One of the best aspects of putting your money to work on Wall Street is that there isn't a one-size-fits-all strategy for success. Depending on your goals, investment risk tolerance, and interests, there's almost certainly a strategy that can make you richer over time.
However, the caveat to the above is that it's tough to top the long-term outperformance of dividend stocks.
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Last year, a report released by the Hartford Funds ("The Power of Dividends: Past, Present, and Future"), in collaboration with Ned Davis Research, examined the annualized returns of dividend-paying stocks to non-payers over a half-century (1973-2022). Whereas non-payers delivered a modest 3.95% annualized return over five decades, dividend stocks averaged an annualized return of 9.18% over the same stretch. The dividend payers were also far less volatile than the non-payers.
But there's more to a high-quality dividend stock than just yield. Arguably nothing is more important than the sustainability of a payout, which is often not found with ultra-high-yielding dividend stocks.
These are some of the steadiest dividend stocks on the planet
Some of the greatest dividend stocks on Earth are brand-name, time-tested companies that have been increasing their payouts for decades. Perfect examples include Johnson & Johnson (JNJ -0.46%) and Coca-Cola (KO), which have each increased their base annual payouts for 61 consecutive years.
Johnson & Johnson happens to be one of only two publicly traded companies that currently has the highest possible credit rating (AAA) from Standard & Poor's, a division of the more-familiar S&P Global. A growing reliance on high-margin pharmaceuticals, coupled with operating in a highly defensive sector, have helped Johnson & Johnson grow its adjusted earnings without missing a beat for decades. As a result, it's had no trouble sharing more of its profits with its investors.
Meanwhile, Coca-Cola has been the most-chosen brand, according to Kantar's "Brand Footprint" report, every year for a decade (as of 2022). Coke operates in all but three countries worldwide, has a top-tier marketing campaign, and sells basic necessity goods. No matter how well or poorly the domestic or global economy is performing, people are still going to buy beverages, which makes Coca-Cola's cash flow highly predictable.
Another way to measure dividend greatness is by examining the length of time a company has been offering a continuous payout. Just over a dozen publicly traded companies have been doling out continuous dividends since the 19th century.
For example, ExxonMobil (XOM -2.78%)(long before it was called "ExxonMobil") has been paying a consecutive dividend since 1882. A steadily growing global population is demanding more in the way of energy commodities, which is a boon to its upstream drilling segment.
Further, ExxonMobil has a tight lid on its cost structure, with the company aiming to eliminate $15 billion in operating expenses between 2019 and the end of 2027. With macro factors working in the company's favor, above-average oil prices provide plenty of impetus for ExxonMobil to continue doling out a market-topping payout.
Power tools company Stanley Black & Decker (SWK 0.99%) is no slouch, either. It's coming up on the 150-year mark since it first began paying a consecutive dividend (since 1876). Though power tools may not be viewed in the same necessity class as food, beverages, and energy commodities, Stanley Black & Decker's operating performance ebbs and flows in lockstep with the U.S. and global economy. Since recessions are short-lived, the company is often thriving and able to share a percentage of its profits with its shareholders.
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Wall Street's greatest dividend stock is a virtually unknown small cap
But truth be told, none of these brand-name businesses come close to the consistency of one small-cap water utility stock that I can virtually guarantee 99% of investors have probably never heard of before. I'm talking about water and wastewater services provider York Water (YORW).
York Water is a water utility valued at $510 million that provides its services to 54 municipalities in three counties in South-Central Pennsylvania. It also averages fewer than 48,000 shares traded daily on the Nasdaq exchange, demonstrating how under-the-radar it remains.
Despite its diminutive size, it offers something that no other dividend stock does: a consecutive dividend streak that spans more than 200 years.
On Jan. 16, 2024, York Water made history, once again, by issuing a dividend payment to its shareholders. This marked the 208th consecutive year that York has paid its investors, which is 60 years longer than Stanley Black & Decker, the next-closest company based on consecutive dividend payments.
One of the reasons York is so special is because it provides a basic need service. Regardless of whether you own or rent a home, it's a veritable certainty you'll need water and wastewater services. To add, most utilities operate as monopolies or duopolies in the areas they serve. This equates to highly predictable operating cash flow in year in and year out for the company.
York's predictability is also a function of it being a regulated utility. "Regulated" utilities require permission from state public utility commissions -- in York's case, the Pennsylvania Public Utility Commission (PPUC) -- before rate hikes can be passed along to customers. Though this might sound like a nuisance, it ensures the company won't have to face unpredictable wholesale rates.
Further, it's worth noting that the PPUC gave York Water the OK in January 2023 to increase its rates on 75,000 customers to account for $176 million in ongoing and future infrastructure investments. This rate hike was expected to lift York's annual revenue by approximately 22% last year. These rate hikes, along with a steady diet of bolt-on acquisitions, have the profit needle pointing higher.
While some investors are going to suggest York's 2.4% yield is too modest to be "Wall Street's Greatest Dividend Stock," I'd suggest those folks take a closer look at York's total return, including dividends, over the trailing 25 years. York's 1,030% total return has almost precisely doubled-up the total return of the benchmark S&P 500. Thus, the only reason York is yielding a modest 2.4% is because its stock has vastly outperformed the broader market.
Among dividend-paying stocks, York Water is unsurpassed.
