All of us know, have heard or may even come from families with opposite siblings. Thing One is made for the glitz, the glamour, the public eye — and man, do they love it. And Thing Two? They’ve got all the charisma of a boiled potato. And they’d rather be left to do their own thing, which ranks up there on the glamour scale with collecting vacuum cleaners as hobby.
But both sibs succeed. And if you talked to their backers, they wouldn’t express the least bit of surprise. Because underneath the appearances, they share strikingly similar fundamentals that add up to staying power.
This brings us to two stocks that follow said storyline: Johnson & Johnson (NYSE: JNJ) and Dover Corp. ( DOV). Based in New Brunswick, New Jersey, JNJ introduced a product into the popular lexicon — Band-Aid — and is known the world over for Tylenol, Listerine and its baby powder, to name a few marquee items.
[See: 7 of the Best Stocks to Buy for 2018.]
And Dover? The Chicago-area company concentrates on fluid management, industrial products and manufacturing support systems — not exactly the stuff of riveting dinner party banter.
So what links them? As investments, JNJ and DOV share a very rare mantle as dividend kings. That means for decades, both companies have raised their dividends year after year, without interruption. J&J’s div streak stands at almost 55 years, ever since John F. Kennedy was in the White House. And Dover? It’s racked up 62.
“If you look at the list of companies that have consistently increased dividends for many consecutive years, they tend to be firms that produce simple products people repeatedly purchase,” says Bob Johnson, president and CEO of the American College of Financial Services in the Philadelphia area.
Right now that A-list stands at 20 companies that have increased yearly dividends for the past half-century. Among them: 3M Co. ( MMM), Coca-Cola Co. ( KO), Colgate Palmolive Co. ( CL), Genuine Parts Co. ( GPC) and Tootsie Roll Industries ( TR).
“I think dividend investors should look to these stocks first, as they have truly stood the test of time,” Johnson says.
“JNJ provides an interesting duality,” says Christopher Ma, director of the George Investments Institute at Stetson University in DeLand, Florida. “JNJ is an all-American household blue chip that has both the growth potential and defensive nature against economic risk.”
It’s not as though demand for Band-Aids is going away, either. JNJ’s dividend currently pays 84 cents per share its stock price of about $138 has doubled over the last five years.
[See: 20 Awesome Dividend Stocks for Guaranteed Income.]
“On the other hand, Dover delivers such an impressive, consistent record due to its diversified power base,” Ma says. “This allows the company to significantly reduce the business cycle risk and revenue volatility, and thus generate a stable growth in free cash flow to grow its dividend payments.”
A finance expert in Dover’s Chicago-area backyard offers a unique perspective on its sublime success.
“Dover has moved ahead by following the rules and practicing sound financial principles,” says Anne Drougas, chair of accounting, finance and entrepreneurship at Dominican University’s Brennan School of Business. “Checking a firm’s dividend dates and actively searching for understated companies like Dover are what financial planners preach.”
It also helps when our sermon for today is about a current dividend of 47 cents per share, almost five times the tally in 1998 (10 cents). To which the congregation of Dover investors replies, “Amen.” Dover’s stock is also up roughly a third over the last 12 months, trading at about $103 per share.
As for those who love high-tech hotshots and scoff at the frumpy dividend, consider this: Dividends continuously reinvested into stock purchases amount to a license to print money.
Long winning streaks prove all the more remarkable given that keeping a dividend crown is slippery business in an era of globalization and high-tech disruption. General Electric Co. ( GE), a company co-founded by Thomas Edison, just took a dive worthy of a shattered incandescent bulb.
For only the second time since the Great Depression, General Electric cut its dividend in November: slashed in half from 24 to 12 cents. Beset by a cash crunch, GE is in such bad shape that it’s selling its light bulb unit, a prospect to make Edison roll over in his dark, unlit grave. (As recently as 2016, GE beat Wall Street expectations for the first two quarters of the year.)
“Simply investing in a stock because it has a high dividend yield is problematic,” Johnson says. “A particular problem with GE is its lack of focus. Despite divesting of many business lines, GE is involved in a plethora of industries” — a General Eclectic, so to speak.
Yet dividend kings of the old school often prove a timeless maxim: What is old in investing often becomes new as fads and flavors of the month fade away. And that’s a tune investors in Dover Corp and J&J never get tired of hearing.
[See: 7 of the Best Dividend Stocks to Buy for 2018.]
“If a company pays a dividend and commits to growing its dividends, it signals to investors that it is a well-managed firm,” Drougas says. “Dividends, just like vinyl records, have come back into vogue.”
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These Opposites Attract Investors originally appeared on usnews.com
