Dividends are a way for companies to return value to investors, but they are also a signaling mechanism. A long streak of annual dividend increases is a sign of both success and commitment to shareholders. Three companies that have proven their long-term worth to investors many times over are Federal Realty (FRT 0.10%), Hormel Foods (HRL 0.36%), and Kimberly Clark (KMB 0.58%).
Here's why you should feel comfortable buying and holding these stocks for decades to come.
1. In all the best places
Federal Realty is a real estate investment trust (REIT) that owns shopping centers and mixed-use developments. It is, at its core, a retail landlord. Compared to its strip mall peers, the company's portfolio is very small with only around 100 or so assets. But that selectiveness is an important factor in the REIT's long-term success.
Management estimates that the average household income within three miles of its centers is over $105,000 with an average population density of roughly 180,000. That pairing is well above comparable peers and basically means that Federal Realty owns properties exactly where retailers want to be.
This is part of the reason why Federal Realty has been able to increase its dividend annually for 55 consecutive years. That's longer than any other REIT. But there's more to the story because Federal Realty is also an expert at redevelopment and ground-up development. So it also regularly increases the value of the assets it owns via investment.
Add in an investment-grade rates balance sheet, and not only does the dividend look secure, but it is highly likely to keep growing as well. With a dividend yield of around 4%, conservative income investors should like what they see here today and for the long term.
2. Building out the brand portfolio
Hormel has a long history of selling protein-related foods, but it has been shifting a bit over the past few years. While still in the protein space, the company has been creating a dominant portfolio of iconic nameplates to complement its namesake brand, including Planters, Skippy, and Columbus, among many others.
It has leading positions across the grocery store and a big business selling directly to the hospitality space. Plus, restaurants have reason to appreciate the pre-cooked meats Hormel sells because it allows them to make better use of staff.
Hormel's dividend has been increased annually for over five decades, making it a Dividend King. It is a fairly steady performer and has managed to increase its dividend at a generous 9% a year, on average, over the past decade. The yield, however, is only around 2.2%, which might seem low. But it happens to be on the high side of the food maker's historical yield range.
Dividend growth investors should be attracted to what Hormel has to offer today.
3. You gotta buy it
Using the bathroom or blowing your nose are things that everyone does, even though nobody likes to talk about it. Kimberly Clark's toilet paper and tissues are, thus, necessity items. So are its diapers and feminine hygiene products. These are some of the most vital consumer staples you can think of.
While not exciting, these products have helped Kimberly Clark increase its annual dividend for a streak that's more than five decades long.
The company's brands are industry leaders, and the dividend yield is a generous 3.6% or so today, more than twice what you'd get from an S&P 500 index fund. The dividend growth rate is modest, in the low to mid single digits, but the mix of necessity products, yield, and consistency is hard to beat.
All investors know that past performance is no guarantee of future results, but when it comes to dividends the past can provide a guiding light. That's particularly true when you combine a long streak of annual dividend growth with strong underlying businesses, which is exactly what you'll find with Federal Realty, Hormel, and Kimberly Clark.