What It Takes To Be A Dividend King

Dividend growth investors have probably heard of Dividend Aristocrats, a group of 53 stocks in the S&P 500 Index that have raised their dividends for 25 or more years in a row.

But investors might not be as familiar with the Dividend Kings, an even more exclusive list of stocks that have increased their dividends for 50 consecutive years.

Getting onto the list of Dividend Kings is no small feat — it requires a company to have a business model that can stand the test of time. During the Great Recession of 2007-2009, many companies froze their dividends, as they could not continue to raise their payouts on an annual basis when profits fell. Many other companies cut their dividends or eliminated them entirely during the recession, a hazard of operating a highly-cyclical business model.

In addition, a company needs to generate profits consistently to not only pay dividends each year, but also raise their payouts once per year. This consistent earnings and dividend growth must be maintained, whether the economy is growing or is in recession.

Dividend growth stocks help investors generate returns, no matter what the broader market is doing. When stocks are declining, such as during a recession, dividends help cushion investors’ portfolios. When stocks are going up, such as the nearly 10-year bull run since the Great Recession ended, dividends provide the cherry-on-top of rising stock prices.

That said, investors might notice that the list does not include extreme-high yielders. None of the Dividend Kings have current dividend yields above 4 percent. The lesson here is that while it can be tempted to invest solely in stocks with high dividend yields, it is often wise. Dividend growth stocks with lower yields today can be better investments over the long-term, if they have the ability to raise their dividends consistently each year.

What Stocks Make The Cut

Unlike the Dividend Aristocrats, the Dividend Kings don’t necessarily need to be in the S&P 500 Index. In fact, many are not in. A number of Dividend Kings are small-caps, with market capitalizations of $2 billion or less.

There are 25 in all. Seven come from the industrials sector and another six are from the consumer staples sector. Also included are five utility stocks, two stocks from the consumer cyclical and financial sectors, and one stock apiece from basic materials, healthcare, and real estate.

Interestingly, there are no technology stocks on the list of Dividend Kings, despite the fact that the technology is currently the largest sector component of the S&P 500 Index. This shouldn't come as a surprise, since many tech stocks like Facebook, Inc. FB and Amazon.com, Inc. AMZN do not pay dividends. Even tech stocks that do pay dividends, such as Apple Inc. AAPL, have relatively short histories of making payouts to shareholders.

The full list of the Dividend Kings is as follows:

• Stepan Company SCL
• Genuine Parts Company GPC
• Lowe's Companies, Inc. LOW
• Colgate-Palmolive Company CL
• Hormel Foods Corp HRL
• The Coca-Cola Co KO
• Lancaster Colony Corp. LANC
• Procter & Gamble Procter & Gamble Co PG
• Tootsie Roll Industries, Inc. TR
• Cincinnati Financial Cincinnati Financial Corporation CINF
• Farmers & Merchants Bancorp FMCB
• Johnson & Johnson JNJ
• ABM Industries, Inc. ABM
• Dover Corp DOV
• Emerson Electric Co. EMR
• 3M Co MMM
• Nordson Corporation NDSN
• Parker-Hannifin Corp PH
• Stanley Black & Decker, Inc. SWK
• Federal Realty Investment Trust FRT
• American States Water Co AWR
• California Water Service Group CWT
• Northwest Natural Gas Co NWN
• SJW Group SJW
• Vectren Corp VVC

Final Thoughts

There are a number of good reasons to consider investing in high-quality dividend growth stocks. But investors should not simply assume that all the Dividend Kings are worthy of investment.

As always, investors should weigh the pros and cons of any investment and perform thorough due diligence before buying individual stocks. For investors interested in buying individual dividend stocks, the ones with the longest histories of dividend growth could offer greater safety and stability through various economic environments.

Disclosure: The author am not long any of the stocks mentioned in this article.

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