There are two ways to view the collection of Dividend Kings, a relatively short list of companies that have increased their dividends yearly for 50-plus years. One is as a source of reliable dividend stocks. The other is as a source of businesses that have consistently grown over time.
The second view is actually a key tenant of the Oracle of Omaha's investment approach: Buy and hold, so you can benefit from the long-term growth of a business.
Here are three Dividend Kings that you can buy today and hold for the long term, one of which is even owned by Warren Buffett himself.
1. Buffett's Dividend King pick
Warren Buffett's investment approach is relevant here because he happens to own Coca-Cola (KO 1.02%), the first name up on this list. He's owned it for decades and benefited from the business' growth over time.
Coca-Cola looks reasonably priced today, suggesting it is a decent buy-and-hold candidate. To put numbers on that, the stock's price-to-sales and price-to-earnings ratios are below their five-year averages. And the nearly 3.1% dividend yield is above the 1.2% of the market and the 2.7% of the average consumer staples stock.
If you decide to follow Buffett into Coca-Cola, you are buying an industry-leading beverage maker with a global business reach. It can match any consumer staples company with its distribution, marketing, and research and development skills. It has the size to act as an industry consolidator, allowing management to quickly bring in on-target brands.
And while Coca-Cola is facing some pressure today from a shift toward healthier fare among consumers, history suggests that it will adjust with the times and continue to grow. After all, that's what the company has done for the last 63 years, with each of those years including a dividend increase.
Image source: The Motley Fool.
2. The King of all REITs
The second name on this list is Federal Realty (FRT -1.57%), which has increased its dividend every year for 58 years. What makes this company stand out so much is that it is the only real estate investment trust (REIT) on the Dividend King list. Notably, REITs are designed to pass income on to shareholders in a tax-efficient manner (they don't pay corporate income taxes) and usually have high yields. In this case, Federal Realty's yield is nearly 4.7%, which is both higher than the 1.2% yield of the S&P 500 (^GSPC -2.71%) and the average REIT's 3.2% yield.
Federal Realty is unique in another way. While most REITs look to grow via acquisition, this strip mall and mixed-use landlord prefers to focus on quality over quantity. It only owns around 100 strip mall and mixed-use properties at a time, and spends a great deal of effort making sure they are the best-located and most-desirable assets in the regions they serve.
Redevelopment and development are key skills, with management happy to sell properties that have reached their full potential so it can start again with a property in need of a little capital investment. If you like income, this Dividend King REIT could be right for you.
3. Buy this Dividend King while it's in the doghouse
The last Dividend King here, Nucor (NUE -3.23%), is counterintuitive. The steelmaker operates in a highly cyclical industry, which makes its 53 years worth of annual dividend increases extra impressive and unusual. But the really important switch in thinking comes with the buy timing of cyclical stocks, since they are usually best added to a portfolio when they are out of favor. Right now, Nucor's stock is down about 30% from its 2024 highs.
The dividend yield is modest, at just 1.6% or so, but the company has proven it knows how to grow through the steel cycle. It has grown consistently thanks to a focus on producing higher highs and higher lows within its business. There's a very clear path here.
First, Nucor uses industry-leading technology, which in this case is highly flexible electric arc mini-mills. Second, management is constantly investing in the business. And third, the company is focused on diversification (the company makes commodity steel and higher-margin specialty steel and steel products).
What's interesting is that industry downturns are often periods in which Nucor invests more heavily, so it comes out of the weak patch an even stronger company. Now, a steel industry weak patch, could be a solid entry point if your intent is to buy and hold a stock forever.
Don't focus only on yield with Dividend Kings
The list of Dividend Kings is a great place to look for income stocks, of course. Coca-Cola and Federal Realty are clear examples of that. But don't discard this list if income isn't your primary goal. As Nucor highlights, Dividend Kings have proven they can grow consistently, which could help you identify a completely different type of stock (growth, GARP, and even value) for your portfolio.
