Please ensure Javascript is enabled for purposes of website accessibility

The Greatest Dividend Stock That You've Never Heard Of

By Sean Williams – Updated Oct 23, 2019 at 3:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

No publicly traded company has been paying a dividend for a longer period.

More often than not, dividends form the financial foundation of any successful long-term investment portfolio. Aside from the fact that dividend-paying stocks have historically run circles around their non-dividend-paying peers, there are three advantages that dividend stocks offer investors.

For starters, dividend-paying companies are beacons of profitability. Generally speaking, a company isn't going to share a percentage of its profit or cash with shareholders on a regular basis if its board doesn't foresee the company growing, or at the very least remaining healthfully profitable, moving forward. Thus, a regular dividend can help investors decide whether or not a company passes the initial "sniff test" of having a sustainable and time-tested business.

A man placing crisp one hundred dollar bills into two outstretched hands.

Image source: Getty Images.

Second, a regular payout can help calm the nerves of skittish investors. Although stock market corrections are far more common than you realize, the abruptness of the downward moves caused by corrections can unnerve investors. Regularly receiving a dividend can help hedge against this downside and keep long-term investors from making a rash investment decision that they'll later regret.

Third, your payouts can be reinvested back into more shares of dividend-paying stock through a dividend reinvestment plan, or Drip. A Drip is what top money managers use to compound the wealth of their clients. You see, as you buy more shares, your dividend payout grows larger. And as your payout grows larger, you're likely able to buy an even greater number of shares, in compounding fashion.

There are a lot of dividend stocks, but few great income stocks

There's no question that investors love dividend stocks, and there's clearly no shortage of companies to choose from. At any given time, somewhere in the neighborhood of 3,000 stocks will pay a dividend -- albeit no two dividend stocks are created equally. It takes a lot for an income stock to truly be deemed as special on Wall Street.

One of the more common ways Wall Street has tried to separate the haves from the have-nots is by focusing on Dividend Aristocrats -- a small group of S&P 500-listed companies that have increased their annual payout for a minimum of 25 consecutive years. Presumably, only companies that have time-tested business models would be capable of such a feat, making them worthy of consideration for income seekers.

A neat stack of one hundred dollar bills, a calculator, and a pen, lying atop a financial newspaper.

Image source: Getty Images.

Another possibility is to focus on businesses that have exceptional credit ratings, such as healthcare conglomerate Johnson & Johnson (JNJ -0.71%). According to Standard & Poor's, Johnson & Johnson is one of only two publicly traded companies to bear the AAA credit rating. That's actually one notch above the AA rating bestowed on the U.S. government. This means Standard & Poor's has the utmost confidence in Johnson & Johnson's ability to repay its debt, grow its business, and presumably continue to make its dividend payouts. Not surprisingly, J&J is working on a streak of raising its payout for 57 consecutive years. 

But of all the dividend stocks regularly followed by Wall Street and retail investors, they might be ignoring the greatest income stock of them all: York Water (YORW -0.47%).

Here's why York Water is the greatest dividend stock you've never heard about

If the York Water name doesn't ring a bell with you, don't worry -- you're not alone. We're talking about a provider of drinking water and wastewater services in 48 total counties in Pennsylvania with a market cap, as of this past weekend, of $564 million. Further, York Water has an average daily trading volume of 31,629 shares over the past three months, so it's not exactly the most popular target among Wall Street or retail investors. But that doesn't make what it's done for income investors over the years any less impressive.

York Water has been paying a regular dividend to its shareholders since it was founded... all the way back in 1816. Although it may not have the same impressive streak of raising its dividend annually like the S&P 500's Dividend Aristocrats, there isn't a publicly traded company within a stone's throw of York's streak of paying a dividend for 203 consecutive years. The next-closest public company would be Stanley Black & Decker at 142 straight years of dividend payouts.

A person filling up a glass of water from a kitchen sink faucet.

Image source: Getty Images.

What makes York Water so special?

For one, it's providing a basic-need good and service. Regardless of whether you own a home, condo, or rent, you need water. Because it's a basic-need good, consumers' usage habits tend not to change much from one year to the next. This often leads to predictable cash flow for York.

Building off this first point, it's important to recognize that there's often little competition when it comes to water and wastewater services. Most owners and renters will have only one company to choose from to provide their water and wastewater needs, giving York even more predictability when it comes to revenue and cash flow generation.

York's water business is also regulated by the Pennsylvania Public Utility Commission. On one hand, this means that the company isn't able to pass along price hikes for water usage without the approval of the Commission. On the other hand, this added layer of regulation ensures that York isn't exposed to wholesale price fluctuations for its product. Again, it's all about predictability for utility stocks like York Water.

Lastly, York's management team has approached acquisitions with an abundance of fiscal caution. While the company has added new customers over the years by making purchases, York's debt levels have been kept at reasonable levels.

A man standing behind an ascending stack of coins, with progressively larger plants sprouting out of the top of each stack.

Image source: Getty Images.

Now, I know what you're probably thinking: "Even with a 203-year payout streak, what's so special about a 1.6% dividend yield?" Though this payout is a bit lower than what we're used to seeing from utility stocks, keep in mind that this is more a reflection of York Water's stock gaining 36% this year, and 110% over the past five years. Remember, since yield is a function of price, a higher share price means a lower yield.

No matter how you look at the data, York Water is a great dividend stock that more investors should acquaint themselves with.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$163.36 (-0.71%) $-1.17
The York Water Company Stock Quote
The York Water Company
$38.43 (-0.47%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.