There have been a lot of business cycles over the past five decades, ups and downs through which it takes astute leadership to survive and thrive. But Dividend Kings, companies that have increased their dividends for at least 50 consecutive years, have done just that, and the proof is in the dividend cash that's lined shareholders' pockets.
The Procter & Gamble Company (PG 0.19%), Hormel Foods Corporation (HRL 0.62%), The Coca-Cola Company (KO 0.86%), Stanley Black & Decker, Inc. (SWK 1.47%), and 3M Company (MMM 0.51%) have all rewarded investors with half a century (or more) worth of consecutive dividend hikes. Here's why they should be on your buy list, or wish list, today.
1. Changing times
Procter & Gamble has increased its dividend for 62 consecutive years. The current yield is 3.4%, which is toward the high end of its historical range. That suggests now might be a good time to add this Dividend King to your portfolio.
Image source: Getty Images.
Go in knowing that the international consumer products giant is facing some headwinds. For example, it is bringing out "natural" versions of its products to better align with a customer trend it missed. The internet has allowed new brands to grab market share, leaving Procter & Gamble to fight for share -- often through price cuts. And input cost inflation is squeezing margins. Investors are worried, but a reasonable level of debt, a long history of solid execution, industry-leading brands, and a global distribution network suggest it will get through this rough patch just like it has every other one it's faced over the last six decades.
2. Food fight
Hormel Foods has increased its dividend for 52 consecutive years. The current yield is roughly 2%. Like Procter & Gamble, that's toward the high end of its historical range. Now could be a good time for investors to take a look at this protein-focused packaged-food company.
Once again, though, there are some problems about which you need to be aware. The most important is that customer tastes are shifting toward fresh food. Although Hormel offers plenty of that, it also has a material presence in pre-packaged fare like SPAM, Dinty Moore, and Hormel Chili. That said, it is increasingly shifting its focus to better align with customer desires, including buying such brands as Wholly Guacamole and increasing its exposure to the fast-growing deli aisle. It is also working to expand globally, where it has modest exposure at present. While rising input costs are an issue here, too, those costs will eventually be dealt with via cost-cutting or price hikes. With little debt on the balance sheet, Hormel should have no problem surviving these industry headwinds.
3. Less fizz
Coca-Cola is another iconic consumer product brand, best known for its namesake soda. The dividend has been increased for 56 consecutive years, and the yield is around 3.5% today. Like the other two companies above, Coke's dividend is toward the high end of its historical range.
KO Dividend Yield (TTM) data by YCharts.
The reason for that is yet another shift in customer tastes, this time away from the company's core sugary soda brands and toward what are considered healthier drinks, teas and coffees, and water and seltzer. Coca-Cola isn't sitting still; it has been buying smaller brands that are more in line with customer tastes (Honest Tea, Topo Chico, and most recently an agreement to acquire Costa Coffee), and it has been introducing new products at a rapid clip. Long-term debt at 60% of the capital structure is a little high (and that figure doesn't include the impact of the $5 billion Costa Coffee deal), but not unreasonable. Given the company's long history of success, it's probably worth the risk/reward trade-off for dividend investors to give it the benefit of the doubt today.
4. Innovation never ends
3M, which some may also know by its old name, Minnesota Mining and Manufacturing, currently offers investors a yield of around 2.6%. That's kind of middle of the road based on the company's dividend yield history. That suggests it is neither a bargain nor overpriced. Add in the company's 60 consecutive annual dividend increases, though, and it should be on your watchlist today, just in case a market drop pushes the yield above 3% -- which would be an attractive entry point, historically speaking.
Like the other stocks noted here, 3M is working through some difficult conditions today. Input price inflation, weak pricing power, shrinking margins, and what appears to be a drop off in its execution are all worrying investors right now. However, diversified industrial giant 3M has a very long history of innovation behind it -- on which it has built that incredible dividend track record. R&D investment doesn't always yield a constant stream of new products that line up with investor expectations for company growth. With long-term debt at around 50% of the capital structure, there's little reason to worry about 3M's ability to weather its current problems. And if the stock traded a little lower, it would be worth adding to your portfolio.
5. Tooling around with new brands
Last up is Stanley Black & Decker, a diversified industrial giant best known for making tools under its two namesake brands (Stanley and Black & Decker). The company has increased its dividend for 51 years. The current yield is roughly 1.9%. That's kind of low by historical standards, so I wouldn't rush out to buy the company, but I would put it on your watchlist.
KO Financial Debt to Equity (Quarterly) data by YCharts.
Investors are concerned today because Stanley started 2018 on a relatively weak note by trimming its full-year earnings outlook. However, it has long been a consolidator in the markets it serves, notably buying the Craftsman brand from Sears Holdings in 2017. That brand has been revamped and is now benefiting from broader distribution. Stanley is still adding to its business, too, recently buying Nelson Fasters. In other words, the company is continuing to grow using the successful playbook that's helped guide it to five decades of dividend hikes. A few relatively weak quarters, or even years, isn't a reason for long-term income investors to panic. That's doubly true when you consider that Stanley has just a modest level of debt. If investors thinking in the short term push the yield up to the 2.5% to 3% range, dividend investors should probably step in.
Some for now and later
Procter & Gamble, Hormel, and Coca-Cola are all facing difficult consumer markets that have pushed their yields up into attractive ranges based on their own dividend yield histories. All are worth a deep dive today for income investors who can think long term. Stanley Black & Decker and 3M, meanwhile, are two industrial names that aren't exactly cheap today, but are worth putting on your watchlist. That's because there are some negative issues brewing that could lead investors to punish the stocks and open up good risk/reward opportunities for investors who don't panic about short-term results. After all, a company that's managed to achieve Dividend Kings status is one that's proven it deserves the benefit of the doubt.
