While Dividend Aristocrats are members of the S&P 500 that have raised their dividends annually for at least 25 straight years, Dividend Kings are an even more impressive group of companies: the ones in the index that have hiked their dividends annually for a minimum of 50 consecutive years.
Obviously, that is quite a feat. Narrowing that list of 30 companies, here are five that I believe have earned a "forever" holding period.
Johnson & Johnson
Founded in the 1880s, it has three powerful segments: consumer goods (including popular brands such as Band-Aid, Tylenol, and Listerine), pharmaceuticals (drugs to treat conditions like cancer, heart issues, and diabetes), and medical devices (orthopedic and surgical products). These are the types of products that do well in any economic environment. People are not likely to buy less of everyday items, and its drugs and medical devices are crucially important.
Its second-quarter results were hurt by the pandemic, which caused hospitals to postpone many surgical procedures and people to buy less personal-care products, with adjusted sales down nearly 9%. But this should rebound as governments lift restrictions.
Better still, Johnson & Johnson's global presence, with nearly half of its sales generated from outside the U.S., helps offset weakness in a particular region.
Even with a weaker second quarter, its 67% payout ratio provides a nice cushion.
Procter & Gamble
Procter & Gamble (NYSE:PG) has paid a dividend annually since 1890, and the board of directors has seen fit to increase the payment for 64 straight years, a strong commitment particularly comforting for income investors.
While many companies suspended their dividends in the wake of the pandemic, Procter & Gamble increased May's quarterly payout about a nickel to roughly $0.79, equating to a 2.3% yield based on the current stock price.
This 183-year-old company has an impressive stable of brands, including shampoo; shaving products; laundry detergent, and feminine- and family-care products. Its brands include Head & Shoulders, Gillette, Crest, Always, Downy, Luvs, and Bounty. These trusted products and their noncyclical demand explain Procter & Gamble's longevity.
Operating cash flow has been growing over the last several years, which is comforting for those looking for dividend security. Fiscal 2020, which ended on June 30, saw its cash flow increase by 14% to $17.4 billion. After capital expenditures of $3.1 billion, there was a nice cushion left to pay the $7.8 billion in dividends.
Lately, Colgate-Palmolive (NYSE:CL) has increased dividends modestly. This includes May's penny raise to $0.44 per quarter, which is a 2.3% yield at the current share price. The steady approach comes from a company that has paid a dividend since 1895 and increased it for 57 consecutive years.
A strong lineup of products whose demand doesn't fluctuate based on the economy provides peace of mind that it can keep the streak alive. These include toothbrushes, toothpaste, soap, and household cleaners sold under popular names like Colgate, Palmolive, and Speed Stick. And its pet nutrition business sells dog and cat food.
There is plenty of free cash flow (operating cash flow minus capital expenditures) to support its dividend. For the first half of 2020, Colgate's free cash flow was $1.6 billion, versus $784 million in dividends.
With over a century of paying dividends, including raising them annually for the last 62 years, 3M (NYSE:MMM) has earned its place on the Dividend King list.
The board of directors last increased dividends in March, when it boosted the quarterly payout from $1.44 to $1.47. Based on Wednesday's closing price, the dividend yield is 3.6%.
While its personal protection equipment is in demand during the coronavirus pandemic, 3M has a lot of other strong offerings. These include various tapes and adhesives, transportation and electronic components sold to manufacturers, and healthcare products like medical and surgical supplies. Its consumer lineup include Scotch and Post-it brand goods.
3M's $2.4 billion of free cash flow in the first half of the year was more than sufficient to cover its $1.7 billion in dividends.
Stanley Black & Decker
Like the others listed here, Stanley Black & Decker (NYSE:SWK) has built an impressive track record, paying a dividend for 144 consecutive years. It has now hiked the payout annually for the last 53 years after increasing this month's quarterly dividend from $0.69 to $0.70. This works out to a dividend yield of 1.8%.
This 177-year-old company's professional tools and storage products are responsible for 70% of its sales, including Stanley cutting and measuring tools, and Black & Decker power tools, and lawn and garden products. It acquired the Craftsman line of tools a few years ago and has industrial and security businesses.
These are slow-growth businesses, and the coronavirus hurt second-quarter sales. The period's top line declined by 16% versus the year-ago period.
With 2019's adjusted sales growth of 3%, the recent swoon will likely prove temporary. While management pursues acquisitions to bolster growth and broaden the business, it has committed to returning 50% of its free cash flow to shareholders in dividends and share repurchases.
Stanley Black & Decker's payout ratio is about 52%, so it is certainly not stretching itself. This should reassure investors as they collect dividends while waiting patiently for its growth initiatives to kick in.