Dividend Kings, or companies with 50 or more consecutive years of annual dividend growth, represent some of the highest-quality stocks out there. They can make for great long-term investments in both bull and bear markets.
There are 57 Dividend Kings, with all sectors represented, from consumer stocks to utility stocks. Among this smattering of blue chip dividend stocks, right now, three stand out as strong buys -- for their price appreciation potential as much as for their impressive dividend growth track records.
The three stocks are Genuine Parts (GPC 0.86%), Kimberly-Clark (KMB 1.43%), and Target (TGT 1.92%).
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Genuine Parts' planned spinoff could unlock tremendous value
Last month, Genuine Parts experienced a sharp post-earnings drop on disappointing results and guidance. Even as management announced a potential catalyst for the stock, investors remained focused on weak near-term operating performance.
NYSE: GPC
Key Data Points
The stock has settled, finding support between $115 and $120 per share. This could prove to be an opportune entry point for long-term investors. Post-pullback, shares now sport a forward dividend yield of 3.7%. For most of the past decade, Genuine Parts' dividend yield has been 3% or less. Furthermore, Genuine Parts has raised payouts in each of the last 71 years, with annual growth averaging 5.3% over the past 10 years.
Genuine Parts' split-up catalyst could unlock significant value. Best known for its auto parts distribution unit, Genuine Parts also has an industrial parts distribution unit. As industrial distributors, for instance, Fastenal, trade at a valuation premium to Genuine Parts, this may mean big gains for investors buying in before the split.
Kimberly-Clark could surge following its pending Kenvue merger
With its split-up plans, Genuine Parts is pursuing a strategic alternative. Kimberly-Clark, the company behind Huggies and Kleenex, is another Dividend King exploring "strategic alternatives." I'm talking, of course, about Kimberly-Clark's pending plan to acquire Kenvue (KVUE 0.91%) in a $48.7 billion cash and stock merger transaction.
NASDAQ: KMB
Key Data Points
Kenvue, spun off from Johnson & Johnson, owns brands like Tylenol and Band-Aid. Shareholders of both companies have voted in favor of the merger. This suggests that concerns about the deal, such as potential Tylenol legal liabilities, have dissipated. Management believes the deal could create up to $2 billion in cost synergies, making the deal accretive within a year.
Earnings growth will leave the company well-positioned to sustain its 54-year track record of consecutive annual dividend increases. Currently, Kimberly-Clark has a forward dividend yield of 3.5%. Dividend growth over the past decade has averaged 3.8%.
Further upside remains from Target's turnaround
Three months ago, investors weren't too excited about Target's turnaround potential. That's why you could buy the retailer's stock for under $90 per share. Now, the stock has rallied by over one-third, to $120 per share. Yet while this suggests you missed the boat on the turnaround trade, that's not entirely true.
NYSE: TGT
Key Data Points
Over longer timeframes, further upside potential remains. The high end of forecasts calls for 12.2% earnings growth this year. As before, Target, trading at around 15 times forward earnings, still sports a significant valuation discount to Walmart. Target's key peer among retail stocks trades for 43 times forward earnings.
Currently, shares have a forward dividend yield of 3.9%. Over the past decade, the Dividend King has raised its dividend by an average of 7.7% annually.
