When thinking about dividend stocks that you can count on no matter the market cycle, a top factor worth considering is track record. Companies that have paid and raised their dividends for at least 30 years have done so during a period that includes the dot-com bust of the early 2000s, the financial crisis, and then several steep sell-offs, including late 2018, 2020, and then the 2022 sell-off. These challenges are hard enough in hindsight. But navigating them in real time is a far taller task.
Emerson Electric (EMR 0.27%), Procter & Gamble (PG -0.78%), and Chevron (CVX 0.37%) are three industry-leading dividend stocks that have done a phenomenal job executing their goals despite headwinds. Here's why all three companies have what it takes to continue rewarding shareholders for decades to come.
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Emerson Electric's transformation continues
Lee Samaha (Emerson Electric): The company's proud run of increasing dividends looks set to continue, but the source of those dividends is going to change. It will do so because CEO Lal Karsanbhai is transforming the company into a pure-play automation company. Having sold a majority stake in its climate technologies business, Emerson is now focused on growing its automation and associated end markets.
The idea is to take advantage of secular growth drivers in automation, including nearshoring and the digital transformation in the industrial sector. The need for both has only increased due to the last few years' supply chain and labor availability issues. One of the solutions to the problem of overly stretched and complex supply chains is nearshoring using automation, and productivity is enhanced through automation.
To that end, Emerson has been on the acquisition trail this year, with an agreement in place to buy software-connected test and measurement company NI for $8.2 billion. In addition, Emerson gained a 55% stake in industrial software business Aspen Technology after combining its industrial software businesses with AspenTech in 2022.
It all speaks to a company looking to increase its long-term growth rate, which usually spells increased dividend growth for investors.
Procter & Gamble's pricing power is unstoppable
Daniel Foelber (Procter & Gamble): Procter & Gamble is one of the longest-tenured Dividend Kings -- a rare group of companies that have paid and raised their dividends for over 50 consecutive years. P&G has put on a masterclass in effective buybacks and dividend raises. But what is particularly impressive about P&G is how it has responded to inflationary headwinds.
Consumer goods companies are facing immense margin pressure. Rising raw material and labor costs directly impact margins. To offset these challenges, a company like P&G has to either sell more products or raise prices. Selling more products sounds good and well, but demand simply isn't there at the moment for most consumer staples companies. Raising prices is only possible if the company has an elite portfolio of brands and can demonstrate pricing power.
Now, you may think that a consumer staples company like P&G can't possibly have that much brand power. After all, what edge does Tide detergent really have over the generic brand? But quarter after quarter, P&G has been able to flex its pricing power muscles.
Two quarters ago, P&G's sales growth was due to pricing power alone. P&G's most recent quarterly results were very similar.
In Q1 fiscal 2024, the company reported a 1% decline in organic sales volume, but a 7% increase in price, resulting in overall sales growth. P&G continues to rely solely on price increases to drive growth, which sounds entirely unsustainable. But the strategy simply keeps working. And at this point, it would be a mistake to assume P&G doesn't have some serious pricing power. Especially given its competitors are facing the same challenges, only P&G continues to prove it is better equipped to handle those challenges.
P&G may not be the flashiest company. But its ability to execute better than its peers and sustain its incredibly impressive 20%-plus operating margin despite a challenging business climate gives investors a vote of confidence that P&G stock is worth buying and holding for decades to come. In sum, P&G is proving that it doesn't have to rely on a strong economy to drive growth. Instead, it can lean on the strength of its leading brands, a lever that few other consumer staples companies have been able to pull at this time.
Chevron is a great choice for income investors to gain energy exposure
Scott Levine (Chevron): Logging 36 consecutive years of hiking its payout, Chevron has distinguished itself as a reliable passive income play. But its long track record of rewarding shareholders isn't the only thing that makes the oil supermajor -- and its forward-yielding dividend of 3.9% -- an appealing option. Besides the company's acquisition of PDC Energy in August, the stock's attractive valuation makes it especially alluring right now.
It's important for prospective investors to recognize that it's not simply the fact that Chevron has raised its dividend for 36 straight years but that the company has raised the payout at a substantial rate. Over the past 15 years, Chevron has increased its dividend at a compound annual growth rate of 6%.
With the $6.3 billion acquisition of PDC Energy in the books, Chevron has greatly expanded its presence in the Denver-Julesburg Basin, adding about 275,000 net acres and 1 billion barrels of proven reserves to its portfolio. Additionally, the acquisition has helped Chevron to grow its footprint in the Permian Basin. Because the acquisition is adjacent to Chevron's existing operations in the area, the company expects to achieve a variety of synergies and to reap ample financial benefits, including the addition of about $1 billion in annual free cash flow.
Looking at the stock's price tag, investors will find that they can grab shares of Chevron at a discount. Whereas the stock's five-year average earnings multiple is 21.6, it's currently valued at 10.2 times trailing earnings. The stock's valuation in terms of future earnings is also appealing at a forward P/E of 10.2.
Between the company's expansive operations throughout all links of the value chain and the addition of PDC Energy's assets, Chevron is well positioned to continue its streak of rewarding shareholders with generous dividends for years to come.
