Last Updated on October 23, 2023 by Prakash Kolli
The most prominent of the dividend growth stocks are the Dividend Kings. They have increased their dividends for a minimum of 50 consecutive years. Many well-known Dividend Kings exist, like Johnson & Johnson (JNJ) and Coca-Cola (KO). However, some companies are not as famous but are worth buying shares of. Below we discuss 5 little-known Dividend Kings.
The goal of many stock investors is to build a portfolio to generate a passive income stream so they can live off the dividends or at least add to their retirement distributions and Social Security benefit. One possible way to accomplish this goal is to follow a dividend growth investing strategy, buying stocks that pay an ever-increasing dividend each year and reinvesting dividends. It’s a long-term approach, but start early enough, and the passive income stream snowballs.
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5 Little Known Dividend Kings
Computer Services (CSVI) is one of the smaller and little-known Dividend Kings. The company only has a market cap of about $1.56 billion and was founded in 1965. Computer Services provides payment processing, digital banking, regulatory compliance, etc., to community and regional banks in the US. Total revenue was about $321 million in the past twelve months.
Computer Services has a dividend yield of approximately 2.0%. The dividend has been increased for 51 consecutive years, and the most recent quarterly increase of 7.4% to $0.29 per share was on July 21st. A 51% payout ratio supports the dividend rate of $1.16 per share. This value is reasonable and ensures both dividend safety and future growth. Furthermore, the balance sheet has a net cash position adding to the dividend safety.
The company was undervalued and had a 3%+ dividend yield until a recent acquisition announcement. The firm will be acquired for $58 per share in an all-cash transaction. The stock is trading at $56.85, so there is little upside now, but it may interest those who engage in merger arbitrage.
Farmers & Merchants Bancorp
Farmers & Merchants Bancorp (FMCB) is another little-known Dividend King with a market cap of roughly $740 million. The firm was founded in 1916. Today, it is a community bank offering personal and business banking in mid-Central California. The bank has about 29 branches. Total revenue was $171.3 million in the last twelve months.
Farmers & Merchants is paying a ~1.64% dividend yield and is not a high-yield stock. But it has a 57-year streak of annual dividend increases that few other companies can match. The dividend safety is high, with a payout ratio of ~18%. Unlike most US companies, the bank pays its dividend semi-annually.
The stock has performed well in 2022 and is flat for the year and up ~6.8% in the past 1-year. The trailing price-to-earnings (P/E) ratio is about 10X to 11X. The stock is slightly undervalued, assuming an earnings multiple of 12X, lower than the 10-year average. Investors seeking stability and dividend growth may be interested in this bank stock.
Northwest Natural Holding Company
Northwest Natural Holding Company (NWN) is one of the smaller natural gas utilities. The company was founded in 1859. It has a market cap of ~$1.69 billion. Besides natural gas, Northwest Natural has a minor water and wastewater segment. The utility serves about 786,000 natural gas customers in Oregon and Southwest Washington and roughly 80,000 water services customers in the Pacific Northwest and Texas. Total revenue was approximately $941 million in the past twelve months.
The utility has a solid dividend yield of ~3.9% amongst the highest of the Dividend Kings. The firm has raised the dividend for an astounding 66 years giving it one of the longest active streaks. However, the growth rate is meager at ~0.94% in the past decade and ~0.53% in the trailing 5-years. As a utility, the payout ratio is on the higher end at roughly 75%.
The stock has performed well during the bear market and is up ~1.4% in 1-year and ~2% year-to-date (YTD). The forward P/E ratio is ~19.8X, below the 5-year range and at the lower end of the past ten years. Although the dividend growth rate is low, investors are getting an undervalued stock with a nearly 4% dividend yield.
Tootsie Roll Industries
Tootsie Roll Industries (TR) is probably the most well-known company on this list because many of us have eaten its candy. However, investors tend to ignore the stock, and it is a little-known Dividend King. The company produces and sells Tootsie Roll, Charms, Blow-Pops, Dots, Junior Mints, Sugar Daddy, Charleston Chew, Dubble Bubble, etc. The Chairwoman and CEO, Ellen R. Gordon, owns approximately 53.9% of common stock and 82.8% of Class B shares, effectively giving her company control. Total revenue in the trailing twelve months was about $636.2M.
Tootsie Roll has a forward dividend yield of about 1%, not high. However, the company pays a 3% stock dividend that investors can sell, giving an effective yield of 4%. The company has a 56-year streak of dividend increases based on the increasing cash returned to investors. The earnings payout ratio is usually modest, ranging from 35% to 45%. Moreover, the company has a rock-solid balance sheet with a net cash position adding to the dividend safety.
The candy manufacturer is rarely undervalued because of the limited float and family control. As a result, the stock usually trades at an elevated earnings multiple. The P/E ratio is now ~35.7X within the 5-year and 10-year range. The stock has performed well in 2022 and is down only about 2.6%, but it is up ~17.6% in the past year. Investors desiring a low volatility stock with a 4% yield should look at Tootsie Roll.
Stepan Company (SCL) is the last stock on this list of little-known Dividend Kings. The company was founded in 1932. It produces and sells chemicals globally. It operates through three business segments: Surfactants, Polymers, and Specialty Products. Total revenue was $2,639.6 million in the trailing twelve months.
Stepan is not an income stock with a dividend yield of only 1.3%. But this value is at the higher end of its range in the past decade. The company has increased the dividend for 54 years in a row and is currently doing so at about a 10% CAGR in the past five years. The earnings payout ratio is minimal at 20.3% supporting future increases with excellent dividend safety. The balance sheet has relatively low leverage and high-interest coverage, adding to the dividend’s security.
The valuation is low at a P/E ratio of ~15.1X, below the market average and less than the 5-year and 10-year averages. The stock price is down about 16% YTD because investors fear a recession will trigger lower demand for chemicals. Despite the low dividend yield, the good dividend safety, high dividend growth rate, and low valuation make Stepan an excellent stock to consider for total return.
A version of this post by Dividend Power originally appeared in Investor Place and was republished with permission.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.