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Dividend growth stocks can offer strong shareholder returns over the long term. One place to look for high-quality dividend growth stocks is the list of Dividend Kings, which have increased their dividends for at least 50 consecutive years.
In order for a company to raise its dividend for over five decades, it must have durable competitive advantages and consistent growth. It must also have a shareholder-friendly management team dedicated to raising its dividend.
The Dividend Kings have raised their dividends each year, no matter the condition of the broader economy. They have outlasted recessions, wars, and a variety of other challenges, while continuing to increase their dividends every year.
With this in mind, these three Dividend Kings are attractive for rising dividend income over the long term.
Dividend King #1: Genuine Parts Company (GPC)
Genuine Parts Company is a diversified distributor of auto and industrial parts, as well as office products. Its biggest business is its auto parts group, which includes the NAPA brand. Genuine Parts has the world’s largest global auto parts network, with over 6,700 NAPA stores in North America and over 2,000 stores in Europe. Genuine Parts generated over $18 billion of revenue in 2018.
Genuine Parts is benefiting from changing consumer trends, which is that consumers are holding onto their cars longer. Rather than buy new cars frequently, consumers are increasingly choosing to make minor repairs. At the same time, repair costs increase as a car ages, which directly benefits Genuine Parts. For example, Genuine Parts stats that average annual spend for a vehicle aged six to 12 years is $855, compared with $555 for a vehicle aged one to five years.
Vehicles aged six years or older now represent over 70% of cars on the road, and Genuine Parts has fully capitalized on the market opportunity. The company has reported record sales and earnings per share in seven of the past 10 years. As the total U.S. vehicle fleet is growing, and the average age of the fleet is increasing, Genuine Parts has a positive growth outlook.
Acquisitions will also help pave the way for Genuine Parts’ future growth, particularly in the international markets. In 2017, it acquired Alliance Automotive Group, a European distributor of vehicle parts, tools, and workshop equipment. The $2 billion acquisition gave Genuine Parts an instant foothold in Europe, as Alliance Automotive holds a top 3 market share position in Europe’s largest automotive aftermarkets.
The company has reported steady growth for decades. In fact, profits have increased in 75 years out of its 91-year history. This has allowed the company to raise its dividend every year since it went public in 1948, and for the past 63 consecutive years. The stock has a current dividend yield of 3.3%.
Dividend King #2: Altria Group (MO)
Altria is a tobacco giant with a wide variety of products including cigarettes, chewing tobacco, cigars, e-cigarettes and wine. The company also has a 10% equity stake in Anheuser Busch Inbev (BUD).
Altria is challenged by the continued decline in U.S. smoking rates. However, last quarter Altria still managed 5% revenue growth from the same quarter last year. Its core smokeable product segment reported 7.4% sales growth, as price increases more than offset volume declines. Adjusted earnings-per-share increased 9% for the quarter, and Altria expects 4%-7% growth in adjusted EPS for 2019.
This growth allowed Altria to raise its dividend by 5% in late August, marking its 50th consecutive year of dividend increases.
Altria has tremendous competitive advantages. It has the most valuable cigarette brand in the U.S., Marlboro, which commands greater than a 40% domestic retail share. This gives Altria the ability to raise prices to drive revenue growth, as it has done for many years.
Going forward, Altria is preparing for a continued decline in the U.S. smoking rate, primarily by investing in new product categories. In addition to its sizable investment stake in ABInbev, Altria invested nearly $13 billion in e-cigarette manufacturer Juul, as well as a nearly $2 billion investment in Canadian marijuana producer Cronos Group (CRON).
Altria also recently invested $372 million to acquire an 80% ownership stake in Swiss tobacco company, Burger Söhne Group, to commercialize its on! oral nicotine pouches. Lastly, Altria is preparing its own e-cigarette product IQOS, which is being readied for an imminent nationwide launch.
Like Coca-Cola, Altria is taking the necessary steps to respond to changing consumer preferences. This is how companies adapt, which is necessary to maintain such a long streak of annual dividend growth.
Dividend King #3: Dover Corporation (DOV)
Dover Corporation is a diversified global industrial manufacturer with annual revenues of ~$7 billion and a market capitalization of $14 billion. Dover has benefited from the steady growth of the global economy in the years following the Great Recession of 2008-2009. In the most recent quarter, Dover grew earnings-per-share by 20% excluding the spinoff of Dover’s energy business Apergy. Revenue from continuing operations increased 1%.
It may be a surprise to see an industrial manufacturer on the list of Dividend Kings. Indeed, companies in the industrial sector are highly sensitive to the global economy. Industrial manufacturers tend to struggle more than many other sectors when the economy enters recession. But Dover has maintained an impressive streak of 64 years of annual dividend increases, one of the longest streaks of any U.S. company. One reason it has done this despite the inherent cyclicality of its business model is because of the company’s diversified portfolio.
Dover spun off its energy unit, which is especially vulnerable to recessions. Of its remaining segments, many service industries that see resilient demand, even during recessions, such as refrigeration and food equipment.
Dover expects to generate adjusted earnings-per-share in a range of $5.75 to $5.85. At the midpoint, Dover would earn $5.80 per share for 2019. With a current annual dividend payout of $1.96 per share, Dover is projected to have a 34% dividend payout ratio for 2019. This is a modest payout ratio which leaves more than enough room for continued dividend increases next year and beyond.
Dover has a current dividend yield of 2.1%, which is near the average yield of the broader S&P 500 Index. While the stock does not have an extremely high yield, it makes up for this with consistent dividend increases each year.
It is not easy to become a Dividend King, which is why there are only 27 of them. Of the ~5000 stocks that comprise the Wilshire 5000, the most widely-used index of the total stock market, only 27 have increased their dividends for at least 50 consecutive years.
Because of this, the Dividend Kings are a suitable group of stocks for income investors looking for high-quality dividend growth stocks. In particular, the three stocks on this list have competitive advantages, future growth potential, and high dividend yields that make them highly attractive for income investors.