There are a lot of factors to consider when looking at dividend stocks, but one of the most important is whether or not a company can keep paying. You can examine things like payout ratio and financial strength to get an idea about dividend safety, but dividend payments are ultimately up to the board of directors to decide. That's why you'll want to pay attention to the commitment a company has shown to its dividend payments over time.
Let's take a look at a trio of dividend stocks that excel in this regard. If you are a dividend investor, you should have all of them on your wish list, if not your buy list, today.
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1. Hormel: The growth machine
Hormel Foods (HRL -0.93%) has increased its dividend annually for 56 consecutive years. That makes it a Dividend King, a very rare group of companies. At its core, Hormel is a consumer staples stock, making branded food products that you know and love under nameplates like SPAM and Planters. Consumers buy these products on a regular basis, and companies like Hormel tend to be fairly consistent performers. That's proven out by its more than five decades of annual increases -- and there have been a lot of economic ups and downs over that span.
Hormel tends to be conservatively managed, with the Hormel Charity Trust owning a massive 48% stake in the company. The trust uses the dividends it receives to fund its charitable giving, so it has a vested interest in dividend safety and growth over time. The dividend has increased at a compound annual rate of 14% over the past decade. The current dividend yield is around 2.1%, which is low on an absolute basis, but toward the high end of Hormel's historical yield range. For dividend growth investors, this food maker is worth a close look today.
2. Clorox: Down and out for now
Next up is Clorox (CLX -0.19%), which has increased its dividend annually for 45 consecutive years. It's not quite a Dividend King, "only" sitting at Dividend Aristocrat status, but it has still clearly shown that regularly returning cash to investors is important to the board. Like Hormel, Clorox is a consumer staples stock, selling basics that people purchase on a regular basis.
What's unique here is that much of Clorox's business is in areas where the only major competition is from store brands, including bleach and charcoal. That said, it has been branching out into new areas, like Bert's Bees and a collection of vitamin brands. Still, it has leading positions in key markets it serves, and that's been very good for shareholders, as demonstrated by the long streak of dividend hikes.
The problem right now is a mix of a pandemic-driven demand surge and inflation. With that surge ebbing and inflation spiking, Clorox's margins have gotten crushed. In fact, Clorox management expects it to take at least a couple of years to recover, though it has clear plans for that effort. Investors, however, aren't in a forgiving mood, and the stock price is now down over 40% from its 2020 highs. The dividend yield is nearly 3.5%, toward the high end of the company's historical range. It's hard to step in when things look bleak, but if history is any guide, dividend investors should be willing to take the risk with Clorox today.
3. Procter & Gamble: Expensive, but worth watching
Procter & Gamble (PG -0.03%) is the last name on the list today, and it differs from the other two names here in one very important way. Its 2.3% dividend yield is historically low. It's probably not the best option right now, but this consumer products stock is worth keeping on your wish list for the next bear market sell-off, when investors are likely to be throwing the baby out with the bathwater. The key number is 66, which is the streak of annual dividend increases the company has under its belt. That's a decade longer than Hormel's incredible streak!
Procter & Gamble owns a collection of premium brands across its portfolio that spans from cleaning supplies to paper products. It focuses on innovation, allowing it to charge more for its products because they are differentiated from the competition. It has even created entirely new business lines, like Swiffer products. Although this isn't a name to buy today, if the stock goes on sale you'll probably want to take the opportunity to add it to your portfolio.
Notice the similarities?
The most obvious thing that Hormel, Clorox, and Procter & Gamble have in common is their impressive streak of annual dividend increases. You don't build those track records by accident -- a company has to both care about returning value to investors and have a strong business. However, the other key is that each of these companies makes products that consumers buy on a regular basis. Historically that's been a good business, and this trio have found unique ways to make it pay for investors. If you are looking to put money to work today, Hormel and Clorox are worth closer looks. Relatively expensive Procter & Gamble is a reliable dividend stock to keep an eye on so you don't miss out on an opportunity to buy it.
