Investing in dividend growth stocks is an excellent strategy to build sustainable wealth for the long haul. This is because only the best stocks with proven business models are able to raise their payouts through wars, recessions, and pandemics.
Dividend Kings are the ultimate litmus test of quality. That's because these stocks have boosted their dividends for at least 50 years straight. Here are two Dividend Kings that look like great buys for income investors seeking a lifetime of dividend income.
Image source: Getty Images.
1. Lowe's
With stores throughout the U.S. and Canada serving approximately 19 million customers a week, Lowe's Companies (LOW 0.72%) is a dominant home-improvement retailer alongside Home Depot. Given that 83% of homebuyers view a home purchase as a good financial investment, the home-improvement industry is massive with $900 billion in annual revenue. This explains why analysts are expecting 15.1% annual earnings growth through the next five years.
NYSE: LOW
Key Data Points
Lowe's giant 31.3% bump in its quarterly dividend to $1.05 per share marked the 60th consecutive year that the retailer has raised its dividend. This huge payout increase reflects the tremendous confidence that management has in its future.
And with the dividend payout ratio at 27% in 2022, it's not hard to see why management was generous with its dividend announcement. Even with the potential for a recession in the next year, this gives Lowe's the flexibility to continue its double-digit annual dividend growth in the years ahead. It is especially attractive growth potential for a stock that offers investors a 2.2% forward dividend yield, which is higher than the S&P 500 index's 1.5% payout.
Lowe's is trading at a lowly forward price-to-earnings (P/E) ratio of 14.3, well below the consumer discretionary sector average of 22. And based on the stock's 15.1% annual earnings growth potential, this is a price-to-earnings-growth (PEG) ratio of less than one. This suggests that the stock is a good value for growth investors.
2. Genuine Parts Company
As long as there are used cars and industrial equipment that require parts, Genuine Parts (GPC 1.26%) will continue to do well. Founded in 1928, the automotive and industrial replacement parts company has grown into a network of more than 10,000 locations throughout North America, Europe, and Australasia.
NYSE: GPC
Key Data Points
The average age of vehicles on U.S. roads rose to an all-time high of 12.2 years in 2022. With the current shortage of new vehicles stemming from an inadequate semiconductor chip supply, Genuine Parts will continue to be a beneficiary of this environment. This is precisely why analysts believe that the company's earnings will grow 4.6% annually over the next five years.
Along with the stock's projected 45% dividend payout ratio for 2022, this should allow for Genuine Parts' dividend to grow around 5% to 6% annually for the next several years. Coupled with the stock's market-topping 2.6% dividend yield, this makes Genuine Parts an intriguing pick for dividend growth investors.
The stock trades at a forward P/E ratio of 17.8, which is significantly higher than the auto parts and equipment industry average of 14.4. But a stock of Genuine Parts' caliber is arguably worthy of this premium.
The stock's trailing price-to-free-cash-flow ratio of 19 is moderately higher than the 10-year median of 16.2. However, the aforementioned tailwind and strong fundamentals for the company seem to justify this valuation.
