johnson (JNJ) – 59Normalized Diluted Earnings Per Share (TTM): $5.51 Cash Flow From Operations (CFO) Per Share (TTM): $8.81 Free Cash Flow Per Share (TTM): $7.56 Estimated Intrinsic Value: $156 Buy Price Based on Required Margin of Safety = $142
- JNJ seems like one of those buy and hold for the long term stocks that has paid an increased dividend for decades.
- JNJ has Covid vaccine is launched after a bumpy start.
- JNJ invests billions each year in R&D to continue to deliver new and better health products.
- No matter the economic cycle, people will get older and require health related products and support.
- 2.94% dividend yield, $3.80/share dividend payout per year. 100 shares provides $380 in dividend income per year (that buys a lot of baby shampoo!)
- Now may be an attractive entry point for the stock. It is an all weather investment that seems to do well under any conditions. I think of it as a sleep at night stock.