Dividend kings guide: stability, income, and long-term growth

Dividend kings are a specific group of companies renowned for their exceptional track record of consistently increasing dividends to shareholders year after year. The title ‘dividend king’ is given to a company that has increased its dividend payout for at least 50 consecutive years.

In this article, we’ll introduce you to the concept of dividend kings and present you with a list of companies that currently hold this title.

What are the dividend kings?

Dividend kings are highly sought-after companies that consistently distribute dividends, making them an attractive option for investors. These are companies that have a remarkable track record of distributing dividends for many consecutive years, with a continuous upward trend in their dividend payments.

In general, well-established companies with a proven track record of increasing dividends for many years can be categorised as dividend kings or dividend aristocrats.

Dividend kings

These companies have an exceptional dividend history, having distributed and increased their dividends for a minimum of 50 years. This impressive longevity in dividend payments reflects their ability to generate consistent free cash flow, indicating their stability, reliability, and financial strength.

Notably, dividend kings can be found across various sectors, including industrial, basic consumption, utilities, non-essential consumption, finance, health, materials, and real estate.

However, it is rare to find companies in the technology sector that meet the criteria of dividend kings. This is because technology companies rarely distribute dividends – they often retain all profits for further expansion and growth.

Dividend aristocrats

Dividend aristocrats are companies that have consistently distributed and increased their dividends for at least 25 years. Many dividend investors filter them further by applying additional criteria, such as:

• It should be included in the S&P 500 index.
• The company should have a minimum market capitalisation of $3 billion.

Investing in dividend kings or dividend aristocrats offers several advantages. These companies meet stringent criteria that indicate their strength, solidity, credibility, liquidity, and capitalisation.

List of top dividend kings

Here is a list of the top 10 dividend kings:

Unfortunately, there is no dividend king in the UK. However, if you want to invest in the stock market, consider this article instead – the best dividend stocks in the UK.

Here are several other companies that have been paying dividends for 50 years or more, although all are listed in North America:

• Federal Realty Investment Trust
• Target Corp.
• Genuine Parts Co.
• Northwest Natural Holding Co.
• Hormel Foods Corp.
• SJW Group
• Lowe’s Cos., Inc.
• Parker-Hannifin Corp.
• Commerce Bancshares, Inc. (Missouri)
• Lancaster Colony Corp.
• Farmers & Merchants Bancorp (California)
• California Water Service Group
• American States Water Co.
• Stepan Co.
• Nordson Corp.
• Tootsie Roll Industries, Inc.
• Stanley Black & Decker, Inc.

How to invest in dividend kings?

Investing in dividend kings can be approached through two comfortable methods:

Buy dividend kings stocks

This method involves individually selecting and purchasing stocks of dividend kings. It requires conducting research and analysis to identify companies that offer stable and sustainable dividends over time or select some of the companies we listed above.

While this approach allows for direct ownership and potential capital appreciation, it can be time-consuming to track the markets. Nonetheless, if you prefer this method, you may want to check the best commission-free brokers which will allow you to buy stocks in dividend kings with 0% commissions.

For example, if you want a highly competitive broker, you may want to consider Interactive Brokers. Its comprehensive offer provides stocks from over 200 countries, and allows you to diversify your portfolio easily with options, futures, forex, funds, and many more.

In addition, for US-listed stocks – which is a great offering if you want to invest in dividend kinds – Interactive Brokers’ commissions start from $0. Check out our Interactive Brokers review for more information, or click below to open a demo account.

Buy dividend king ETFs

Alternatively, investors can opt to invest in dividend kings indirectly through exchange-traded funds (ETFs). These investment vehicles pool funds from multiple investors to create a diversified portfolio of dividend-paying stocks, including dividend kings.

By investing in funds or ETFs focused on dividends, investors can gain exposure to a broader selection of dividend kings without the need for individual stock picking.

Here are some examples of dividend stocks ETFs:

Check out this guide on investing in dividend stocks to find out more about this strategy for long-term returns.

Features of dividend kings

In addition to their consistent and increasing dividend payments over many years, they possess three key characteristics:

Financial stability

Being classified as a dividend king provides a sense of assurance and peace of mind. While their price appreciation may be relatively modest over time, the commitment demonstrated by their management to deliver uninterrupted dividends for decades instils confidence and peace of mind.

It is essential for these companies to maintain financial stability to uphold their dividend payments. Any significant deviation from stability can pose challenges to sustaining these payments.

Defensive stocks

Dividend kings often belong to sectors characterised by products and services with consistent demand, regardless of economic cycles. Public utilities, food and beverage, and pharmaceuticals are examples of defensive sectors.

These companies cater to essential needs, ensuring a steady stream of revenue even during challenging economic conditions. As a result, dividend kings are a popular choice for investors seeking to minimise risk and safeguard their investments.

Slow growth

Dividend kings are typically classified as value stocks with steady, slow growth over the years. In contrast to growth stocks that reinvest their earnings for expansion, dividend kings prioritise regular distribution of dividends. This approach appeals to investors who prioritise consistent income generation and value appreciation over aggressive growth strategies.

Cash cows

Companies considered “cash cows” maintain a stable and predictable business model, generating consistent cash flows. They allocate a portion of these cash flows to paying dividends to their shareholders.

Often, cash cows occupy dominant market positions and possess competitive advantages that enable them to sustain their position and generate reliable cash flows. Investors view such companies as stable, low-risk investments, as their regular dividends provide a consistent income stream.

By reinvesting these dividends back into the same company, and utilising the power of compound interest, investors can achieve remarkable long-term results.

How dividend kings behave during economic uncertainty

High inflation

Dividend kings have historically demonstrated their ability to perform well during periods of high inflation. Studies, such as the one conducted by Fidelity National Financial, have shown that dividends have accounted for a significant portion of stock market returns, especially during times of high inflation.

Inflation often prompts companies to increase their dividends to provide shareholders with a hedge against rising prices.

Risk-off

During “risk-off” periods, when investors seek safer assets and reduce exposure to higher-risk assets, dividend kings tend to be favoured.

Investors may sell shares of riskier assets, such as emerging market or technology stocks, and instead, shift their investments towards more defensive options.

Dividend kings, with their stable businesses and consistent dividend payments, are considered less exposed to the economic cycle and are perceived as safer investments. Consequently, they may experience less severe declines compared to more volatile sectors during periods of market turbulence.

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Dividend kings: summary

In summary, dividend kings have historically performed well during times of high inflation and in “risk off” environments. Their ability to increase dividends during inflationary periods and their status as defensive investments make them attractive to investors seeking stability and income generation.

By incorporating dividend kings into their portfolios, investors can potentially mitigate the impact of uncertain economic conditions while enjoying the benefits of consistent dividend payments.

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