There are three general strategies a dividend investor can employ to select stocks for their portfolios.
The first and most straightforward is to focus on high-yielding stocks, both as a way to deliver above-average income or to target potentially undervalued companies. A high yield can signify that the stock price has dropped, making it a potentially undervalued opportunity.
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The second approach is to focus on quality companies. In this context, investors may be less concerned about the yield of the stock and more about its sustainability, such as a low payout ratio or a long history of unbroken payouts.
The third approach is to focus on dividend growth. This can be done by looking at the historical growth rate, but a simpler and more reliable method is to look for companies with an unbroken streak of increasing dividends every consecutive year.
In the U.S. market, there’s a well-known benchmark called the S&P 500 Dividend Aristocrats, which selects stocks from the S&P 500 with at least 25 years of consecutive dividend increases. But there’s an even more stringent index called the S&P Dividend Monarchs.
This index selects companies from the broader S&P 1500 composite index with 50 or more years of consecutive dividend growth — companies that are also referred to as “Dividend Kings.”
“On average, the Dividend Monarchs have increased their dividends for 56 straight years,” says Dave Mazza, CEO at Roundhill Investments, which offers the Roundhill S&P Dividend Monarchs ETF (ticker: KNGS). “As a group, they exhibit higher return on equity than the broader market, coupled with lower earnings variability. Characteristics of this nature have historically translated to lower share price volatility and improved drawdowns,” Mazza explains.
However, simply being a Dividend King doesn’t mean a stock will outperform the market. “The focus on dividends sometimes means that these companies reinvest less profit back into the business for future expansion, potentially limiting stock price appreciation,” says Michael Ashley Schulman, chief investment officer at Running Point Capital. “Also, keep tax implications in mind because dividends are generally taxable, which can affect your overall total return.”
Finally, being a Dividend King isn’t a reason for investors to neglect further due diligence. While it’s a good criterion to screen stocks initially, investors should dig deeper. Consider the case of 64-year former Dividend King 3M Co. (MMM), which was recently booted off the list in May after cutting its dividend.
Here are seven of the best Dividend King stocks to buy and hold forever:
| Stock | Yield | Dividend Growth Streak |
| Abbott Laboratories (ABT) | 2.0% | 52 |
| Johnson & Johnson (JNJ) | 3.4% | 62 |
| Walmart Inc. (WMT) | 1.3% | 51 |
| Procter & Gamble Co. (PG) | 2.4% | 68 |
| Colgate-Palmolive Co. (CL) | 2.1% | 62 |
| Coca-Cola Co. (KO) | 3.0% | 62 |
| PepsiCo Inc. (PEP) | 3.2% | 52 |
Abbott Laboratories (ABT)
“Health care companies tend to dominate the list because they possess predictable earnings growth, with profits that are not overly economically sensitive,” says James Lewis, portfolio manager and senior equity research analyst at Bartlett Wealth Management. “Thus, with a stable earnings stream, these companies are willing to allocate capital through dividends and grow the rate of that payment.”
The essential nature of Abbott Laboratories’ medical devices, diagnostics, branded generic medicines and nutritional products have helped it reap stable earnings contributing to 52 years of dividend increases. In December 2023, the company raised its quarterly payout by 7.8% to 55 cents per share. Right now, investors can expect a 2% dividend yield and lower volatility with a 0.7 five-year beta.
Beta is an investing metric measuring how much a stock tends to move compared to the broader market, usually the S&P 500. A beta of 1 means a stock moves in total lockstep with the market; readings below 1 accompany stocks that tend to move up and down less swiftly than the market, with the opposite being true for stocks with readings of more than 1.
Johnson & Johnson (JNJ)
The post-Kenvue Inc. (KVUE) spinoff version of Johnson & Johnson now focuses solely on higher-growth business segments like pharmaceuticals and medical devices. Shedding its consumer health segment has also generated over $13 billion in cash for JNJ, which the company is able to leverage for acquisitions, research and development, growing its dividend further or even buying back shares.
“In addition to being a Dividend King, JNJ also holds the distinction of being one of the remaining few AAA-credit-rated companies,” says Craig Giventer, managing director of portfolio strategies at GYL Financial Synergies. “The company’s strong position in both pharmaceuticals and med tech allows the company to generate attractive rates of revenues, earnings and free cash flow growth.”
Walmart Inc. (WMT)
Despite dealing with the usual thin retailer operating margins at 4.2%, Walmart has managed to deliver a 23.5% return on equity. In Walmart’s case, it demonstrates the company’s ability to leverage its vast scale and efficient operations to produce substantial returns, even in an industry known for low margins. This efficiency has allowed Walmart to maintain competitive pricing and grow its dividend for 51 straight years now.
“Walmart is the poster child of an old-economy company who has pivoted, and it is showing up in its margins, profitability and growth,” says Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments. “I continue to like the company as a serious omni-channel tech-driven retailer.” Right now, investors can expect a 1.3% dividend yield and also low volatility with a 0.5 five-year beta.
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Procter & Gamble Co. (PG)
“P&G’s competitive strengths lie in its diverse portfolio, which provides stability and caters to a wide range of needs, its massive scale, which translates to better deals with suppliers and retailers, and its strong brand recognition with consumers, retailers and investors,” Schulman says. This has helped the consumer staples
giant achieve an incredible 22.9% operating margin and 18% profit margin.
“P&G boasts a diversified operating model across five product segments, 10 product categories, operations in 70 nations, and sales in over 180 countries and territories,” Schulman explains. By leveraging the economy of scale afforded by globally recognized brands such as Febreze, Crest and Tide, P&G has been able to increase dividends for 68 consecutive years. The company currently yields 2.4%.
Colgate-Palmolive Co. (CL)
Procter & Gamble’s biggest domestic competitor, Colgate-Palmolive, is also a Dividend King. Like P&G, it boasts high profit margins at 13.2% and operating margins at 21%. Colgate’s major brands include its eponymous toothpaste, Palmolive dish soap and Hill’s pet nutrition products, helping to maintain its strong market presence and financial performance. Right now, investors can expect a 2.1% yield.
“Colgate-Palmolive delivered robust sales growth in Q1 2024 and saw continued improvement in gross profit trends,” Mazza says. “The over 200-year-old company has strong international exposure, as emerging markets comprised 45% of 2023 net sales.”
The company has also returned tens of billions in cash to shareholders over the last decade and has increased its dividend payout for 62 straight years.
Coca-Cola Co. (KO)
Wonder how Coca-Cola achieves a remarkable 33% operating margin and 62 years of dividend growth? It’s due to its efficient business model. Coca-Cola manufactures concentrate and syrups, owns the brands and handles marketing, while bottling partners manage production, packaging and distribution. This synergy optimizes costs and maintains high margins, while ensuring global penetration.
“Coca-Cola benefits from a category where consumers are brand aware — that is, over the years, they have developed products that resonate with preferences,” Lewis says. “It also operates in categories where store brands have not been able to gain market share due to poor quality. This has made its products less discretionary, which leads to stable profit growth and a strong commitment to dividends.”
PepsiCo Inc. (PEP)
Pepsi lost the famous “Cola Wars” to rival Coca-Cola, but it adapted and thrived by expanding its lineup to include popular snack brands like Lay’s, Doritos and Quaker. This helped the company retain its overall competitive positioning despite losing in the soft drink market. From 1985 to the present, Pepsi has actually delivered an annualized total return of 14.4%, soundly beating Coca-Cola’s compound annual growth rate of 12.9%.
The soda and snack giant currently pays a 3.2% dividend yield and has hiked dividends for 52 years straight. “In April 2024, PepsiCo affirmed its 2024 financial guidance with total cash returns to shareholders of approximately $8.2 billion. This included dividends of $7.2 billion and share repurchases of $1 billion,” Mazza says. It is also a low-volatility stock with a 0.5 beta.
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7 Dividend Kings to Buy and Hold Forever originally appeared on usnews.com
Update 06/10/24: This story was published at an earlier date and has been updated with new information.
