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The Best Consistent Dividend Earning Stocks


Published January 27th, 2017 by Bob Ciura

At some point or another, each investor has probably wondered:

“What are the best, most consistent dividend stocks?”

The immediate response would usually be the Dividend Aristocrats. These are companies in the S&P 500 Index that have increased their payouts for the past 25 consecutive years.

For an even better answer to this question, look no further than the list of Dividend Kings. These are S&P 500 companies that have raised their dividends for 50 consecutive years or longer.

Dividend Kings have dividend increase track records twice as long as the Dividend Aristocrats. There are 50 Dividend Aristocrats, but only 18 Dividend Kings.

You can see the entire list of all 18 Dividend Kings here.

This article will discuss four Dividend Kings that are, arguably, the most consistent dividend stocks.

Johnson & Johnson (JNJ)

No article about the most consistent dividend stocks of all time could be complete without Johnson & Johnson. It has increased its dividend for 54 years in a row.

J&J is a global health care giant. It sells its products in 60 countries, and has more than 125,000 employees.

The company generates annual sales of $72 billion, spread across three large businesses.

JNJ 2016

Source: Fourth Quarter Earnings Presentation, page 1

J&J’s remarkable consistency was on full display in 2016. Full-year sales and adjusted earnings-per-share increased 2.8% and 8.5%, year over year.

Sales would have grown at an even higher rate were it not for the strong U.S. dollar. J&J generates nearly half of its annual sales from outside the U.S.

The strong U.S. dollar makes exports less competitive, and reduces revenue earned in overseas countries. Adjusting for unfavorable currency fluctuations and divestments, J&J’s total sales rose 3.9% in 2016.

The U.S. performed particularly well in 2016, with sales rising 6% from the previous year.

Among its product segments, J&J saw broad-based growth in 2016. On an operational basis, consumer and medical device product sales increased 1.5% and 0.9%, respectively.

The pharmaceutical business was a major outperformer in 2016—product sales increased 7.4% for the year excluding foreign exchange.

JNJ Pharmaceutical

Source: Fourth Quarter Earnings Presentation, page 14

Growth was led by Imbruvica, Xarelto, and Invokana. Oncology product sales rose 25% in 2016, while immunology sales rose 16% last year.

Meanwhile, J&J’s consumer segment provides stability with its valuable brand portfolio. Consumer sales are driven by the Band-Aid, Listerine, and Tylenol brands, as well as the company’s suite of baby care products.

Lastly, the medical devices business reported disappointing net sales growth. But, excluding divestitures and foreign exchange, the results were much better—operational sales increased 3.8% worldwide in 2016.

J&J’s consistent growth and strong brands are due to its investments in innovation. The company invested more than $9 billion in research and development last year. It also completed 13 acquisitions.

This provides it with the competitive advantages necessary to sustain growth year after year.

J&J is a very shareholder-friendly company. Free cash flow totaled $15.5 billion in 2016. This provided more than enough cash flow to invest in R&D, make strategic acquisitions, and return cash to shareholders.

In 2016, J&J paid $8.6 billion in dividends and completed a $10 billion share repurchase program. The company deploys approximately 70% of annual free cash flow in dividends and buybacks.

The company has an optimistic outlook for 2017. Total sales are expecting to reach $74.1-$74.8 billion, which would represent 4%-5% growth.

Adjusted earnings-per-share are expected to rise 4.8%-7%, to a range of $6.93-$7.08 per share.

This would be more than enough growth for the company to continue raising its dividend next year and beyond.

J&J currently pays an annualized dividend of $3.20 per share, which yields 2.9%. And, the stock is reasonably valued.

J&J shares trade for a price-to-earnings ratio of 16, based on its adjusted earnings-per-share. This is a significant discount to the S&P 500, which has an average price-to-earnings ratio of 25.

As a result, this could be a particularly opportune time to consider buying J&J stock.  The company’s mix of consistent growth, above average dividends, and reasonable valuation make it a favorite of The 8 Rules of Dividend Investing.

Procter & Gamble (PG)

P&G is a legend when it comes to dividend growth stocks. It has paid a dividend for 126 years, and has raised its dividend for 60 years in a row.

PG Dividend

Source: 2016 Fact Sheet, page 2

This is a challenging period for P&G. The company has a global business model—approximately 56% of its annual sales come from outside North America.

PG International

Source: 2016 Fact Sheet, page 1

As such, P&G is exposed to foreign exchange markets. The strong U.S. dollar has eroded its revenue growth, as it has for many other U.S. multinationals.

In addition, P&G became bloated in recent years. Its massive product portfolio caused the company to become a lumbering giant, unable to grow or respond effectively to changing consumer preferences.

In response, P&G announced a huge portfolio transformation. The company is selling off dozens of underperforming brands.

Its biggest deal last year was the sale of over 40 beauty brands to Coty (COTY) for $12 billion.

PG Coty

Source: 2016 Analyst Day Presentation, page 50

Eventually, the company envisions slimming down to just 10 core categories and about 65 brands.

PG Portfolio

Source: 2016 Analyst Day Presentation, page 53

Going forward, P&G is much more focused. It now operates in five segments:

P&G re-focusing its portfolio allowed the company to return to growth.

In fiscal 2016, organic sales increased 1%. That doesn’t sound like much, but, diluted earnings-per-share from continuing operations rose 23% year over year.

The benefit of slimming down is that P&G has become more efficient and nimbler.

And, the results are good so far in fiscal 2017. Organic sales increased 2% last quarter, reflecting growth across all five business segments.

P&G has maintained several consecutive quarters of positive comparable sales growth, going back to when the company’s turnaround launched.

PG Sales

Source: Q2 Earnings Presentation, page 3

The health care and grooming businesses are off to the best start this fiscal year. Organic volumes increased 4% in both segments last quarter.

Volume growth is a good indication of brand equity. And, the company managed 1% price increases in both segments last quarter. This also indicates the strength of P&G’s brands.

In health care and grooming, the company’s core brands include Crest, Oral-B, Gillette, and Braun.

Currency-neutral core earnings-per-share increased 9% last quarter, year over year.

Another positive effect of the company’s turnaround is that it will allow P&G to accelerate its dividend growth as well.

P&G’s extended period of sales and earnings declines compelled the company to raise its dividend by tiny amounts. For example, P&G’s 2016 dividend increase was just a 1% hike.

If its earnings-per-share continue to rise at a double-digit pace, it will greatly improve P&G’s odds of passing along a more substantial dividend increase.

In the meantime, the stock rewards shareholders with a solid yield. P&G has a current annualized dividend of $2.68 per share, good for a 3.1% dividend yield based on its recent share price.

The Coca-Cola Company (KO)

Coca-Cola’s impressive dividend history speaks for itself. It has increased its dividend for 54 years in a row.

Its amazing history is due to its strong brand. According to Forbes, Coca-Cola has the fourth most-valuable brand in the world. Coca-Cola’s brand is worth a whopping $58.5 billion.

In order to retain its excellent brand image, the company spends heavily on advertising each year. Its advertising expenses over the past three years are as follows:

Few companies have the luxury of devoting more than $3 billion each year to advertising. Therefore, Coca-Cola’s deep pockets provide the company with a significant competitive advantage.

In addition, Coca-Cola is making huge investments to broaden its product portfolio. This is partly out of necessity: U.S. soda sales have declined for 11 years in a row. Soda consumption is at a 30-year low.

This has particularly hit Coca-Cola hard. Its core sparkling beverages segment is anchored by Coca-Cola and Diet Coke, the top-two selling soda brands in the U.S., respectively.

In 2015, sparkling beverages made up 64% of case volume sales in North America.

In response, Coca-Cola has expanded its brand portfolio by investing in still beverages, such as water, juice, and tea.

KO Still

Source: Morgan Stanley Global Consumer conference, page 8

It can do this because the company generates huge free cash flows. In 2015, free cash flow reached $8 billion. The company invested $2.6 billion in capital expenditures to grow the business moving forward.

This has helped Coca-Cola diversify. It now has 20 brands that each generate $1 billion or more in annual sales.

Within the sparkling beverages portfolio, it’s not all bad news. Coca-Cola has two brands, Fanta and Sprite, that are still growing.

KO Sparkling

Source: Morgan Stanley Global Consumer conference, page 6

Overall, the strategy is working well. Organic revenue, which excludes currency, rose 4% through the first three quarters of 2016. Total profit increased 7% in that time.

Operating profit margin expanded by 0.5% last quarter. The company expects to cut costs by $3 billion over the course of its restructuring.

And, earnings growth is supplemented by share repurchases.

Coca-Cola’s impressive free cash allows the company to return billions in cash to shareholders, through dividends and share repurchases.

KO Cash Returns

Source: December 2016 Investor Overview, page 48

Thanks to Coca-Cola’s global scale, the company can still generate enough earnings growth to raise its dividend each year.

In the past five years, Coca-Cola raised its dividend by 6.5% each year on average. And, once revenue growth rates improve, dividend growth could accelerate as well.  The company still has compelling long-term growth potential.

The stock trades for a price-to-earnings ratio of 25, about on par with the S&P 500 valuation multiple.

Coca-Cola does offer an above-average dividend yield, of 3.3%. The S&P 500 Index has a 2% average dividend yield.

Hormel Foods (HRL)

Last but not least, Hormel makes the list because there is perhaps no more consistent industry than food.

As the saying goes, people gotta eat—and this is what has made Hormel such a consistent dividend stock over the past several decades.

In fact, Hormel has paid 354 consecutive quarterly dividends. It has paid uninterrupted dividends to shareholders since it became a public company, all the way back in 1928.

Hormel has a large product portfolio, filled with brands that are consumed everyday by millions of people worldwide.

HRL Brands

Source: Investor Relations

The company generates sales from the following operating segments:

Hormel has built its portfolio around a simple strategy, which is exposure to a wide range of products.

Between shelf-stable and refrigerated foods, spanning turkey, pork, peanut butter, and nutritional supplements, Hormel has nearly every consumer taste covered.

In building its product line, Hormel has achieved an optimal mix of organic investment and acquisitions, while still leaving enough cash flow left over to pay dividends and buy back stock.

HRL Capital Allocation

Source: Barclays Global Consumer Staples Conference, page 6

Its significant acquisitions include the $334 million takeover of Jennie-O in 2001. This deal has paid huge rewards for Hormel. Jennie-O produced $329 million of operating profit in 2016 alone.

It’s safe to say the Jennie-O acquisition has paid for itself, many times over.

More recently, Hormel acquired CytoSport Holdings for $450 million in 2014, and Applegate Farms for $775 million in 2015. In 2016, Hormel acquired Justin’s, a maker of natural and organic nut butters.

All three recent acquisitions provide Hormel with exposure to the health and wellness trends. CytoSport is the maker of MuscleMilk protein products, while Applegate is the number one brand in natural and organic meats.

These deals provide the company with greater access to more health-conscious consumers, particularly the Millenial generation. For example, Justin’s added six points of revenue growth to the Grocery Products segment in the fourth quarter.

This strategy has paid off, because Hormel has strong brands that provide pricing power. As a result, the company generates return on invested capital in excess of 15%, good for the third-highest ROIC in its peer group.

HRL ROIC

Source: Barclays Global Consumer Staples Conference, page 7

Hormel has plenty of future growth opportunities going forward. Two major growth catalysts for the company are nutritional products, and turkey.

HRL Turkey

Source: Barclays Global Consumer Staples Conference, page 18

In 2016, Hormel’s total sales and operating profit rose 2.8% and 25%, respectively. Not surprisingly, the Refrigerated Foods (which includes Applegate) and Jennie-O segments provided the most growth.

These two segments grew operating profit by 38% and 19%, respectively, in 2016. Its performance accelerated as the year drew to a close: Hormel generated record sales and earnings-per-share in the fourth quarter.

Hormel has a remarkable dividend track record. On Nov. 21, the company increased its dividend by 17%. This marked the 51st consecutive year of higher dividends.

Hormel stock has a 1.9% dividend yield, which is slightly below average. But, its high dividend growth rate makes it an attractive stock for dividend growth investors.


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