Companies that pay and regularly increase their dividends can provide an incredible benefit to investors with the ability to focus on the long term. They're among the few asset classes with the potential to pay an income stream that could increase in line with or faster than inflation over time.
Still, not every company has what it takes to pay out ever-increasing amounts of money to its shareholders. Indeed, there's only a small handful that can be considered Dividend Kings -- businesses with decades of history raising their dividends and the potential to continue the trend. Here are five of those top Dividend Kings that may be worth considering buying with the intention of holding forever.
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No. 1: A healthcare titan with nearly six decades of dividend growth
Johnson & Johnson (JNJ -0.69%) has increased its dividend for 57 consecutive years, a testament to the company's strong position in the ever-critical healthcare industry. In addition to that long history of dividend increases, it's one of only two non-financial companies in the United States to sport a coveted AAA debt rating, the highest available.
Johnson & Johnson sports a current yield of around 2.6%, and its most recent increase in April to $0.95 per share per quarter was around a 5.6% boost from its previous dividend level. Its payout ratio of around 70% of earnings is decently covered for a large, mature business, so investors have a good chance of seeing it continue to boost its dividend in line with its earnings growth over time.
No. 2: A somewhat countercyclical car-parts provider
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Genuine Parts (GPC -0.97%) is perhaps best known as the parent company behind NAPA Auto Parts stores. The company has a 63-year history of boosting its dividend, a tremendous record for any company, but especially one involved in the rough-and-tumble retail business.
A key driver for its sustained success is that it sells auto parts. When the economy is doing poorly, people tend to keep their cars longer as new car sales slump, and older cars need more repairs than newer ones. In addition, people are also more likely to attempt do-it-yourself repairs to their cars if money is tight. That combination means that Genuine Parts' sales have a decent chance of holding up reasonably well during recessions, which is why it has such a long history of raising its dividend.
Genuine Parts currently sports a yield of around 2.9%, and that dividend consumes around 55% of the company's earnings. With the company's earnings expected to grow modestly over the next several years, investors can anticipate that it will likely keep its dividend growth intact in 2020 with another single-digit percentage increase.
No. 3: A can-do industrial innovator
Consumers may know 3M (MMM -1.05%) best for its Post-It Notes, but the company actually has thousands of products across industries from automotive and transportation to healthcare and hygiene. That broad industry coverage speaks to the company's heritage and core strength as an innovator. It's because of that innovation that the company has weathered all types of economic conditions to be able to pay uninterrupted dividends for more than a century and increase those dividends for 61 years.
3M currently sports a yield of around 3.2%, and that dividend consumes just over two-thirds of the company's earnings. With analysts expecting some small measure of growth over the next five years, there's a reasonable probability that 3M will be able to keep that increasing dividend streak alive.
No. 4: A foodservice distributor with a long history of rewarding shareholders
Sysco (SYY 0.43%) has paid a dividend every quarter since going public in 1970, and including its initial dividend, it has increased that payment 51 times over its history. That's an incredible track record and a testament to the company's laser-like focus on operating effectiveness and efficiency.
Sysco is the world leader in distributing food and other products to restaurants, schools, hotels, hospitals and other such institutions. That makes it a vital link in the logistics chain linking those other businesses to their consumers.
From an investor's perspective, Sysco offers a yield of around 2.1% and pays out just under half of its earnings in that dividend. Analysts expect the company to deliver solid mid-to-high single-digit earnings growth over the next five years, giving investors reason to believe the company can continue its half-century trend of increasing payments.
No. 5: A titan in the home improvement industry
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Home improvement titan Lowe's (LOW -1.40%) can boast an impressive 58-year streak of dividend increases. Similar to the other retail-focused businesses on this list, Lowe's has been able to maintain its longevity because its business is somewhat resistant to recessions. After all, when money is tight, people focus on repairing, maintaining, and upgrading their existing homes rather than buying new ones. That means that Lowe's will still see business in a recession, even if it's less than during a healthy economy.
Lowe's dividend clocks in at around a 1.8% yield, smaller than the other Dividend Kings on this list. Still, with that divided taking up only around 55% of the company's earnings, Lowe's has room to continue the trend of increasing its dividend as its business grows over time. Analysts are expecting the company to deliver earnings growth at around a 15.9% pace over the next five years, and if that happens, investors could see a very nice boost over time vs. today's modest yield.
Invest with a long-term focus
Although dividends are not guaranteed payments, and companies can and do cut their payments when times get tough, investing in companies that pay and grow their dividends can be a rewarding exercise. Since dividends typically only directly represent a few points of return a year, they force you to focus on the long-term health of the business instead of its day-to-day stock price movements.
That long-term focus is the biggest edge you have over Wall Street. If investing in Dividend Kings helps you focus on that edge by getting you to look forward to the possibility of an annual increase, it can be a very powerful tool in your arsenal. Over time, that focus may very well be the difference between a very comfortable future and one that's not quite as nice.
