Many income investors depend at least partly on dividend checks to help pay their bills. So for those investors, the quality of the stocks they own matters.
Dividend Kings are stocks that have raised their dividends for at least 50 consecutive years. Given the difficulty of attaining this status, Dividend Kings are among the most proven group of stocks for income investors to consider. That's because they have raised their dividends through military conflicts, recessionary economic periods, and global pandemics.
Here are three Dividend Kings to consider buying for your portfolio that stand a good chance of paying you higher dividends well into the future.
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1. Johnson & Johnson
Pharma stock Johnson & Johnson (JNJ -0.23%) will almost certainly announce an increase in its dividend payment next month. This would mark the 60th straight year that the stock has done so, which is the longest streak in healthcare.
Several factors explain my confidence that J&J will continue to pay higher dividends for many more years. First, consider its 42.8% dividend payout ratio in 2021. This allows the company to retain enough funds to execute acquisitions, repay debt, and repurchase shares. In turn, J&J's non-GAAP (adjusted) diluted earnings per share (EPS) will be driven higher over time.
Secondly, J&J has a portfolio of 13 blockbuster drug franchises. This includes immunology drug Stelara, antipsychotic drug Invega, and cancer drug Darzalex. That's in addition to its COVID-19 vaccine. This lineup plays a part in analysts' projections that J&J will deliver 6% annual earnings growth through the next five years.
Finally, J&J's drug pipeline has over 40 indications that are in phase 2 or phase 3 clinical trials in growing therapy areas like immunology, infectious diseases, and oncology. As these indications are approved, they will become the company's growth drivers in the latter half of this decade and into the next one.
Income investors can buy J&J's market-beating 2.5% dividend yield at a forward price-to-earnings (P/E) ratio of 16.3. This is a moderate discount to the S&P 500's forward P/E ratio of 18.6, which makes J&J a screaming buy for this month.
2. Genuine Parts Company
Genuine Parts Company (GPC -0.53%) recently extended its dividend growth streak to 66 consecutive years with a 9.8% increase in its quarterly dividend last month. This is the lengthiest such streak among stocks in the consumer cyclical sector.
Genuine Parts Company has 52,000 employees in 15 countries around the world. Approximately two-thirds (66%) of its 2021 sales were derived from the automotive parts segment, which comes via its NAPA Auto Parts and Alliance Automotive Group brands. The remaining 34% of sales last year came from the sale of industrial parts through its Motion Industries brand.
Few companies are better positioned to cash in on the ongoing semiconductor chip shortages than Genuine Parts Company. That's because a lack of new cars is going to require consumers to lean on used cars for the foreseeable future, which will act as a buoy to the company's sales and earnings. This allowed Genuine Parts Company's adjusted diluted EPS to soar 31.1% in 2021 to $6.91. And it also explains why analysts are anticipating 5% annual earnings growth from the company over the next five years.
Genuine Parts Company's payout ratio of 46.8% last year should also leave the company with room to at least grow its dividend in line with its earnings. Mid-single-digit annual dividend growth and a 3% dividend yield are an attractive combination of yield and growth.
Yield-oriented investors can pick up shares of Genuine Parts at a forward P/E ratio of 15.7, which is a solid value compared to the S&P 500's multiple of 18.6.
3. Procter & Gamble
Like J&J and Genuine Parts, consumer staple Procter & Gamble (PG -1.00%) has the most extensive dividend growth streak in its sector at 65 years straight years. P&G's dividend will likely be raised for the 66th year in a row this April, which is for a couple of reasons.
The first reason is that P&G's dividend payout ratio for its current fiscal year ending in June will be about 50% based on its midpoint core EPS guidance of $5.92. This gives the company the flexibility to grow its payout at a rate similar to its earnings.
Secondly, analysts are expecting 7% annual earnings growth from the company in the next five years. This is thanks to P&G's leading portfolio of consumer brands and its tremendous pricing power as a result.
P&G's 2.3% dividend yield and high-single-digit annual dividend growth potential are a potent pairing. Dividend investors can snatch up shares of P&G at a forward P/E ratio of 25.9. This is moderately elevated compared to the S&P 500's multiple of 18.6, but a stock of P&G's quality deserves a hefty premium because it stands head and shoulders (pun intended) above all other stocks.
