If you are reading this blog from time to time, you are definitely interested in dividend investing. The idea of buying shares from a company and receiving a check every quarter is at the center of many investor strategies. The idea is quite simple: you select a group of elite companies paying dividend regularly. You buy and hold shares of those companies for several years. After a while, you realize you receive bigger checks each quarter which you can reinvest into your portfolio. Once retired, those dividend payments have become substantial and you can use those payouts to finance our lifestyle as a retirement income.
Now, the tricky part is always at the very beginning of any investing strategy: how do you pick the right companies? Could you imagine that there is a group of companies that have already been identified for you as super powered dividend payers? Those companies have been not only paying, but increasing their dividend payment for at least 50 years… They are called the Dividend Kings.
What are Dividend Kings?
The dividend kings are the most prolific dividend payers of the pat 50 years and counting. They are usually companies that have been around for nearly a century and started paying dividend a while back ago. They are leaders in their industry and have built a stable but adaptable business model generating substantial cash flow. Management teams have focused on generating values to shareholders by distributing an ever growing part of their profits for over half a century. While most of the Dividend Kings are not sky rocketing stocks, they have strong competitive advantages and have been able to grow slowly but steadily. To this date, there are 18 companies part of this elite group:
- American States Water (AWR)
- Cincinnati Financial (CINF)
- Colgate-Palmolive (CL)
- Dover Corporation (DOV)
- Emerson Electric (EMR)
- Farmers & Merchants Bancorp (FMCB)
- Genuine Parts Company (GPC)
- Hormel Foods (HRL)
- Johnson & Johnson (JNJ)
- Coca-Cola (KO)
- Lancaster Colony (LANC)
- Lowe’s (LOW)
- 3M (MMM)
- Nordson (NDSN)
- Northwest Natural Gas (NWN)
- Parker-Hannifin (PH)
- Procter & Gamble (PG)
- Vectren (VVC)
Interesting enough, there are some companies you might have never heard of. I’ve been doing a lots of digging around this list and realize that some companies are paying low dividend yield and would probably fly under the radar of many income seeking investors. However, I’m asking this question; can you really ignore a company that has been increasing its payout for over 50 years?
Imagine if you would have built a portfolio of those companies 30 years ago…
Should I invest in Dividend Kings?
The problem is that 30 years ago, those company weren’t dividend kings. In fact, the term dividend kings is now starting slowly to come among dividend investors conversations has there are only 5 companies among the Kings which have been increasing their payouts successfully for over 60 years (AWR, DOV, GPC, NWN, PG). Therefore, how can you select a company today that will become a dividend kings in 30 years from now? Or, how can you select a dividend king today that will continue to increase its payout for the next 30 years? You should know that past returns is not a guarantee of futures returns. The same rationale applies on dividend payment!
What I like from the Dividend Kings is that they have already achieved an incredible feat. This impressive milestone didn’t happen by fluke or because management was surfing on a bull market. Increasing a dividend payment for 50 consecutive years could only be achieved if the company shows the following characteristics:
A strong business model;
Competitive advantage strong enough to last decades;
Conservative management approach;
A balance between distributing cash flow and generating growth within the company;
Being a leader in their industry or niche market;
Having a strong long term vision and manage accordingly.
Any companies showing this great quality package definitely worth at least a look into their financial statements, right? This is what I did…
Which kind of return Dividend Kings give?
I could have dug into the past 50 years and found out how Dividend Kings performed since they started increasing their dividend. However, I didn’t find it very relevant as life back in the 1960’s and 1970’s is definitely not close to what we experience now. I decided to look at the stock growth value over the past 10 years instead. This has been a very interesting period as we went through one of the worst stock market crash and several companies had to suspend or cut their dividend payment for a while. The Dividend Kings continues their plan and kept rewarding investors for their patience. Here’s are the results of my calculation:
As you can see, out of 18, only 5 companies underperformed the S&P 500 and 7 dividend kings doubled the S&P 500 return. In percentage, this makes 72% companies outperforming the market and 39% of them have given more than double the market to their shareholder. This is without counting the ever increasing dividend payments during this period. To the question; are dividend kings better than the stock market? The above mentioned chart sends a strong answer.
Dividend Kings Analysis
Unfortunately, putting a chart together and bringing past returns will not tell you how each Dividend Kings will perform in the future. For this reason, I’ve made a complete analysis of each dividend kings in my most recent August DSR premium newsletter. As a reference, I’ve decided to share a part of this analysis for free on this page:
Feel free to read about each company and select a few good dividend payers among this list!