As investors, we'd love Wall Street to be predictable. But on a year-to-year basis, this simply isn't the case. In 2022, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all pushed into a bear market (at least briefly for the Dow) and respectively ended the year lower by 9%, 19%, and 33%.
During periods of heightened uncertainty and volatility, dividend stocks tend to shine. Companies that regularly dole out payments to their shareholders are often profitable, have clear long-term growth outlooks, and have successfully navigated stock market/economic downturns before.
Image source: Getty Images.
To build on this point, dividend stocks have historically one-upped publicly traded companies that don't offer a payout in the return department. A study released 10 years ago by J.P. Morgan Asset Management, a division of banking giant JPMorgan Chase, showed that publicly traded companies initiating and growing their payouts between 1972 and 2012 generated an annualized return of 9.5%. By comparison, stocks that didn't offer a dividend produced a meager 1.6% annualized return during the same 40-year period.
Given the overwhelming long-term success of dividend stocks, it should come as no surprise that they're usually part of the most successful investment portfolios.
Dividend Kings are often viewed as some of the greatest income stocks in the world
If you were to ask investors to name the companies they believe are the greatest dividend stocks on the planet, you'd probably get a combination of Dividend Kings -- companies that have increased their base annual payout for at least 50 years -- and well-known income stocks with long streaks of consecutive payouts.
NYSE: KO
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For example, beverage giant Coca-Cola (KO 1.05%) announced last week that it would be increasing its quarterly dividend by 4.6%. This marks the 61st consecutive year it's increased its base annual payout. Coca-Cola's practically unsurpassed geographic diversity, along with its top-notch marketing campaign that transcends generational gaps, has kept its profit needle (and capital-return program) pointing higher.
Healthcare stock Johnson & Johnson (JNJ 3.40%) is another well-known Dividend King with a shockingly long streak of increasing its base annual payout. J&J's current streak stands at 60 years but is fully expected to match Coca-Cola at 61 in April, which is when the company typically announces an increase to its payout. Johnson & Johnson's revenue mix, which is weighted to high-margin pharmaceuticals, as well as its leadership continuity (just eight CEOs in 137 years), helped the company to 35 consecutive years of adjusted operating earnings growth prior to the pandemic.
Income investors might also include energy stock ExxonMobil (XOM +0.26%) among the world's greatest dividend stocks. Although it's not a Dividend King like Coca-Cola or J&J, ExxonMobil been doling out payments to its shareholders since 1882. That's 141 consecutive years of dividends that have been (pardon the pun) fueled by oil, natural gas, natural gas liquids, chemicals, and refineries.
But while Coca-Cola, J&J, and ExxonMobil are some of the best dividend stocks in the world, none should be considered the best dividend stock on the planet. That title belongs to a company that virtually no one even knows exists.
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The greatest dividend stock on the planet is completely under the radar
What if I told you the greatest dividend stock of all-time has a market cap of just $654 million, averages fewer than 40,000 shares traded daily, and serves customers in just 51 municipalities in a single U.S. state? Income investors, say hello to water utility stock York Water (YORW 1.22%).
York Water runs a relatively small water and wastewater service operation that spans just three counties in South Central Pennsylvania. But its size hasn't impeded its ability to reward shareholders. Even though its 1.8% dividend yield might look pedestrian on paper, it's the foundation this payout was built on that's truly special.
York Water was founded all the way back in 1816. For some context, James Madison (the fourth president of the United States) was in the Oval Office and the stethoscope had just been invented by a French physician when York opened its doors. Every year since York was founded, it's paid a dividend to its shareholders. This year will mark the 207th consecutive year it'll have doled out a dividend to its investors.
Just how impressive is this feat? The public company with the next-longest streak of consecutive payouts to its investors is power tools and storage provider Stanley Black & Decker, which has been parsing out payments since 1876. For those of you keeping score at home, this works out to 147 consecutive years (assuming its streak continues in 2023). The virtually unknown York Water has been paying a consecutive dividend for 60 years longer than the next-closest public company.
NASDAQ: YORW
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The beauty of York's operating model is that it's highly predictable. If you own or rent a home, demand for water and wastewater services isn't going to change much from one year to the next. What's more, water and wastewater utility operations are typically monopolies or duopolies throughout the United States. These factors allow York's management team to accurately forecast operating cash flow each year, as well as outlay capital for new infrastructure projects and acquisitions.
To add to the above, York Water is a regulated utility. In simple terms, it requires approval from the Pennsylvania Public Utility Commission (PPUC) before it can increase prices on its customers.
While that might sound like an inconvenience, it's actually a blessing in disguise. Regulated utilities aren't exposed to the potential volatility of wholesale pricing. In other words, it reinforces the idea that revenue and cash flow are highly predictable.
However, it is worth noting that York Water received the OK in January 2023 for a price hike. Following $176 million in recent infrastructure investments, coupled with an expanded customer assistance program, the PPUC approved rate increases for York that should boost annual water and wastewater service revenue by $13.5 million. For context, the company tallied $55.1 million in full-year revenue in 2021.
This rate hike is sizable and will allow York to invest for the future, make acquisitions, and continue the consecutive payout streak that makes this little-known company the greatest dividend stock on the planet.
