When looking for stocks that pay good dividends, investors should look for companies that both have a sustainable dividend (meaning they have the cash and earnings power to cover it each year) and can grow their dividend consistently.
A good way to find stocks like this is to search for dividend kings, or companies that have paid out and raised their dividends every year for at least five decades. As you might suspect, this is no easy task. There are only 43 dividend kings as of this year. Without further ado, here are three of the most dependable dividend stocks on the planet.
1. Cincinnati Financial
The property and casualty insurer Cincinnati Financial (CINF -1.12%) became a dividend king more than a decade ago and has paid out and raised its dividend for an incredible 61 years. The company also sports a decent annual dividend yield of 2.27%.
The key thing to understand about Cincinnati Financial is that it invests a lot of its float (the money it makes writing insurance premiums) into stocks, which is not always the norm for insurance companies. This can impact earnings quite a bit because the company must use mark-to-market accounting (also known as fair value accounting) for unrealized gains and losses on its equity holdings.
For instance, in 2021 when the market was surging, Cincinnati Financial reported full-year earnings per share of $18.10. In 2022, the company reported a loss of $3.06. Looking at operating earnings, which excludes unrealized investment gains and losses, Cincinnati Financial had a dividend payout ratio of 39% in 2021 and 65% this year, so it's not a small payout ratio but does leave room for continued growth as well.
In 2022, the company struggled a bit with higher-than-expected catastrophe losses to end the year but gave strong guidance for 2023 including 8% growth in premiums. Cincinnati Financial has also performed well, with shares up about 63% over the last five years.
2. Commerce Bancshares
With nearly $32 billion in assets, the Kansas City-based Commerce Bancshares (CBSH -1.16%) has paid out and raised its dividend for 54 straight years. Commerce doesn't have the highest annual dividend yield at just 1.15%, but with only about a 26% payout ratio there's room for growth. The company also has a ton of excess capital above its regulatory requirement.
The other great thing about Commerce is that its strong performance is almost as consistent as its dividend. Over the last 15 years, Commerce has averaged a 1.3% return on average assets (ROAA) and a 12.6% return on average common equity, both strong indicators of profitability and well above its peer group. For its consistent and strong performance, the market has awarded Commerce with a strong valuation of roughly 360% to its tangible book value, or net worth. Shares have appreciated roughly 45% over the last five years.
3. Farmers & Merchants Bancorp
Farmers & Merchants Bancorp (FMCB 0.00%) is a small roughly $5.4 billion asset bank based in California. Right off the bat, this stock trades over the counter, meaning it naturally has less liquidity, so it can be more volatile than stocks on the New York Stock Exchange or NASDAQ.
However, Farmers & Merchants has paid and raised its dividend for 57 straight years. Its annual dividend yield is also not terribly impressive at 1.6% but with just a 17% dividend payout ratio and plenty of excess capital, the company can certainly continue to keep growing the dividend.
In 2022, Farmers & Merchants reported record profits of more than $75 million, despite having to deal with the challenging interest rate environment that forced the bank to reposition its balance sheet at times. But its record profitability equates to a 1.41% return on average assets and more than a 16% return on average common equity. The stock has also been a good performer and has risen more than 56% over the last five years.
