Various factors like inflation and the potential for a recession have led the S&P 500 index to drop 21.6% from its all-time high set at the start of this year. This precipitous drop erased over $10 trillion of wealth from U.S. financial markets.
For dividend growth investors the market drop hasn't been as severe and they can sleep better at night knowing that their passive income will almost certainly grow, regardless of what happens in the market. This is especially true for those who are invested in dividend growth stocks that have earned the title Dividend King. These are stocks that have boosted their dividends paid to shareholders annually for at least 50 consecutive years.
If you are seeking to grow your passive income and wealth over the long haul, you might want to take a closer look at any of these five Dividend Kings that look like great buys at the moment.
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1. Abbott Laboratories
With a market capitalization of $179.5 billion, Abbott Laboratories (ABT 0.49%) is one of the largest healthcare companies in the world. The company's leadership in medical devices (i.e. blood glucose monitors), diagnostic tests (like COVID-19 tests), nutritional products (including Ensure and PediaSure), and off-patent pharmaceuticals in international markets should lead to strong growth in the years ahead.
That's because a growing and aging global population should lead to increased demand for Abbott Laboratories' products. This explains why analysts are expecting 12.6% annual earnings growth over the next five years.
With a dividend payout ratio set to be 38.6% in 2022, Abbott Laboratories should have no problem extending its 50-year dividend growth streak in the years to come. Better yet, the stock's 1.8% dividend yield tops the S&P 500's 1.7% yield.
Abbott Laboratories' forward price-to-earnings (P/E) ratio of 21 doesn't make it the cheapest Dividend King out there. But for a stock of its quality with a double-digit annual earnings growth outlook, this an attractive valuation.
2. American States Water
With more than 1 million customers in nine U.S. states, American States Water (AWR 1.75%) is a well-established water utility. The company has bumped up its dividends paid to shareholders for 67 consecutive years, which is the longest streak among its Dividend King peers.
Unsurprisingly, providing water to the U.S. government, homes, and businesses is a very steady business model. This is how American States Water has delivered nearly 10% annual dividend growth for its shareholders over the last 10 years. And with a dividend payout ratio of 54.9%, the stock's admirable dividend growth stretch shouldn't be ending anytime soon.
American States Water's forward P/E ratio of 27.9 is the most expensive valuation of the five Dividend Kings discussed here. But the company's unmatched track record and stability seem to justify this lofty valuation.
3. Genuine Parts
As they age, vehicles and industrial equipment are bound to need replacement parts to continue efficiently running. Serving hundreds of thousands of customers from locations throughout North America, Europe, and Australasia, Genuine Parts (GPC 0.18%) is one of the largest automotive and industrial replacement parts companies on the planet. It's also one of the most stable. The stock has upped its dividends paid to shareholders for 66 years in a row.
The semiconductor chip shortage has pushed the average age of U.S. vehicles to a record of over 12 years. Since this will likely be an issue for the next couple of years, demand from consumers for used car parts should remain solid. This is why analysts are expecting Genuine Parts to post 4.6% annual earnings growth through the next five years.
The stock's projected 44.9% dividend payout ratio should give it flexibility to hand out mid-single-digit annual dividend increases over the long haul. This is a satisfactory level of growth potential for Genuine Parts' 2.8% dividend yield. And given that the stock's forward P/E ratio of 16.4 is in line with the auto parts and equipment industry average of 16, Genuine Parts looks sensibly valued.
4. 3M
3M (MMM 0.41%) is a conglomerate with a hand in almost every aspect of our lives. The company's products include structural adhesives and tapes, reflective signage for highway and construction safety, food safety indicators, filtration and purification systems, and home cleaning products.
3M's diversification and influence over the lives of millions around the world hasn't just figuratively paid dividends -- it has allowed the stock to pay growing dividends to its shareholders for 64 consecutive years. And based on 3M's dividend payout ratio, which will be around 55% in 2022, the stock shouldn't have difficulty prolonging that dividend growth streak in the future.
This is especially true considering that analysts are forecasting 5.7% annual earnings growth over the next five years. Investors can pick up 3M's market-smashing 4.6% dividend yield at a forward P/E ratio of 12. This valuation is well below the industrial sector average of 17.2, and arguably prices in the risks that the stock faces with environmental and product-related lawsuits.
5. Procter & Gamble
The brand power within Procter & Gamble's (PG 0.60%) product portfolio is unmatched. Luvs baby diapers, Downy fabric softeners, Gillette razors, and Cascade dishwasher detergent only begin to scratch the surface in illustrating the household name recognition of its products. This is how the stock has been able to fund and hike its dividend for 66 years straight.
P&G's prominence in the consumption habits of virtually all U.S. households is what gives the company exceptional pricing power. This helps to explain why analysts are predicting 5.3% annual earnings growth for the next five years. With the dividend payout ratio positioned to be approximately 60%, P&G should have the ability to keep growing its dividend in the years ahead.
And investors can scoop up shares of the stock at a forward P/E ratio of 23.3. This is hardly an unreasonable premium to the consumer staple sector average of 20.2, which makes P&G and its 2.7% dividend yield a buy.
