One of the best ways you can build wealth in the stock market is by investing in dividend-paying stocks. Companies that pay dividends tend to be higher-quality, with strong balance sheets, which is why they deliver stellar long-term results regardless of the market cycle. Some of the best companies you can invest in are those that have increased dividends year after year over decades. What follows are three companies that have increased dividends for 49 straight years or more.
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1. S&P Global: 49 consecutive years of dividend increases
S&P Global (SPGI 2.10%) provides credit ratings to companies across the globe and is a crucial part of debt markets. When a company seeks to raise money by issuing debt, investors want to understand any risks of buying it to determine how likely the company will be to pay it off. Credit rating agencies like S&P Global evaluate these risks and assign a rating that ultimately determines the interest rates investors will receive.
High barriers to entry in the credit rating business give S&P Global a considerable advantage; S&P Global has a 40% share of the market, about the same as Moody's.
NYSE: SPGI
Key Data Points
Ratings make up nearly 50% of S&P Global's business, so its earnings can experience volatility based on how much debt companies are issuing. Debt issuance dropped during the first quarter, falling 35% in the U.S. and 15% globally.
Despite this, S&P Global still grew earnings in the quarter thanks to the robust performance of its other businesses, including selling research and analytics to investors, fees from index products like the S&P 500, and fees from data analytics provided to automotive suppliers. Non-ratings revenue grew 51% from last year and included one month of S&P Global's recent acquisition, IHS Markit.
S&P has a strong business with a built-in competitive advantage, and its other businesses have picked up the slack as debt issuance wanes. The company is asset-light, meaning operational expenses are low and margins are high. For this reason, S&P Global has increased its dividend for 49 consecutive years and is poised to join the exclusive Dividend Kings club next year. The stock also sports a dividend yield of 1% at recent prices.
SPGI Dividend data by YCharts.
2. Cincinnati Financial: 62 consecutive years of dividend increases
Cincinnati Financial (CINF 1.71%) writes insurance policies for businesses and individuals, covering homeowners, automotive, and property insurance. Insurance companies can be excellent long-term investments, and Berkshire Hathaway CEO Warren Buffett agrees. Buffett likes the cash flow that a well-run insurance company can generate and credits his early investment in National Indemnity to Berkshire Hathaway's impressive growth for over 55 years.
NASDAQ: CINF
Key Data Points
Free cash flow (FCF) tells you how much cash is left over after a company pays operating expenses and capital expenditures. The metric is similar to net income but can give a better snapshot of a company's financial health because it measures how much cash is left to pay down debt or return capital to stockholders through dividends and stock buybacks. Over the past 10 years, Cincinnati Financial's FCF has grown at 13.7% compounded annually. Last year, the company generated $1.8 billion in FCF.
CINF Free Cash Flow data by YCharts.
When evaluating an insurance company's underwriting ability, one key measure to watch is the combined ratio, which measures the claims paid out plus expenses divided by premiums written. A ratio under 100% is desirable; the lower the ratio, the more profitable an insurer's policies are for them. Over the last decade, Cincinnati Financial's combined ratio has averaged 94.6%, beating the industry average of 99%.
Cincinnati Financial's solid underwriting and FCF generation make it a stellar dividend payer that has increased its payout for 62 consecutive years. The insurer sported a 2.4% dividend yield at recent prices, and its payout ratio of 19.4% suggests it should have no problem maintaining and increasing this dividend moving forward.
3. Commerce Bancshares: 54 consecutive years of dividend increases
Commerce Bancshares (CBSH 1.39%) provides banking services across 152 branches in Missouri, Kansas, Oklahoma, Illinois, and Colorado. The regional bank has been doing business for 157 years and is the 38th-largest bank in the U.S. based on asset size.
NASDAQ: CBSH
Key Data Points
Commerce Bancshares manages its risk well, with a conservative balance sheet that can help it perform well across different credit cycles. One measure of risk is the tier 1 common risk-based capital ratio, which tells you how much capital a bank has to weather a downturn in the economy. Commerce Bancshares' ratio is 13.9%, the third-highest among banks in the top 50 in the U.S. based on asset size. The bank also delivers solid profitability for shareholders, putting up a return on average common equity of 12.4% over the last 15 years -- beating its peer average of 8.3%.
The bank also stands to benefit from rising interest rates, and in its March 31 filing, the bank said a 2% increase in interest rates would increase net interest income by $57.5 million, or 7%, assuming no changes in its deposits.
Commerce Bancshares' strong capital position is why it has increased its dividend for 54 consecutive years, and it sports a dividend yield of 1.6%.
