It's September, and the stock markets are slippery. These are also the times when you'd want to put some cash to good use. Dividend Kings, in particular, can be an excellent source of passive income when your stocks aren't behaving very well. Dividend Kings are stocks whose dividends have increased annually for at least 50 years, and that includes years of the worst stock market crashes in history. Only 31 stocks are in the club right now.
Rest assured, these steady dividend-paying stocks are not only bankable at all times but can also be massive wealth-builders, so you shouldn't really have to think much before adding some to your portfolio. Here are five top Dividend Kings you can buy and now and hold for decades to not just earn regular income but grow your capital, too.
This Dividend King is becoming surprisingly hotter
Target (TGT -0.53%) joined the elite Dividend King group just months ago, after it raised its dividend for the 50th straight year. The company increased its payout by a whopping 32% in June and yields 1.5%, proving yet again what a dependable dividend stock it is despite its brick-and-mortar business in a world that's increasingly going online.
From shipping online to same-day delivery, Target is using innovative ways to use its network of stores as fulfillment centers and digitize sales, and that's primarily why Target could generate an astounding $92.4 billion in sales last year, up 19% from 2019 levels. The company hasn't seen such humongous sales growth in more than a decade. Ten of Target's own brands now ring in annual sales of more than $1 billion each, with four topping $2 billion each. It opened 30 new stores last year.
With digital sales soaring, Target is now gearing up for a record profit year. That means you could expect another solid dividend raise next year. Although shares have rallied this year and many find Target expensive at current prices, long-term investors could find this price cheap some years from now. And with the stock losing some ground in recent weeks, it's an opportunity to buy.
These dividends won't fail you
Procter & Gamble (PG 0.91%) is one of the finest consumer companies out there. Consider:
- It's more than 180 years old.
- It sells products in more than 180 countries.
- It has 10 broad product categories, with 65 brands.
- It generated $76.1 billion in sales in 2020, with nearly half coming from outside North America.
- E-commerce now accounts for nearly 14% of its total sales.
- It has paid a dividend for 131 consecutive years.
- It has increased dividends in each of the past 65 years.
- It raised its dividend by 10% in fiscal 2021, ended June 30, which was also its largest quarterly dividend increase in more than 10 years.
That pretty much sums up why you should invest in P&G. It last projected growth of 2%-4% in sales and 6%-9% in EPS for fiscal year 2022, which could mean another big dividend increase next year. You may say the stock, now hovering around 52-week highs, isn't cheap, but no price is too high for a dividend stock yielding 2.4% and backing that kind of yield earnings and dividend growth.
This leading Dividend King has a massive catalyst ahead
Among the five utility Dividend Kings, American States Water (AWR -0.51%) is my all-time favorite, and I believe no price is too high to buy shares of this company for the long haul. Here are some incredible things to know about the company:
- American States Water serves more than 1 million customers in nine U.S. states.
- Its subsidiary, American States Utility Services, provides water and wastewater services to 11 military bases under 50-year contracts.
- It grew its earnings per share at a compound annual growth rate (CAGR) of 10.9% in the past decade.
- It increased dividends at a CAGR of 9.8% in the past 10 years, including a 2021 raise of 9%.
- It's targeting annual dividend growth of at least 7% in the long run.
- It has increased dividends annually for 67 years.
The last two points are why you can buy and forget American States Water shares. This stock has the longest streak among all Dividend Kings and is committed to dividend growth. Aside from regular base rate increases for its water services, the company expects to win a large number of military contracts over the next five years.
The biggest growth catalyst for American States Water, though, could be President Joe Biden's infrastructure plan, which proposes $55 billion in spending -- the largest in America's history -- on clean drinking water. Although 85% of the country's water is managed by municipalities, American States Water believes federal spending will be an opportunity to increase market share. That makes this 1.7%-yielding Dividend King an even more compelling buy for the long haul.
Don't ignore this stock's huge potential
3M (MMM 0.79%) shares have dropped nearly 13% from their 52-week highs in May. Volatility in the markets can hit cyclical stocks like 3M hard, but that should in no way deter income investors from owning this stock. You only have to be patient to reap real returns from this stupendous Dividend Aristocrat.
The thing is, 3M sells more than 60,000 products around the world and has exposure to all kinds of industries though its consumer, healthcare, transportation and electronics, and safety and industrial segments. Remarkably, consumer -- which is known for ubiquitous products such as Post-it Notes and Scotch tapes -- is 3M's smallest segment.
While a hugely diversified portfolio can help stabilize earnings at times, it also exposes 3M to more macroeconomic variables, which is why the stock can be volatile. Yet 3M hasn't missed a single dividend payment in more than 100 years and increased it in each of the past 63 years.
3M is a cash-flow machine, and one of the biggest reasons behind its success is innovation -- 3M typically invests 30% of cash flows into research and development and returns as much in dividends, keeping the rest for share repurchases and growth, as opportunities arise.
Right now, the market seems to be ignoring the ongoing recovery in 3M's end markets: 3M expects 6% to 9% organic sales growth and nearly 7% growth in EPS at the midpoint. It previously projected only around 2% growth in EPS. With the stock yielding a good 3.3%, 3M deserves a spot in your evergreen dividend portfolio.
This one's a beast of a Dividend King
If you want to understand why dividends are so valuable and what a massive difference reinvested dividends can make to your total returns, look no further than Johnson & Johnson (JNJ 0.08%). This healthcare and consumer giant has been an absolute beast when it comes to shareholder returns.
Again, let me present some of the things that have made this such a great dividend stock:
- Johnson & Johnson is the world's largest healthcare company.
- Twenty-eight of its product platforms generate more than $1 billion in annual sales each.
- Pharmaceutical is its largest segment, accounting for 45.6% sales in 2020.
- Medical devices made up 23% and consumer health 14.1% sales last year.
- Twenty-five percent of its sales consistently come from products launched in the past five years.
- It generated $82.7 billion in sales and $20.2 billion in free cash flow in 2020.
- It has increased its dividend annually for 59 years.
You may not like if I tell you Johnson & Johnson has always prioritized plowing money back into its business for growth over acquisitions and shareholder returns. Yet the fact is that shareholder returns rise by default when the company grows, as the preceding chart proves. Of course, Johnson & Johnson is committed to growing dividends and yields a good 2.6%, so you needn't worry. The company has a humongous biotech pipeline and holds the trophy for making the first single-shot COVID-19 vaccine in the world.
Consider this: Johnson & Johnson's COVID-19 vaccine has received emergency use approval in India and could reportedly launch in the coming weeks. If approved, J&J will be the first to sell vaccines in India, ahead of Pfizer and Moderna.