There's a lot of uncertainty in the economy right now. Wall Street prognosticators seem to flip from bear market to bull market predictions every week, and the word "recession" is now a regular topic of discussion.
Investors can't avoid all stock market volatility and they certainly can't predict how it'll move in the future, but to help their portfolio they can lean on a type of stock that has a history of providing a bit more stability: Dividend Kings.
Dividends are generally paid quarterly and usually from a company's profits. They offer companies a way to reward investors for holding on to their shares and can make up for instances where there may be a lack in stock price growth. Most dividend-paying stocks come from older, more-established companies that may no longer be able to generate the hypergrowth found in younger companies.
Dividend Kings have stood the test of time
Dividend Kings are companies that have managed to increase their yearly dividend for at least 50 consecutive years. It's a heralded status in the business world and fewer than 50 publicly traded companies currently hold the designation.
It's one thing to pay out a dividend for at least 50 years, but increasing that dividend each year over that span is an even more impressive accomplishment. It shows a company able to generate profits in virtually any economic condition. These types of companies not only survive but also managed to increase their reward to shareholders along the way.
To be a Dividend King in 2023, a company must have increased its dividend every year since 1973. That means it's had to endure events like:
- The 1973-1975 OPEC oil embargo
- The 1980-1982 recession (caused by monetary policies meant to fight inflation)
- The early 2000s dot-com bubble
- The Great Recession (financial crisis) of 2008-2009
- 2020's COVID-19 pandemic and recession
Short-term volatility and struggles are inevitable in the stock market, but with Dividend Kings, you know you're investing in companies that have passed the longevity test.
Ignore the short-term noise
Investing in Dividend Kings helps shareholders tune out a lot of short-term price swings because they know they will get paid regardless of the stock's price movements. With most growth stocks, you need a company's stock price to increase to make money. With dividend stocks, you just need to own the shares and trust that the company has the finances to keep paying them.
This doesn't mean stock prices don't matter; they just don't matter as much in the short term. Take investors in PepsiCo (PEP -0.62%), for example.
In the past 12 months, PepsiCo's stock price is up around 5.8%, yet investors have a total return of 8.8%, including dividend payouts. In the past five years, the stock price is up over 68% and total returns exceed 94%. The further you go out in time, the larger the gap becomes.
Data by YCharts
Long-term investors can feel confident that investing in Dividend Kings can help them focus on just that: The long term.
One piece of a larger puzzle
Although Dividend Kings can provide investors with stability, you shouldn't feel obligated to only invest in them. By only investing in Dividend Kings, you could be doing yourself a disservice and missing out on some great companies that haven't qualified for the title yet.
If you're only interested in dividends and want to focus on Dividend Kings, there's nothing wrong with that. But if you're looking for a more well-rounded, diversified portfolio, Dividend Kings should just be a portion of your stock portfolio, not all of it.
By mixing Dividend Kings with value and growth stocks, you can give yourself stability and reliable income while also taking advantage of potential high-growth opportunities.
