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5 Dividend Aristocrats Closing in on Their 60th Consecutive Year of Dividend Increases

By Sean Williams - Jan 2, 2015 at 7:01AM

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These five dividend aristocrats have their eyes set on increasing their dividend for 60 consecutive years. Can they make it happen?

Source: Flickr user Peddhapati.

A dividend yield of 2%-3% may not seem overwhelmingly impressive considering that the stock market has returned close to 10% over the long term, but reinvesting these dividends back into a company can be the difference between simply retiring, and retiring on your own terms.

Dividends serve a number of purposes for investors. First and foremost, they speak of the consistency of a company and its business model. A company paying a dividend on a regular basis signals to Wall Street and investors that it's set up to succeed over the long run. Dividends can also act as a downside hedge when the stock market turns lower. Lastly, reinvesting your dividends can really boost your returns. For example, a stock yielding 3% that's held for 40 years and whose dividends are reinvested will gain an extra 100% over a dividend payout that's pocketed by an investor, assuming the dividend payout and stock price remain unchanged over that 40-year period.

Source: Flickr user Randy Robertson.

It's these facts that make dividend stocks so desirable. Water utility and wastewater service provider American States Water (AWR 1.44%) sits atop a truly elite class of dividend payers known as Dividend Aristocrats, which have increased their payouts for a minimum of 25 years. In American States Water's case, it's boosted its payout for 60 consecutive years.

Which companies are getting ready to possibly join the 60-year annual dividend increase club? I have five on my radar.

1. Dover (DOV 3.91%)
Dover is an equipment and component manufacturer for the energy and engineered systems industries, and it's on the precipice of enacting its 60th consecutive year of dividend increases in 2015. With a yield of 2.2%, it's practically on par with the average return of the S&P 500.

The good news is Dover's dividend looks safe, and a payout increase seems likely, with the company paying out just 35% of the midpoint of its projected fiscal 2014 profits. The downside is that its energy products are likely to see weakness in the near future as oil prices are off about 50% from their summer peak. I highly doubt this interrupts Dover's immaculate dividend streak -- in fact, the company is still projecting low- to mid-single-digit organic growth next year -- but it's something to consider in the coming quarters that could adversely affect Dover's share price.

2. Procter & Gamble (PG 1.44%)
The secret to Procter & Gamble's success, as well as the company's current 58-year annual dividend increase streak, is inelasticity and brand-name saturation.

For starters, Procter & Gamble's products remain in demand regardless of how well or poorly the economy is performing. Think about it: People need detergent, shampoo, and toothpaste even if the U.S. economy dips into a recession, meaning P&G retains significant pricing power and has little, if any, incentive to ever discount its products. This has the effect of preserving its margins and beefing up its dividend.

Source: Procter & Gamble.

The other component here is that P&G's products are essentially household brands. Tide, Crest, and Pampers are brands Americans easily identify with, and because of that, they require minimal advertising since these brands can practically sell themselves. With a yield of nearly 3% and a payout ratio of just 55% based on Wall Street's estimated 2015 fiscal EPS, P&G looks like it has a good shot at hitting year 60 of dividend increases in 2016.

3. Genuine Parts (GPC 2.60%)
Instead of supplying inelastic products like P&G, auto and industrial replacement parts supplier Genuine Parts is succeeding because it's in a high-demand, and generally high-growth sector.

2013 year-end revenue breakdown in percentage. Source: Genuine Parts.

The automotive segment is a source of incredible growth for Genuine Parts with demand in BRIC nations (Brazil, India, and China) soaring. Acquisitions have also been good source of growth, with its electrical/electronic group sales at EIS growing by 35% in the third quarter.

The biggest boost for Genuine Parts may be rapidly falling oil prices. Not only do low crude prices reduce gasoline costs and entice people to drive more, but it could throw the desire to upgrade to a costly new vehicle that's more fuel-efficient out the window. In other words, low crude prices encourage consumers to keep their older vehicles, which is great news for a replacement parts company like Genuine Parts.

Currently boasting a 58-year streak of raising its dividend and paying out about 46% of next year's estimated EPS by Wall Street, GPC's 2.3% yield appears safe and likely to rise into its 60th year by 2016.

4. Emerson Electric (EMR 5.45%)
Emerson Electric, a provider of technology and engineering solutions to the industrial and consumer markets, leans heavily on diversification for its success.

Source: Emerson Electric.

For example, Emerson's business is somewhat dependent on an expanding U.S. economy. In other words, businesses and consumers are likely going to dial back spending if the U.S. economy is weakening. That's where Emerson's diversification kicks in. The company is demonstrating strong growth in China, where sales grew by 7% in fiscal 2014, and its gross profit margin rose by 110 basis points to 41.4% because of a more favorable mix of technology products being sold.

Emerson has increased its dividend in 58 consecutive years, is sporting a superior 3.1% yield relative to the S&P 500, and is looking at a payout ratio of just 47% based on Wall Street's estimated fiscal 2015 earnings projections. Suffice it to say, I fully expect Emerson to hit the 60-year mark in 2016.

5. 3M (MMM 3.21%)
Lastly, we have 3M, perhaps the king of product diversification among these five companies, with an annual dividend hike streak of 57 years!

Speaking to analysts just three weeks ago, 3M's management remains quite confident in its ability to hit on its multi-year goals of 9%-11% EPS growth, 4%-6% organic sales growth, and the conversion of 100% of net income into free cash. Part of its success rests with healthy U.S. and Asian economies, which have the effect of fueling organic growth. The other component is 3M's drive to invest in research and development. By putting out new and innovative products behind a brand name that consumers trust, 3M has had little trouble growing its sales or profits.

Best of all, 3M announced a 20% dividend hike in December (the aforementioned 57th year of increases), boosting its annual yield up to 2.5% and bringing its payout ratio to 50% of the midpoint of its estimated fiscal 2015 EPS. Not to sound like a broken record, but 2017 looks promising to be 3M's 60th year of dividend hikes. 

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Stocks Mentioned

The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$144.35 (1.44%) $2.05
3M Company Stock Quote
3M Company
$134.33 (3.21%) $4.18
Dover Corporation Stock Quote
Dover Corporation
$123.22 (3.91%) $4.64
Emerson Electric Co. Stock Quote
Emerson Electric Co.
$82.03 (5.45%) $4.24
Genuine Parts Company Stock Quote
Genuine Parts Company
$136.75 (2.60%) $3.46
American States Water Company Stock Quote
American States Water Company
$79.09 (1.44%) $1.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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