2017 Dividend Kings List: 50+ Years of Dividend Growth Sure Dividend

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2017 Dividend Kings List: Dividend Stocks with 50+ Years of Rising Dividends


Updated February 11th, 2017 by Nicholas McCullum

The Dividend Kings are the best-of-the-best in dividend longevity.

What is a Dividend King?  Stocks with 50 or more consecutive years of dividend increases.

The downloadable Dividend Kings Spreadsheet List below contains the following for each stock in the index:

 

A company must have an extremely durable competitive advantage to pay increasing dividends for 5 consecutive decades.  There’s no way around it.

There are currently 19 Dividend Kings. Each Dividend King satisfies the primary requirement to be a Dividend Aristocrat (25 years of consecutive dividend increases) twice over.

The table of contents below lists out all 19 Dividend Kings so you can jump to analysis of each specific company quickly:

Dividend Kings & Performance

From 1991 through 2015, the S&P 500 Index has returned 9.8% a year. For every $1 invested in the S&P 500 at the start of 1991, an investor would have $11.44 (all returns in this article include dividends unless stated otherwise).

Investing in an equal weighted basket of the 19 current Dividend Kings in 1991 (and rebalancing each year) would have generated compound returns of 14.1% a year (over 4 percentage points greater than the S&P 500). Every $1 invested would have turned into $31.02.

All but 1 current Dividend King outperformed the market since 1991 (the exception is Northwest Natural Gas).

The image below shows the return of each Dividend King by year from 1991 through 2016.

Dividend Kings Performance

Note:  FMCB is thinly traded; price data was not available for the entire period.

Comparing the 19 Dividend Kings above to the S&P 500 would not be a fair comparison as the Dividend Kings ‘index’ includes look-back bias.

Put another way, at the beginning of 1991, we didn’t know what stocks with 25 or more years of rising dividends would go on to have another 25 years of rising dividends.

In 1991 there were 38 Dividend Aristocrats. There are 19 Dividend Kings, so exactly half of the Dividend Aristocrats of 1991 fell off the list.

Every single stock that didn’t fall off the list produced returns significantly in excess of the S&P 500.

While it’s not fair to compare performance due to look-back bias, it is very informative to see that stocks that are able to continuously increase their dividend payments year after year substantially outperform the S&P 500.

Looking for businesses that have a long history of dividend increases isn’t a perfect way to predict future stocks that will increase their dividends every year, but there is considerable consistency in the Dividend Kings (and Dividend Aristocrats) Indices.

This article will take a look at each of the current Dividend Kings to determine which ones are suitable investments likely to have decades more dividend growth – and which ones aren’t as timely.

The long-term dividend growth rate, current dividend yield, and long-term total return of each stock are shown, as well as how many consecutive years of dividend increases each stock has. Stocks are analyzed in alphabetical order.

Each of the Dividend Kings is analyzed below.

American States Water (AWR)

Dividend Yield: 2.2%

10 Year Total Return CAGR: 11.3% per year

10 Year Dividend Growth Rate: 6.9% per year

Consecutive Dividend Increases: 62 years

American States Water is a water utility company with operations in California. The company also owns an unregulated water utility service provider business that serves military bases under contracts lasting 50 years.

The company’s organizational structure is represented visually below.

AWR Company Organizational Structure

Source: American States Water November 2016 Investor Presentation, slide 4

The company has a long history, being founded in 1929. American States Water has a current market capitalization of $1.6 billion.

Between the company’s two operating segments, their subsidiary Golden State Water Company is responsible for the lion’s share of the company’s revenues. GSWC contributed 79% of their last quarter’s revenues, while American States Utility Services (ASUS) contributed 21% and their smaller Electric segment contributed only 8%.

AWR Q3 2016 Revenues by Segment

Source: American States Water November 2016 Investor Presentation, slide 5

It is not surprising that GSWC is responsible for the majority of the revenues of American States Water. The company is well-entrenched in the state of California, serving 75 cities in 10 counties with more than 250,000 customers.

AWR GSWC Service Area Map

Source: American States Water November 2016 Investor Presentation, slide 6

Over the long run, the company has been very successful. American States Water’s success is a result of sticking to what the company does best.

The utility industry is relatively low risk and benefits from stable cash flow. The company has done an intelligent job of allocating capital from its businesses to drive future shareholder returns.

Over the last decade, American States Water has compounded investor returns at a rate of 11.3% per year. This is above the average return of the overall stock market as measured by the S&P 500 Index. Further, the company has grown dividend at 6.9% per year on average.

However, the company appears overvalued compared to historical levels. It currently trades at a price-to-earnings ratio of 26.9 while its average price-to-earnings ratio over the past 10 years is 20.

The stock will likely be a strong buy when/if its price-to-earnings ratio returns to a more normalized level. Read more American States Water Analysis on Sure Dividend Here.

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California Water Services Group (CWT)

Dividend Yield: 2.1%

10 Year Total Return CAGR: 8.3% per year

10 Year Dividend Growth Rate: 8.9% per year

Consecutive Dividend Increases: 50 years

California Water Services Group is the newest addition to the Dividend Kings. The company’s board of directors announced their 50th consecutive dividend increase on January 25, 2017.

Similar to American States Water, California Water Services Group is a water utility focused in California. Over the long-run, the company has rewarded shareholders handsomely with strong total returns.

CWT 20-Year Total Return on Investment

Source: California Water Services Group 2015 Annual Report, page 14

The company’s 50 consecutive years of dividend increases speaks to the strength of their business model. However, the company might not be an attractive investment right now.

The company trades at a price-to-earnings ratio of 38.3. This is very high on an absolute basis. The company’s elevated valuation is due to both the dramatic increase in their stock price over the past 20 months combined with the dropoff in the company’s earnings.

Recall that The 8 Rules of Dividend Investing triggers an automatic sell when a company’s normalized price-to-earnings ratio exceeds 40. CWT’s valuation is very close to this level.

However, water utilities are businesses that should generally succeed over the long-run. Consumers will always require water, and the earnings decrease that CWT is experiencing is likely temporary in nature.

Investors should wait until the company’s valuation improves significantly before initiating a position in this company.  You can read more analysis on CWT here.

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Cincinnati Financial (CINF)

Dividend Yield: 2.8%

10 Year Total Return CAGR: 8.8% per year

10 Year Dividend Growth Rate: 4.6% per year 

Consecutive Dividend Increases: 56 years

Cincinnati Financial is a property and casualty insurer with operations focused in the United States. The company was established in 1958 and has payed increasing dividends for an impressive 56 consecutive years.

The company’s insurance products are delivered to consumers through a network of independent agents. Selected statistics about Cincinnati Financial can be viewed in the following slide.

CINF Cincinnati Financial At a Glance

Source: Cincinnati Financial Investor Handout, slide 7

One of Cincinnati’s Financial main competitive advantages is the strength of their relationship with their network of independent agents. These strong relationships often lead to Cincinnati Financial getting access to their agents’ best accounts and best customers.

CINF Strategy Overview

Source: Cincinnati Financial Investor Handout, slide 3

What really sets Cincinnati Financial apart from other insurers is the large equity exposure in its insurance float. The company invests approximately 30% of its insurance float into blue-chip stocks. This will boost the company’s performance in the long-run, although it may introduce volatility over short time periods.

This helps the company meet the high expectations they set for themselves. The following diagram outlines Cincinnati Financial’s performance targets and trends, both past and present.

CINF Performance Targets & Trends

Source: Cincinnati Financial Investor Handout, slide 4

Although they have grown tremendously over time, Cincinnati Financial’s dividend payments are still well-covered by the cash flow generated by their business. The following diagram displays their dividend as a percentage of net cash flow from operations. Investors will be pleased to see that it has not increased noticeably over time other than an outlier in 2011.

CINF Dividend As a Percentage of Net Cash Flow From Operations

Source: Cincinnati Financial Investor Handout, slide 22

Cincinnati Financial is also well-poised to profit from the current rising interest rate environment. The Federal Reserve raised interest rates in December and communicated the intent to do so twice more in 2017. This will boost the investment returns that Cincinnati Financial generates from the fixed income allocation of their insurance float.

In the past, Cincinnati Financial has struggled to maintain profitable underwriting operations. The company had a streak of five consecutive years of underwriting losses in 2008-2012, which offset the gains that the company generates by their equity investment allocation.

Cincinnati Financial currently trades at a price-to-earnings ratio of 18.0, which is above its 10-year historical average of 15.9. However, the company is still priced well below the S&P 500’s price-to-earnings ratio, and it’s elevated valuation might be related to the prolonged near-zero interest rate environment, which tends to raise valuations across the board.

As a result, Cincinnati Financial appears to be trading around fair value, though investors should not expect rapid growth going forward. If the market enters another substantial bear market, the company’s book value will likely decline due to their equity exposure. Read more Cincinnati Financial analysis on Sure Dividend here.

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Colgate-Palmolive (CL)

Dividend Yield: 2.4%

10 Year Total Return CAGR: 9.2%

10 Year Dividend Growth Rate: 10.5%

Consecutive Dividend Increases: 54 years

Colgate-Palmolive is one of the most impressive branded consumer goods businesses in the world. The company has grown to a market cap of $59.1 billion thanks to its portfolio of well-managed brands, many of which are shown in the image below:

CL Brand Portfolio

The company supports its strong global brands with a massive marketing budget. The company has spent between $1.5 billion and $1.9 billion on advertising during the past five years, which has a cumulative effect of increasing brand awareness.

This leads to growth in revenue and market share over the long term. The company holds the #1 or #2 share in most of the markets they serve throughout the world.

Colgate-Palmolive’s growth prospects are centered around three main strategies: growth in emerging markets, price increases, and cost efficiencies. Investors can be confident that company will execute on these strategic pillars given the company’s strong track record and the ubiquity of their products.

The company’s market leadership has allowed them to build an impressive dividend streak. The company has raised dividends for 54 consecutive years.

CL Dividends Paid

Source: Colgate Presentation at the Barclays Global Consumer Staples Conference

 They have matched this with an impressive total returns record. Over the past 20 years, the company’s total returns have been ~1021% while their peer group has returned 563% and the S&P 500 has returned ~383%.

CL Total Return

Source: Colgate Presentation at the Barclays Global Consumer Staples Conference

For investors who prefer annual numbers, Colgate-Palmolive has delivered total returns of 9.2% per year over the past decade. Further, the company has complimented this with 10.5% annual dividend growth. Recently the company’s performance has not been as strong. We are coming out of a fiscal 2016 that saw Colgate-Palmolive’s stock price finish essentially flat from where it began.

Colgate-Palmolive is certainly a high-quality business, but value investors might want to wait until it is more attractively valued. The company’s current forward price-to-earnings ratio is 24.4. A fair price-to-earnings ratio for the company is around 20, in line with its historical average over the last decade.

For investors who already own the stock, Colgate-Palmolive is still a long-term hold due to the high quality of the underlying business. Read more Colgate-Palmolive analysis on Sure Dividend here.

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Dover Corporation (DOV)

Dividend Yield: 2.2%

10 Year Total Return CAGR: 6.5% per year

10 Year Dividend Growth Rate: 11.5% per year

Consecutive Dividend Increases: 61 years

Dover Corporation is a diversified manufacturer with a market cap of $11.6 billion. The company operates in 4 segments: Fluids, Energy, Engineered Systems, and Refrigeration & Food Equipment. The revenue that is expected to be generated from each segment is displayed in the following diagram.

DOV Segments, Key Platforms, and Unique Capabilities

Source: Dover Investor Day Presentation, slide 4

Dover Corporation has struggled recently due to low oil prices which have temporarily reduced earnings in the company’s Energy segment.

Additionally, the strong U.S. dollar versus other currencies has hurt the company’s reported earnings. This is because the company generates a large proportion of its revenue from international business.

Still, Dover offers solid growth potential for long-term investors.

Over the last decade, Dover grew earnings-per-share at 7.5% a year. The company will likely realize similar earnings-per-share growth over the next decade.

The company’s major growth prospects stem from their continued structuring efforts. Most notably, Dover is currently restructuring its manufacturing portfolio. The company recently divested its label printing unit for $185 million as well as its aerospace and defense unit for $500 million.

Dover’s recent divestitures are part of an ongoing plan to streamline operating efficiency. The company plans to increase top line growth through international acquisitions. These acquisitions will provide the company with greater access to international markets.

Shareholders will be happy to notice that the company remains focused on rewarding its investors despite this tough operating environment. In the middle of 2016, the company announced their 61st consecutive dividend increase. Further, the company’s recent capital allocation policies have earmarked a significant amount of funds towards share repurchases.

DOV Capital Allocation

Source: Dover Investor Day Presentation, slide 15

Over the past 3 years, Dover has spent over $2 billion on acquisitions. This trend should continue over the next several years, which will propel growth.

The upcoming fiscal year outlook is positive for Dover Corporation. The company expects 10%-12% revenue growth for their businesses overall, with much of this growth coming from their Fluids segment due to acquisitions. This will offset an expected revenue decline in Dover’s Refrigeration & Food Equipment segment.

DOV FY 2017F Guidance

Source: Dover Fourth Quarter Earnings Presentation

Dover Corporation is currently trading at a price-to-earnings ratio of 24.9. The company is likely trading a bit above fair value at this time, which is in line with the rest of the stock market.  Value-oriented investors might want to wait until a more attractive valuation presents itself. Read more Dover analysis on Sure Dividend here.

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Emerson Electric (EMR)

Dividend Yield: 3.2%

10 Year Total Return CAGR: 5.5% per year

10 Year Dividend Growth Rate: 8.4% per year

Consecutive Dividend Increases: 60 years

Emerson Electric is a globally diversified manufacturing company with a market capitalization of $40.3 billion. The company’s operational scope is very impressive, with more than 230 manufacturing facilities and 130,000 employees spread around the globe.

The company has a high degree of geographic diversification. Less than 50% of Emerson Electric’s revenue comes from the United States and Canada.

Until recently, Emerson Electric’s operations were broken down into 4 reporting segments. Each segment is shown below along with the percentage of total earning each segment generated in fiscal 2016.

However, the company has recently restructured. This has involved both acquisitions and divestitures. On August 18, 2016, Emerson Electric entered into an agreement to buy Pentair’s Valve & Controls business for just over $3 billion. Also in fiscal 2016, Emerson Electric closed the sale of its Network Power business to Platinum Equity and the sale of its Leroy-Somer and Control Techniques businesses to Nidec Corporation.

After this transformation, Emerson Electric will report in only two segments: Automation Solutions and Commercial & Residential Solutions. Q1 2017 is the first quarter that the company reflected this change.

Emerson Electric continues to operate through a prolonged global industrial downturn. This has affected their business in a number of ways – revenue and EPS declined 9% and 6%, respectively, during fiscal 2016.

EMR Fiscal Year 2016 - Adjusted Basis

Source: Emerson Electric Fourth Quarter Earnings Presentation, slide 3

There are a number of reasons why Emerson Electric is being affected so significantly. One of the most notable is their large geographic exposure. With the continued strength of the U.S. dollar, Emerson Electric’s international revenues become less valuable when swapped back to USD (the currency in which the company reports). Emerson Electric is also being effected by oil prices.

Fortunately for investors, both of these problems are almost certainly temporary in nature. The U.S. dollar will likely weaken closer to its historical averages, and oil prices are already on the rise thanks to measures like the OPEC cutting global supply (which will take some time to manifest itself in the price of crude oil).

Once these factors materialize, Emerson Electric should return to growth. In the short-term Emerson’s business is expected to continue to struggle. The following slide outlines the company’s outlook for fiscal 2017.

EMR Fiscal Year 2017 Outlook

Source: Emerson Electric Fourth Quarter Earnings Presentation, slide 13

Depending on where EPS falls in management’s guidance band, Emerson Electric may experience another year of earnings decline. The company is off to a strong start, with their first quarter earnings beating analysts’ expectations on both the top and bottom line.

Emerson Electric has traded at a long-term historical average price-to-earnings ratio of ~17. Right now, the company is trading at a price-to-earnings ratio of 24.8, which is well above its previous trend. The company appears overvalued.

While the company remains a strong hold, as they will recover once the dollar declines and oil prices increase, investors should wait for a more attractive valuation before initiating a position in Emerson Electric. You can read more Emerson Electric Analysis on Sure Dividend here.

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Farmers & Merchants Bancorp (FMCB)

Dividend Yield: 2.1%

10 Year Total Return CAGR: 4.2% per year

10 Year Dividend Growth Rate: 5.4% per year 

Consecutive Dividend Increases: 52 years

Farmers & Merchants Bancorp is one of the newest Dividend Kings.  2015 marked the company’s 50th consecutive dividend increase, which means the company is on pace for their 52nd in fiscal 2016.

The company’s stock is very thinly traded.  Most days, no shares trade hands.  Farmers & Merchants Bancorp is by far the smallest Dividend King.  The company currently has a market cap of just $494 million.  The stock almost forces its holders to be long-term investors as there are simply so few shares traded.

Farmers & Merchants Bancorp is a community bank chain located only in California.  The company has a total of 25 locations and was founded in 1916.  The company has conservative business practices which have led to sustained growth over the last 101 years.

In recent times, Farmers & Merchants Bancorp has compounded earnings at a rate just shy of 5%.  The company should continue growing a few percentage points faster than GDP growth in the area it serves.

I expect future earnings-per-share growth of 4% to 6% a year for Farmers & Merchants Bancorp.  This growth combined with the company’s current 2.5% dividend yield gives investors expected total returns of 6.5% to 8.5% a year.

The company’s stock currently trades for a price-to-earnings multiple of 16.7.  This appears to be about fair value for this sleepy company.

What stands out about Farmers & Merchants Bancorp is how inactive its shares are.  The company does not have any substantial growth catalysts, though an eventual take over by a larger bank is possible given Farmers & Merchants relatively small size.  Read more Farmers & Merchants Bancorp analysis on Sure Dividend here.

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Genuine Parts Company (GPC)

Dividend Yield: 2.7%

10 Year Total Return CAGR: 10.6% per year 

10 Year Dividend Growth Rate: 6.9% per year

Consecutive Dividend Increases: 60 years

Genuine Parts Company was founded in 1928 when Carlyle Fraser purchased Motor Parts Depot for $40,000. The new owner renamed the company as Genuine Parts Company and it has grown rapidly ever since, now having a market capitalization of $14.4 billion.

The company distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic material.

The image below gives a succinct overview of the company and its operating segments.

GPC Company Overview

Source: Genuine Parts Company Investor Presentation, slide 4

While Genuine Parts Company might not be a household name, many investors might be familiar with their well-known NAPA Auto Parts brand. Each of the company’s other segments operates under specific name brands, as well.

The Industrial Parts segment operates under the name Motion Industries. The Office Products segments operates under the SP Richards name. Lastly, the Electrical/Electronic Materials segment operates under the EIS name.

The largest driver of future growth for Genuine Parts Company will be the expansion of NAPA Auto Parts. While the company has impressive market share in North America, they have plenty of room to grow in international markets.

This is why Genuine Parts Company recently expanded NAPA Auto Parts into Australia, New Zealand, and Mexico. These expansions have two main benefits. First of all, the company is able to grow market share rapidly in these countries where they previously had no presence. Secondly, once entrenched, Genuine Parts Company will benefit from the often-rapid economic growth in emerging market economies.

GPC Australasian & Mexico Expansion

Source: Genuine Parts Company Investor Presentation, slide 18

The other significant growth catalyst for Genuine Parts Company is their Industrial Parts segment, which operates under the name Motion Industries. Similar to NAPA, Motion Industries benefits from the company’s robust distribution network and the economies of scale that form the basis for Genuine Parts Company’s competitive advantages. This segment is expected to grow more quickly than the rest of the business moving forward.

Right now, Genuine Parts Company trades at a price-to-earnings ratio of 20.9. This is in-line with the company’s historical averages, which means the company is trading around fair value.

Genuine Parts Company is one of the best dividend stocks for DRIPing because of its long track record of increasing dividends, above average dividend yield of 2.7%, and no-fee dividend reinvestment plan. Read more Sure Dividend analysis of Genuine Parts Company here.

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Hormel (HRL)

Dividend Yield: 1.9%

10 Year Total Return CAGR: 16.3% per year

10 Year Dividend Growth Rate: 14.4% per year

Consecutive Dividend Increases: 51 years

Hormel is one of the newer members of the Dividend Kings. The company became a member in January of 2016, and recently increased their dividend for the 51st consecutive year.

Hormel Foods was founded in 1891 by George Hormel in the small town of Austin, Minnesota. Today, the company has grown to reach a market capitalization of $19.2 billion.

Hormel owns a strong portfolio of food brands. Chances are, some of their products currently hold a place inside your cupboards.

HRL Product Portfolio

Source: Hormel Foods Website

More than 30 of Hormel’s brands hold the #1 or #2 position in their respective market category. This brand equity, built up over long periods of time, provides a competitive advantage for Hormel. It also provides a measure of recession resiliency, as Hormel’s products will continue to be purchased regardless of the condition of the overall economy.

The company’s rapid growth has rewarded shareholders handsomely. Hormel has been a darling for investors. Their growth over the past five fiscal years it outlined in the following diagram.

HRL A Track Record of Growth

Source: Hormel Presentation at the Barclays Global Consumer Staples Conference

Hormel has managed to grow its earnings per share through a wide variety of market conditions. General speaking, the company focuses on growth through acquisitions.

The company has realized excellent growth by acquiring up-and-coming brands and then growing them, often realizing cost synergies via Hormel’s strong distribution network. Products acquired through acquisition also benefit from Hormel’s larger marketing budget.

The company’s record of growing earnings per share can be seen in the following diagram.

HRL Growth Admist Volatility

Source: Hormel Presentation at the Barclays Global Consumer Staples Conference

Hormel has grown EPS at a rate of ~10% per year over the past decade. Looking ahead, it is reasonable to believe that Hormel will continue to grow in the range of 9% to 11%. Combining this with the company’s dividend yield of 1.9%, and investors can reasonably have total return expectations of 10.9%-12.9%.

Hormel currently trades at a price-to-earnings ratio of 22.1. Given the company’s excellent track record, this seems like a reasonable valuation. Investors will long time horizons may benefit from adding Hormel to their portfolios at today’s prices. Read more Hormel Analysis on Sure Dividend here.

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Johnson & Johnson (JNJ)

Dividend Yield: 2.8%

10 Year Total Return CAGR: 8.6% per year

10 Year Dividend Growth Rate: 8.8% per year

Consecutive Dividend Increases: 54 years

Johnson and Johnson is a legendary dividend growth stock and one of the most stable businesses in the world.

Johnson & Johnson operates the world’s sixth-largest consumer health company, the sixth-largest biologics, and the fifth-largest pharmaceutical company. They are a huge business with a market capitalization of $308 billion and more than 260 subsidiaries. Johnson & Johnson’s operations are divided into three categories for reporting purposes – Pharmaceuticals, Medical Devices, and Consumer Health Products.

Johnson & Johnson has many achievements that are a testament to the strength of its business. The company’s 2016 earnings-per-share growth of 8.5% marked the 33rd consecutive year that the company grew earnings per share. This is the longest record to my knowledge and a very impressive feat.

Further, Johnson & Johnson is one of only two companies to hold the coveted AAA credit rating from S&P (along with Microsoft). Johnson & Johnson also has one of the lowest stock price volatilities of any companies and is the 3rd most popular dividend growth stock among dividend growth bloggers.

A summary of Johnson & Johnson’s fiscal 2016 performance can be seen in the following diagram.

JNJ Full-Year 2016 Earnings

Source: Johnson & Johnson Fourth Quarter Earnings Presentation, slide 1

Johnson & Johnson has succeeded in translating underlying business growth into shareholder returns. The following table presents the company’s returns over a 1-year, 3-year, 5-year, 10-year, and 20-year period compared to a wide variety of benchmarks. The company has outperformed in almost every case.

JNJ Delivering Strong Total Shareholder Returns

Source: Johnson & Johnson Fourth Quarter Earnings Presentation, slide 18

Johnson & Johnson has been struggling lately against the strength of the U.S. dollar. However, the company has been creating value through portfolio management. By being active in M&A and investing heavily into research and development, Johnson & Johnson is ensuring that the company maintains profitability moving forward.

JNJ Creating Value Through Portfolio Management in 2016

Source: Johnson & Johnson Fourth Quarter Earnings Presentation, slide 19

One of the most notable cases of Johnson & Johnson’s portfolio management is their recent announcement of the acquisition of Actelion, a Swiss biotechnology company. This transaction is expected to be immediately accretive to Johnson & Johnson’s earnings per share and will boost the company’s long-term growth rate, as well.

JNJ Accretive Impact on EPS

Source: Johnson & Johnson Transaction Presentation, slide 26

This is just one example of the efforts that Johnson & Johnson is taking to further growth their business.

Right now, the company trades at a price-to-earnings ratio of 19.9. This is a very favorable price for a high quality company like Johnson & Johnson. Investors will benefit from initiating a position in this company when the price is right. Read more analysis of Johnson & Johnson on Sure Dividend here.

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Coca-Cola (KO)

Dividend Yield: 3.4%

10 Year Total Return CAGR: 8.5% per year

10 Year Dividend Growth Rate: 9.0% per year

Consecutive Dividend Increases: 54 years

The Coca-Cola Company is one of the world’s best-known companies due to their ubiquitous products and their world-class marketing efforts. The company’s namesake soda is known throughout the world and is a symbol of America.

Coca-Cola is famously a long-term Warren Buffett dividend stock holding. Their popularity as an investment also translates to the Internet – Coca-Cola is the most popular dividend growth stock among dividend growth bloggers.

Coca-Cola has grown over the last several decades thanks to international expansion and growth in still (non-carbonated) beverages.

Coca-Cola has a very durable competitive advantage that stems from two things. The first is the company’s strong portfolio of beverages that benefit from worldwide popularity. Coca-Cola currently owns 20 brands that generate more than $1 billion per year in sales. These brands are displayed below.

KO 20 Billion Dollar Brands

Source: Coca-Cola Investor Infographic

Coca-Cola’s second major competitive advantage is their industry-leading market share. The company is very deeply entrenched in the global food & beverage market. Customers will often seek out their products without considering any alternatives, which is a positive for Coco-Cola’s sales.

Despite Coca-Cola’s historical success, the company is still making efforts to evolve their business model. One notable change is that the company is divesting of their bottling assets. This means that Coca-Cola can focus on their core business of producing and distribution syrups and concentrates. This will result in a smaller, more profitable pro-forma entity.

Certain recent strategic milestones in this initiative can be seen in the following diagram.

KO Strengthening and Evolving Our Global System

Source: Coca-Cola 2016 3rd Quarter Investor Presentation, slide 5

Looking ahead, Coca-Cola is focused on this collaborative franchise model. The beverage bottling industry has traditionally been very capital-intensive. By leaving the business of bottling their products, Coca-Cola will have more capital available for shareholder-friendly activities like share repurchases and dividends payments.

KO We Are Transforming the Company and SystemSource: Coca-Cola Barclays Global Consumer Staples Conference Presentation, slide 6

Right now, Coca-Cola trades at a price-to-earnings ratio of 25.4. While Coca-Cola is certainly a high-quality business, this valuation is above the company’s historical average. Value-focused investors will want to wait until the company declines to a more reasonable level before initiating a position. You can read more Sure Dividend Analysis on Coca-Cola here.

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Lancaster Colony (LANC)

Dividend Yield: 1.7%

10 Year Total Return CAGR: 15.5% per year

10 Year Dividend Growth Rate: 6.4% per year

Consecutive Dividend Increases: 54 years

Similar to Farmers & Merchants Bancorp, Lancaster Colony is much smaller than many of the other Dividend Kings.

Lancaster Colony sells regional specialty food products under the Marzetti, Flatout Bread, New York, and Sister Shubert’s brands. The company was founded in 1961 and has a current market capitalization of $3.6 billion.

Lancaster’s business model used to be slightly different than it is today. Lancaster Colony spun-off its candle division in 2014 to focus its operations strictly on its food business. Many of the company’s most notable brands are displayed in the following diagram.

LANC Product Portfolio

Source: Lancaster Colony Website

Lancaster’s strategy to deliver business growth seems to be working. In the company’s most-recent fiscal year which ended on June 30, 2016, the company reported earnings per share growth of 20.4%. Further, the company has delivered 10-year total returns of 15.5% per year accompanied of dividend growth of 6.4% per year.

However, the company trades at a rather high valuation, with a current price-to-earnings ratio of 28.4. Investors looking to initiate a position in Lancaster Colony should strongly consider about whether the company’s growth merits such a high valuation. You can read more analysis of Lancaster Colony on Sure Dividend here.

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Lowe’s (LOW)

Dividend Yield: 1.9%

10 Year Total Return CAGR: 9.6% per year

10 Year Dividend Growth Rate: 26.1% per year

Consecutive Dividend Increases: 54 years

Lowe’s is the second largest big-box home improvement store in the United States behind only Home Depot (HD). Right now, Lowe’s has a market capitalization of $62 billion which pales in comparison to Home Depot’s market capitalization of $165 billion.

Lowe’s was founded in North Caroline in 1946 and went public in 1961. The company owns and operates around 1,840 stores across North America.

Lowe’s has grown rapidly in recent years, and 2016 is expected to be no exception. The company reports fourth quarter earnings on March 1, and is expecting robust earnings-per-share growth of 25%. The company is focusing on driving sales growth while identifying cost efficiencies. This should ensure not only top line growth, but bottom line growth that is even higher.

LOW 2016 Priorities

Source: Lowe’s Q3 2016 Earnings Presentation, slide 9

In general, Lowe’s experiences rapid growth when the United States economy (and in particular, the housing market) is booming.

On January 27, 2017, the company announced a new $5 billion share repurchase program that is expected to reduce their shares outstanding by ~8% based on the company’s current $62 billion market capitalization. This will be another boost to the company’s shareholder returns.

Because Lowe’s is currently in a high-growth stage of the business cycle, the company is trading at a high valuation multiple. Lowe’s price-to-earnings ratio is 26.5 right now. The best time to buy into Lowe’s is during economic declines when the stock’s price is depressed, so investors should wait before initiating a position. In the meanwhile, read more Lowe’s analysis on Sure Dividend here.

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3M (MMM)

Dividend Yield: 2.5%

10 Year Total Return CAGR: 11.7% per year

10 Year Dividend Growth Rate: 9.3% per year

Consecutive Dividend Increases: 58 years

3M is among the largest diversified manufacturers in the world. The company has a current market capitalization of $105 billion.

3M has not grown to its current size by being an overnight success. The company was founded in 1903 as the Minnesota Mining and Manufacturing Company and has grown steadily through decades of sustained innovation.

3M operates in five main reporting segments:

The Industrial segment is 3M’s most important, followed by health care. This is in contrast with consumers’ view of 3M’s products, as most individuals will be most familiar with 3M’s Consumer segments. This segment includes well-known brands like Filtrete, Command, and Post-It, among others.

Recently, the strength of the U.S. dollar has presented a headwind for 3M’s business. In Q4 2016, for example, 3M reported 1.6% sales growth on a constant-currency basis but only a 0.4% sales growth when accounting for foreign exchange fluctuations. These effects are illustrated in the following diagram.

MMM Q4 Sales Recap

Source: 3M Investor Presentation, slide 5

Looking ahead, 3M maintains a long-term growth goal of 8% to 11% earnings-per-share growth per year. Bottom line growth in fiscal 2017 is expected to come in slightly below that, at a growth rate between 4% and 8%.

MMM 2017 Planning Estimates

Source: 3M Investor Presentation, slide 15

3M currently trades at a price-to-earnings ratio of 22.4, which is below the valuation of the aggregate stock market. While the company’s valuation has decreased recently, it is still near 10-year highs. The company is an excellent long-term holding for dividend growth investors when proper valuations are present. Read more 3M analysis on Sure Dividend here.

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Nordson (NDSN)

Dividend Yield: 0.9%

10 Year Total Return CAGR: 17.1%

10 Year Dividend Growth Rate: 10.8%

Consecutive Dividend Increases: 53 years

Similar to the just-mentioned 3M, Nordson is a diversified industrial manufacturer.

The company was founded in 1954 and has a current market capitalization of $6.5 billion. Despite operating in the same industry, Nordson is nearly 20 times smaller than 3M. But don’t let the company’s small size fool you – Nordson has realized phenomenal total returns over a 10-year period, with a 10-year total return CAGR of ~17%.

The following image presents several other important pieces of information about Nordson.

NDSN Nordon at a Glance

Source: Nordson Investor Presentation, slide 3

Nordson has achieved this impressive growth while being highly diversified geographically, by market served, and by product type. The company reports financial results in three operating segments: Adhesive Dispensing, Advanced Technology, and Industrial Coating.

The following diagram breaks down Nordson’s revenue by product type, geography, end market, and operating segment for fiscal 2016.

NDSN Diversified Sources of Revenue

Source: Nordson Investor Presentation, slide 4

Nordson has a good chance to continue growing earnings-per-share in double digits moving forward. One of the company’s most notable growth catalysts is continued gains in emerging markets.

Further, the company’s Adhesive Dispensing segment will benefit from positive trends in the industry. Namely, this particular segment will experience rising sales due to the trend toward more packaged and processed foods and the use of lightweight plastics.

Nordson has traditionally used a large proportion of its cash flow to finance acquisitions. Looking ahead, future acquisitions will likely continue to play a large role in Nordson’s growth story.

Nordson is currently trading at a price-to-earnings ratio of 26.8. Given the company’s robust record of total returns, it is not really surprising that it is trading at a high valuation.

However, purchasing Nordson at a more attractive valuation will boost the probability for market-beating returns. Investors looking for current income should look elsewhere, as Nordson’s dividend yield of 0.9% is less than half that of the S&P 500. Read more Nordson analysis on Sure Dividend here.

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Northwest Natural Gas (NWN)

Dividend Yield: 3.2%

10 Year Total Return CAGR: 7.3% per year

10 Year Dividend Growth Rate: 3.5% per year

Consecutive Dividend Increases: 61 years

Northwest Natural Gas has one of the longest consecutive streaks of dividend increases of any U.S. business with 60 years and counting.

Northwest Natural Gas is a natural gas utility with operations in the state of Oregon and the southwest portion of Washington state. The company benefits from a large customer base of over 700,000 and has a market capitalization of $1.7 billion.

NWN Investment Highlights

Source: Northwest Natural Gas December 2016 Investor Presentation, slide 7

Despite the company’s strong dividend record, it is not a rapidly-growing company. They have grown their dividend payments and their dividend growth rate over the past decade has been only 3.5% per year.

Further, the company’s total return has been 7.3% per year during the same period (lower than many other Dividend Kings) and its earnings-per-share has grown slower than inflation. Northwest Natural Gas is the only Dividend King to have underperformed the S&P 500 since 1991.

Compared to some of the larger companies on this list, Northwest Natural Gas lacks operational diversification. As per the company’s name, their operations are geographically focused in the Northwest and the company generated >99% of its 2015 net income from a single segment.

NWN Highly Regulated Business Mix

Source: Northwest Natural Gas December 2016 Investor Presentation, slide 8

There is one notable upside to an investment in Northwest Natural Gas. The company has a current dividend yield of 3.2%, which makes it appealing for investors seeking current income. As a regulated utility, Northwest Natural Gas is a relatively safe common-stock investment.

As a result, Northwest Natural Gas can be considered a low-risk, low-reward play.

However, the company trades at a price-to-earnings ratio of 26.8. This valuation is more applicable to high-growth companies, not those whose earnings grow slower than inflation.

Potential interest rate hike increases will likely cause Northwest Natural Gas’s price-to-earnings ratio to fall as more yield becomes available elsewhere. Based on the factors discussed above, Northwest Natural Gas dos not appear to be a compelling investment at the moment. Read more Northwest Natural Gas analysis on Sure Dividend here.

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Parker-Hannifin (PH)

Dividend Yield: 1.8%

10 Year Total Return CAGR: 12.1% per year

10 Year Dividend Growth Rate: 16.0% per year

Consecutive Dividend Increases: 60 years

Parker-Hannifin is a diversified industrial goods manufacturer with a market capitalization of $19.7 billion. The company was founded in 1918 and has grown its dividend payments for 60 years, making it one of the leading businesses when it comes to dividend longevity.

The company breaks their business down into four main technology platforms:

Some of the products and technologies offered within each of these segments are outlined in the following diagram.

PH The #1 Motion & Control Company

Source: Parker-Hannifin Presentation at the Robert W. Baird Industrial Conference, slide 4

Over the past decade, Parker-Hannifin has delivered strong financial results for its shareholders. The company has grown its dividends at 16.0% per year and delivered total returns of 12.1% per year during that same time period.

Looking ahead, the outlook remains bright for Parker-Hannifin. In 2015, the company identified 4 main strategic priorities for the next five years (called ‘5 Year Breakthrough Objectives’). Progress on these goals is outlined in the following diagram.

PH 5-Year Breakthrough Objective Performance

Source: Parker-Hannifin Presentation at the Robert W. Baird Industrial Conference, slide 12

The company will continue to benefit from leading market share in the industrial motion and control manufacturing industries. Further, Parker-Hannifin controls only a tiny fraction of the diversified manufacturing industry, which leaves room for organic growth and growth by acquisition for the company.

Parker-Hannifin currently trades at a price-to-earnings ratio of 24.5, which is in-line with the valuation of the overall stock market. However, the company’s valuation relative to itself is nearing all-time highs. Investors may want to wait for a price drop before initiating a position in Parker-Hannifin. You can read more Parker-Hannifin analysis on Sure Dividend here.

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Procter & Gamble (PG)

Dividend Yield: 3.1%

10 Year Total Return CAGR: 5.8% per year

10 Year Dividend Growth Rate: 9.2% per year

Consecutive Dividend Increases: 60 years

Proctoer & Gamble is the largest consumer goods conglomerate in the world based on the company’s market capitalization of $235 billion.

The company was founded in 1837, and the duration of its success speaks to the power of the company’s brands and the very slow rate of change in the branded consumer products industry.

A selection of high-level company information is presented in the following illustration.

PG Investor Relations

Source: Proctor & Gamble Investor Relations Website

Proctor & Gamble has a diverse portfolio of well known branded consumer products, including Crest, Tide, Pampers, Head & Shoulders, and Gillette. Many of Proctor and Gamble’s products are seen below.

PG Product Portfolio

Source: Proctor & Gamble Investor Presentation

Despite the ubiquity of Proctor & Gamble’s product portfolio, the company has not lived up to expectations over the last decade. Earnings-per-share have grown under 6% during that time frame.

The company’s slow growth was caused by a lack of focus on any one particular brand, a side effect of over-diversifying the company’s product portfolio.

Proctor & Gamble is taking steps to restore growth by returning its focus to its core brands. The company continues to shed a great deal of its non-core products, which better focuses Proctor & Gamble’s advertising dollars on fewer, more important products.

Proctor & Gamble currently trades for a price-to-earnings ratio of 23.5. This is below the company’s recent valuation levels, but still above the company’s long-term historical averages. The company is likely trading somewhere above fair value, but it remains a long-term hold for investors who already own it. Read more Proctor & Gamble analysis on Sure Dividend here.

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Vectren (VVC)

Dividend Yield: 3.0%

10 Year Total Return CAGR: 11.5% per year

10 Year Dividend Growth Rate: 2.6% per year

Consecutive Dividend Increases: 57 years

Vectren’s main business is a gas and utility business that operates in the states of Indiana and Ohio.

In addition to this core focus, Vectren also does pipeline construction, performance contracting, and sustainable infrastructure projects. Vectren generates 80% of its revenues from its utility business with 55% of utility revenue coming from electric utilities and 45% from gas utilities.

The company has strong shareholder prospects. They have delivered total shareholder returns of 11.5% per year over the past decades, and their 57 years of consecutive dividend increases is a testament to the strength of their business model.

VVC Investment Considerations

Source: Vectren Corporation Investor Presentation, slide 5

Vectren’s growth prospects are tied to many strategic infrastructure opportunities that the company is taking advantage of. Since 2010, the company’s strategy has focused on utility growth led by gas system investment and a narrowed nonutility business mix.

In other words, the company is seeking to focus on their core utility business moving forward. The following slide describes Vectren’s progress on executing on this strategic goal.

VVC Vectren's Recent Milestones

Source: Vectren Corporation Investor Presentation, slide 6

Looking ahead, Vectren’s management is hoping this strategy will translate to investor returns. They are aiming to deliver total shareholder returns in the range of 9%-11% over the long-term.

VVC Long-Term Financial Targets

Source: Vectren Corporation Investor Presentation, slide 8

While the company has met this total shareholder return goal over the past decade, there are two main reasons why I am skeptical that they will continue to do so.

Firstly, Vectren’s total shareholder return over the past decade has outpaced their earnings growth, which means that growth has been driven by multiple expansion. Vectren reported earnings of $1.44 per share in 2006, and management is guiding for $2.45 per share for fiscal 2016, which represents a CAGR of 5.5%, well below the company’s TSR of 11.5% over the same period.

This is clearly unsustainable and something that investors should be aware of.

Secondly, utility companies like Vectren are going to be hit hard when interest rates increase. This is because when interest rates rise, long-term bonds and businesses with little growth that pay high dividends (like Vectren’s utility segment) see their value decline. Simply put, safer securities with similar yields are available elsewhere, providing little incentive for assuming the risk of an investment in Vectren.

Keep this in mind before considering an investment in this company. To help you decide, you can read more Vectren analysis on Sure Dividend here.

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Final Thoughts

The data for this article was compiled using a variety of sources. Dividend Growth Investor’s Dividend King’s list was one of the primary sources. Data is from Yahoo! Finance, and other sources.

The Dividend Kings list is quickly shows many of the strongest, most long-lived businesses around.  You can see more long-term businesses at the following sources:

 


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