If you’re aiming to buy and hold quality companies, there are several strategies to pinpoint them. For example, many quality-focused exchange-traded funds (ETFs) like the iShares MSCI USA Quality Factor ETF (ticker: QUAL) employ sophisticated index methodologies that screen for high return on equity (ROE), stable year-over-year earnings growth and low financial leverage.
However, there’s a simpler, straightforward method to identify quality stocks: focusing on their track record of dividend growth. This approach is practical because a consistent increase in dividends often signals financial health and a commitment to returning value to shareholders.
Within the realm of dividend growth, there are significant milestones that highlight the stability and longevity of companies. The first major milestone is reaching 25 years of consecutive dividend increases, potentially qualifying a company to be part of the S&P 500 Dividend Aristocrats.
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But beyond that, there are the Dividend Kings — companies within the S&P 1500 composite index that have achieved 50 or more years of uninterrupted dividend growth. These firms are also sometimes referred to as Dividend Monarchs.
“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 (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.”
Considering a company’s history of dividend growth can therefore be a useful rule of thumb for identifying potentially solid long-term investments. However, it’s crucial to conduct thorough due diligence and fundamental analysis beyond just dividend history.
While these companies may exemplify quality, they might not necessarily be undervalued; in fact, you’re likely paying a fair price or even a premium to own such consistent performers. Moreover, you might be limiting yourself in terms of capital appreciation and tax efficiency.
“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, it’s also important to be mindful of survivorship bias. The companies that have maintained their dividend growth streaks are the ones that have succeeded, but this doesn’t capture those that have faltered along the way.
Even Dividend Kings can fall from grace, as seen with the example of home furnishing manufacturer Leggett & Platt Inc. (LEG), which was recently removed from the list after cutting its dividend.
Here are seven of the best Dividend King stocks to buy and hold forever:
| Stock | Yield | Dividend Growth Streak (Years) |
| Becton Dickinson & Co. (BDX) | 1.6% | 52 |
| Coca-Cola Co. (KO) | 2.7% | 62 |
| Johnson & Johnson (JNJ) | 3.1% | 62 |
| Walmart Inc. (WMT) | 1.0% | 51 |
| Procter & Gamble Co. (PG) | 2.3% | 68 |
| AbbVie Inc. (ABBV) | 3.2% | 52 |
| Stanley Black & Decker Inc. (SWK) | 3.0% | 56 |
Becton Dickinson & Co. (BDX)
“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.”
Investors looking to avoid the risk of pharmaceutical and biotechnology companies may prefer Becton Dickinson, which derives the majority of its revenues from medical supplies, devices, laboratory equipment and diagnostic products. Investors can currently expect a 1.6% dividend yield with a 52-year growth streak, and an average volatility around half that of the market thanks to a 0.5 beta.
Coca-Cola Co. (KO)
“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.”
Coca-Cola’s current 2.7% dividend yield not only ranks above average compared to the market but has also grown for 62 consecutive years. But the company has delivered tremendous shareholder value beyond just dividends. Thanks to numerous forward stock splits, a single share purchased in 1919 and held would have multiplied over the years to become 9,216 shares by 2012.
Johnson & Johnson (JNJ)
“In addition to being a Dividend King, Johnson & Johnson 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.”
Aside from Microsoft Corp. (MSFT), no other company rivals Johnson & Johnson’s creditworthiness. To put it in perspective, Fitch Ratings actually downgraded the U.S. government’s credit rating in August 2023 to “AA+” from “AAA.” Investors who choose to put their money in shares of Johnson & Johnson therefore get the backing of a rock-solid balance sheet and a 3.1% yield with 62 years of dividend growth.
Walmart Inc. (WMT)
“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.” Shares of Walmart are up 53% year to date as of Sept. 27, beating the S&P 500’s 20.3% price return.
Like many retailers, Walmart contends with relatively thin operating margins, currently standing at 4.7%, and a net profit margin of 2.3%. Typically, these slim margins are seen as a vulnerability in the retail industry due to the high costs associated with maintaining large inventories and physical stores. However, the company has still managed to grow its dividend for 51 years despite this challenge.
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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. Its suppliers and retailers effectively assume the bulk of the risk, allowing P&G to retain double-digit margins.
“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. This high breadth, coupled with the essential nature of its brands like Febreze, Crest and Tide, has helped P&G increase dividends for 68 years across some very challenging economic environments.
AbbVie Inc. (ABBV)
“In its latest quarter, AbbVie reported better-than-expected earnings growth, driven by its immunology drugs Skyrizi and Rinvoq, which posted double-digit sales increases,” Mazza says. “Despite Humira’s competition, AbbVie forecasts stable revenue, supported by new launches and its expanding oncology pipeline.” For pharmaceutical investors, a well-rounded patent pipeline is an absolute must.
This refers to a company’s lineup of drug patents, including those under development and awaiting approval, crucial for continuous revenue as older drugs lose patent protection. The risk here is the “patent cliff,” a situation where expiring patents lead to revenue drops. So far, AbbVie has done a good job staying abreast of research and development to mitigate this risk.
Stanley Black & Decker Inc. (SWK)
“Stanley Black & Decker has undertaken cost-cutting initiatives and supply chain improvements, positioning it for margin recovery after recent challenges in the tool and storage segment,” Mazza says. “The company’s recent earnings show signs of stabilization, and we believe Stanley Black & Decker is poised to benefit from long-term growth in housing and infrastructure.”
At a $17 billion market capitalization, Stanley Black & Decker is on the smaller end of the large-cap spectrum, unlike the mega-caps highlighted earlier. Due to its close relation with the cyclical homebuilding industry, this company is also more volatile than the broad market, with a 1.2 beta. Investors buying this company for a turnaround can currently bank a 3% dividend yield that’s grown for 56 years.
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7 Dividend Kings to Buy and Hold Forever originally appeared on usnews.com
Update 09/30/24: This story was previously published at an earlier date and has been updated with new information.
