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5 Top Dividend Kings to Buy and Hold Forever

By Neha Chamaria – Aug 15, 2021 at 11:00PM

Key Points

  • Dividend Kings are the best-in-class dividend growth stocks.
  • The longer you hold them, the greater your wealth-building chances.
  • Take your pick from these five Dividend Kings that are great at what they do.

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These five dividend growth stocks are primed to reward you for decades to come.

Dividend investing is a proven strategy to build wealth, but not if you chase yields. The trick is to buy dividend growth stocks that pay regular, stable, and growing dividends, and hold them for as long as you possibly can. That's how you grow money, and that's what investing in Dividend Kings is all about.

So Dividend Kings have typically low yields, but these S&P stocks have increased their payout every year for at least 50 consecutive years or more. That's no mean feat, and only 32 stocks currently make the cut. Among these, I believe the below 5 are the best Dividend Kings to buy now and hold for the long term.

The best of the breed

Consumer defensive, utilities, and industrials stocks rule the Dividend Kings list. Inclusion of industrials in the niche group, in particular, proves that even conglomerates and cyclical stocks can be top dividend payers if management is focused on cash-flow growth and shareholder returns. I admire such companies, which is why a lesser-known industrials stock, Parker-Hannifin (PH -3.58%) has made it to my best Dividend Kings picks today.

Another intriguing cyclical stock that caught my attention is PPG Industries (PPG -2.29%), a new entrant that became a Dividend King just this July with its 50th dividend increase. Other top picks include American States Water (AWR -1.73%), Johnson & Johnson (JNJ 0.05%), and Lowe's (LOW -0.92%).

A group of five young sportspersons celebrating a win with a trophy.

Image source: Getty Images.

It's a motley group of stocks from five different sectors, but each a stellar dividend stock in its own right. 

Stock Sector Number of years of dividend increases Dividend yield Dividend payout ratio
American States Water Utilities 67 1.7% 53.6%
Parker-Hannifin Industrials 65 1.4% 27.5%
Lowe's Retail 59 1.7% 25.5%
Johnson & Johnson Healthcare 59 2.4% 61.5%
PPG Industries Basic materials 50 1.4% 33.9%

Data source: Company financials and Yahoo! Finance. Table by author.

So what have these companies done right to stand out in their industries and become such fine dividend-paying stocks? More importantly, what is their growth potential? 

To start, all five companies are among the leaders in their respective industries, have built a strong brand image over the decades of their existence, and have clear growth plans. Here's a rundown of the things you must know.

American States Water

Water is an essential element, and American States Water a regulated utility. That's a win-win when it comes to stability in cash flows, but that's only part of American States Water's story: Its real growth potential lies in its subsidiary that provides water and wastewater serves to several U.S. military bases under 50-year, fixed-price government contracts. The company has grown dividends at a compound annual growth rate (CAGR) of nearly 10% in the past decade, and is targeting at least 7% CAGR in the long term.

PPG Industries

Founded in 1883, PPG Industries is the world's second-largest paint and coatings company today, behind Sherwin-Williams. PPG dominates the global aerospace and automotive coatings markets and is among the top players in other markets like industrials, marine, packaging, and architecture. A judicious mix of organic and inorganic growth, and a balanced capital allocation policy that reinvests 50% cash flows into business and returns 50% to shareholders, has brought PPG this far. PPG has grown dividends at 7% CAGR in five decades, and is looking to expand into large markets like China and India and high-potential industries like electric vehicles for growth.

Parker-Hannifin

Parker-Hannifin is the world's largest motion and control technologies company, with solutions ranging from hydraulics, pneumatics, filtration, fluid and gas handling, climate control, electro-mechanical, to process control. Innovation and high-profile acquisitions like that of CLARCOR has helped Parker-Hannifin corner 11% of the global motion and control market today.

The company consistently generates higher free cash flow (FCF) than net income to support dividend growth, and delivered record sales, net income, and operating cash flow in fiscal 2021. Parker-Hannifin is vying for 20% global market share in the long term, and its latest growth move includes an agreement to acquire UK-based Meggitt to nearly double its aerospace systems segment.

Johnson & Johnson

Johnson & Johnson is the only healthcare stock to have achieved Dividend King status. Two reasons are spending on research and development and an incredibly diversified portfolio that spans pharmaceuticals, medical devices, and consumer health. Consider that 28 of Johnson & Johnson' products generate $1 billion each in annual sales, and nearly 25% of its sales comes from products launched in the past five years. Its single-shot COVID-19 vaccine is yet another evidence of Johnson & Johnson's innovation prowess.

Johnson & Johnson generates so much cash that it could easily increase dividends for nearly 60 years despite dividends ranking low on management's capital allocation priority list. With an ever-growing biotech pipeline, its cash flows are only likely headed north. 

Lowe's

The home-improvement industry in the U.S. is a virtual duopoly between Lowe's and Home Depot. Home Depot is the larger player, but the highly fragmented and large addressable market has enough room for all players to grow.

While the COVID-19 pandemic spurred do-it-yourself home improvement activities and drove Lowe's total sales to nearly $90 billion in fiscal 2020, the company is now going all out to woo professional contractors for long-term growth. That should bolster Lowe's e-commerce efforts -- sales from Lowes.com have grown nearly 146% in just the past two years. Lowe's last increased its dividend by a whopping 33% this past May, and is committed to returning the bulk of its cash flows to shareholders while it exploits opportunities in the home improvement market.

How much money could these stocks make you?

No stock would like to give up its Dividend King status whatsoever, so one thing's sure: All of these stocks will strive to increase their payout even during the toughest times. Even otherwise, what we have here are five mature, established companies selling products and services that are either essential in nature, or demand for which should only grow in the long term. 

PPG Total Return Price Chart

So while these companies chart out their growth paths, all you have to do is buy and hold these stocks patiently and reinvest the dividends. Patience is the key and should pay off, like it has for investors in these Dividend Kings in the past.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool recommends Johnson & Johnson, Lowes, and Sherwin-Williams. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lowe's Stock Quote
Lowe's
LOW
$209.04 (-0.92%) $-1.93
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$177.33 (0.05%) $0.09
PPG Industries Stock Quote
PPG Industries
PPG
$130.30 (-2.29%) $-3.06
Parker Hannifin Stock Quote
Parker Hannifin
PH
$295.07 (-3.58%) $-10.96
Home Depot Stock Quote
Home Depot
HD
$318.92 (-2.29%) $-7.46
American States Water Stock Quote
American States Water
AWR
$97.75 (-1.73%) $-1.72
Sherwin-Williams Stock Quote
Sherwin-Williams
SHW
$245.56 (-1.59%) $-3.96

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

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