While past performance is no guarantee of future results, companies that have paid dividends reliably are a good place to start looking for long-term income stocks. The cream of the crop show up on the Dividend Kings list, which includes Federal Realty (FRT 1.26%), Black Hills (BKH 2.94%), and Hormel (HRL 1.05%). If your ideal holding period is counted in decades, you'll want to get to know each one.
1. The longest record of all
Federal Realty has increased its dividend annually for 55 consecutive years. Not only does that get it onto the Dividend Kings list, but it also happens to be the longest dividend streak of any publicly traded real estate investment trust (REIT). What's interesting, however, is that Federal Realty hasn't achieved this feat by growing ever larger. In fact, it has one of the smallest property portfolios within its strip mall peer group.
The key factor in the REIT's success is that it focuses on quality over quantity. Its portfolio of around 100 assets has the highest average household wealth and population within a three mile radius of any of its peers. Simply put, retailers want to be in Federal Realty properties because that's where the best customers happen to be. More properties with less desirable locations wouldn't add value.
But adding value is about more than just location. Another key strength is that Federal Realty is an expert at development and redevelopment. It usually buys assets that need a little love and then upgrades them so they make more money and are worth more. Management is also active, happy to sell fully valued assets so they can repeat the process with new properties. The dividend yield is nearly 4.7% today, which is toward the high side of recent history. That suggests now is a good time to look at this well-positioned landlord.
2. Not big, but the dividend streak is huge
Black Hills' $4.3 billion market cap is tiny compared to those of the utility industry's giants (many of which are an order of magnitude larger). And yet this Dividend King has amassed a record that few can match, with some 53 years of annual dividend increases under its belt. What's most notable, however, is how consistently the dividend has grown. Over the trailing one-, three-, five-, and 10-year periods, it has increased at an annualized rate of roughly 5%. That may not sound like a big figure, but utilities are known for being slow and stodgy. Thus, 5% is a pretty attractive dividend growth rate.
There's nothing particularly exciting about the regulated utility's success -- it is really more about getting the little things right. Right now that includes shifting its portfolio toward cleaner energy sources, something that regulators are fond of seeing right now. That has led to reliable rate increases. But even more important for the long term is that Black Hills has been seeing strong customer growth in its key markets, with many benefiting from way-above-average increases relative to the broader utility sector. Although Black Hills' business will wax and wane over time, just like that of every other company, it is targeting average earnings growth of between 4% and 6% over the long term. That should be more than enough to keep the dividend streak going strong.
3. A problem child
Hormel has increased its dividend annually for 57 years. You don't build a record like that without muddling through some rough patches. For better or worse, the consumer staples icon is in a rough patch right now. That, however, has pushed its dividend yield to 2.7%, which is toward the high side of the historical yield range. So this food maker looks like it's on the sale rack. If history is any guide, this is a buying opportunity for long-term dividend investors.
There are a plethora of negatives. Hormel has been having trouble raising prices to offset the impact of inflation on its business. The company's Planters acquisition has experienced a slow start. And the avian flu has been a problem in the Jennie-O Turkey business. These are very real issues that will have to be worked through, but all are headwinds that can be managed. It may take a little time, but patient investors will probably be well rewarded. Notably, the dividend was increased roughly 8% in January despite all of these issues.
Management is clearly fairly confident that the problems are solvable. That is at least partly because Hormel has leading positions in most of the product categories that it has chosen to compete in. None of the current headwinds changes that fact.
Decades more to come
Federal Realty, Black Hills, and Hormel have all rewarded investors with over five decades of regular dividend increases. There's no particular reason to think that they won't be able to keep the streaks going for decades into the future. And that remains true even as their business fortunes rise and fall. Their commitment to investors is quite clear, and the businesses remain fundamentally strong.
