Dividend Kings are stocks that have increased their dividends annually for at least 50 consecutive years. That's five full decades or more of annual dividend raises, and it is testimony to the resilience these companies have displayed over the years no matter how the economy fared.
That's the kind of dividend stability many investors in stocks are seeking in today's uncertain macro environment, which is why it's a great time to look at some Dividend Kings to buy in 2023. Here are three that look hugely compelling and are surefire buys right now.
An unbelievably cheap Dividend King
Stanley Black & Decker (SWK +1.08%) stock plunged 60% in 2022 as cost pressures on the company mounted even as rising interest rates and inflation hurt demand for its DIY tools that were otherwise a huge hit during the peak of the COVID-19 pandemic.
Stanley Black & Decker is now facing an excess inventory problem, and that could be a major hurdle to its growth in the near term. Yet Stanley Black & Decker knows it must turn itself around to regain investors' confidence, and it's trying to do just that.
The company is aggressively cutting costs, and divested several non-core businesses in the third quarter and used $3.3 billion from the proceeds to repay debt. At the same time, Stanley Black & Decker is cutting back production while it works through its inventory.
It's not easy, as destocking could take months and hurt Stanley Black & Decker's bottom line and cash flows. That also means you shouldn't expect any surprises when the company reports its fourth-quarter earnings on Feb. 2 as the numbers could be dismal. What you should expect to see, though, is a recovery in cash flows as that remains a "top priority," with management also recently confirming it still wants to convert 100% free cash flows (FCF) into net income to support dividends.
Here's how I see it: Stanley Black & Decker still expects double-digit revenue growth in 2022, so its 3.6%-yielding stock deserves better than languishing at multiyear lows and a price-to-sales ratio of less than 1. This is a turnaround story in the making, and it's not every day that you find a stock that has increased dividends for 55 consecutive years available for such a steep discount.
A mega transformation is under way at this dividend powerhouse
Emerson Electric (EMR +0.16%) is one of the finest Dividend Kings in terms of its streak: 2022 was the 66th consecutive year of a dividend raise for Emerson shareholders. That dividend growth has contributed massively to the stock's total returns over the decades.
Dividends are clearly a priority for the industrials juggernaut, and that's unlikely to change anytime soon. In the long term, Emerson Electric is targeting 4% to 7% organic growth, double-digit adjusted earnings per share (EPS) growth, 100% conversion of FCF into net income, and steady dividend growth.
Emerson is transforming from an industrials company into an automation pure play. Automation is a huge market, and Emerson is already aggressively divesting non-core businesses and acquiring companies in the automation technology and software space. To put some numbers to that, it has divested businesses worth around $18 billion and made acquisitions worth nearly $9 billion since 2021.
There's no stopping Emerson, though. It is offloading its climate technologies business – which brought in $5 billion in sales in the fiscal year that ended Sept. 30 -- to alternative asset manager, Blackstone for $14 billion. Meanwhile, after pursuing National Instruments for several months now, Emerson has just submitted a revised proposal to acquire it in an all-cash deal for an implied enterprise value of $7.6 billion.
There's a lot to like in Emerson right now. Divestitures could hurt its profits in 2023, but savvy investors know that isn't a cause for worry. With Emerson expecting 8% growth in net sales at the midpoint, this 2.3%-yielding stock that is down about 6% so far in 2023 is a surefire Dividend King to add to your portfolio.
This Dividend King is about to make a big leap
Johnson & Johnson's (JNJ 0.54%) latest numbers didn't impress many. Its sales fell 4.4% year over year in the fourth quarter while full-year sales barely budged. Yet, even in a challenging year like 2022, the healthcare giant repurchased shares, increased its dividend for the 60th consecutive year, and invested more than $17 billion in growth including the acquisition of medical device technology company Abiomed.
NYSE: JNJ
Key Data Points
Johnson & Johnson also provided better-than-expected guidance for 2023 and confirmed it was on track to spin off its consumer health business into a separate publicly listed company called Kenvue by the end of this year. Its a prudent move as consumer health has stifled growth for some years now. In 2022 too, for example, the division's adjusted operational sales (sales excluding the impact of acquisitions, divestitures, and foreign currency translations) grew only 3.9% versus 6.8% and 6.1% growth in pharmaceutical and medtech sales, respectively.
During its latest earnings conference call, Johnson & Johnson's Chief Financial Officer Joseph Wolk also addressed shareholders' concerns about dividends after the spin off, emphasizing how the company intends to maintain its existing dividend "at a minimum" after Kenvue's formation.
As a Johnson & Johnson shareholder, you shouldn't have to worry about dividends even if there's a recession. The company is generating solid cash flows and has seen more than its fair share of economic upcycles and downcycles over the decades. Johnson & Johnson has big medium-term financial goals for medtech and pharmaceutical, and while they may look overambitious for now, this longtime Warren Buffett's favorite stock yielding 2.7% looks like a surefire buy in 2023.
