3 Dividend Growth Stocks To Hold For The Long Run

In the world of dividend stocks, the Dividend Aristocrats are likely the most well-known group of high-quality dividend growth stocks. There is good reason for this, as the Dividend Aristocrats have increased their dividends for 25+ consecutive years.

However, there is a group that is even more remarkable, that has at least 50 years of consecutive dividend increases. This select group of stocks is known as the Dividend Kings and today, there are only 26 companies that make the list.

Their business models have stood the test of time and they have been able to increase their payouts in all sorts of economic conditions over the past five decades. Given this, the Dividend Kings are a good starting point for investors looking to find high-quality dividend growth stocks to hold for the long run. The following three dividend stocks are all industry-leading companies, and all are on the list of Dividend Kings.

1. Genuine Parts Co. GPC

Genuine Parts Company was founded in 1928. Since then, it has grown into an automotive wholesale and retail conglomerate. Its core business is its flagship NAPA brand, but also sells electrical materials and office products. The company has more than 3,000 locations worldwide. Its current market capitalization is just over $14 billion and it produces almost $20 billion in annual revenue.

Genuine Parts reported Q2 earnings on 7/18/19 and results came in below expectations, and the company also cut full-year guidance. Still, revenue hit a new record at $4.9 billion, up 2.3% year-over-year. Comparable sales rose 1.6% while acquisitions added 2.7%, partially offset by a 1.5% headwind from foreign exchange.

Gross margins expanded, but higher operating expenses led to lower operating margins. Net income was $1.57 per share on an adjusted basis, while management cut guidance to $5.65 to $5.75 for full-year earnings-per-share. Still, 2019 is expected to be another profitable year of modest growth for the company.

Despite the very impressive dividend increase streak, which stands at 62 years, Genuine Parts’ payout ratio is still right around half of its earnings. This means that not only is there still ample room for continued growth, but during the next recession, the payout should still be safe. Indeed, during the height of the Great Recession, Genuine Parts’ payout ratio peaked at 63%. That’s still very reasonable and speaks to the safety of the dividend payout, which is afforded by the company’s steady and predictable earnings. The dividend yield is also in excess of 3% today.

2. Emerson Electric EMR

Emerson Electric traces its roots all the way back to 1890. In the nearly 130 years since then, it has grown into a global leader in engineering and technology. The company generates almost $19 billion in annual revenue and has a market capitalization of $40 billion.

Emerson released Q2 earnings on 5/7/19 and the results were in-line with expectations. Revenue rose 8% as organic sales were up 4%, while acquisitions and foreign exchange netted out at a positive 4%. Emerson saw strength in air conditioning and tool products during the quarter.

Gross margins declined somewhat against the year-ago period, while higher expenses led to cost pressures and tariffs weighed on operating margins. However, management is confident operating margins will improve in the back half of the year. Emerson reduced the high end of its guidance for earnings-per-share this year, and our estimate stands at $3.65 for 2019.

Emerson has increased its dividend for 61 years and along with Genuine Parts, has one of the longest streaks of annual dividend increases available in the stock market. Like Genuine Parts, Emerson’s payout ratio is just over 50% of earnings this year, meaning Emerson has plenty of room to continue raising the payout in the years to come.

Safety is obviously a concern for investors looking to hold stocks for the long-term, and Emerson scores high marks there as well. The payout ratio never rose above 58% during the Great Recession, and it hasn’t been higher than 77% in the years since. We see Emerson’s 3% yield as attractive given its very long dividend increase streak, low payout ratio, and growth prospects for the long run.

3. Farmers & Merchants Bancorp FMCB

The final stock on our list is Farmers & Merchants Bancorp, a small community bank in Southern California. The bank was founded in 1916 and currently operates 32 locations in California. The company generates roughly $180 million in annual revenue and trades with a current market capitalization of just over $600 million, making it one of the smallest Dividend Kings today.

However, while Farmers & Merchants is a small-cap stock, the company is highly profitable, with a long history of steady growth. Farmers & Merchants reported Q1 earnings on 5/1/19 and results were very strong. Earnings grew 36% against the year-ago period thanks to a variety of factors. Net interest income rose 18% as net interest margin performed extremely well, rising from 4.12% to 4.40% year-over-year. Farmers & Merchants’ margins are outstanding and help it produce robust earnings over time. Total assets rose 11% as loans were up nearly 15% in Q1 thanks to recent acquisition activity.

The company has increased its dividend for 54 consecutive years and for a bank, which is generally quite cyclical, that feat is highly impressive. The current payout ratio is just 20% of earnings, meaning that Farmers & Merchants’ dividend is not only ultra-safe, but has plenty of room to continue to grow in the coming years.

Farmers & Merchants’ yield is significantly lower than the other two stocks in this list at just 1.8%. However, for investors looking for exposure to a financial dividend stock to hold for the long run, this stock may fit the bill due to its outstanding dividend record. Farmers & Merchants increased its dividend in each of the past five consecutive quarters.

Final Thoughts

Investors looking to buy and hold dividend stocks for the long run would do well to start with the list of Dividend Kings. These stocks have demonstrated staying power through all kinds of economic conditions and have the best chance of continuing their impressive runs of dividend increases over time.

We’ve highlighted three that should have staying power for long-term investors, and they all have yields that are at or above the broader market. For investors looking for long-term income, these three Dividend Kings are a great starting point.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.