3 Safest Dividend King Stocks
3 Safest Dividend King Stocks. Income investors typically want to find stocks with above-average yields, generally meaning that the stocks have higher yields than the S&P 500 average. But beyond yield, income investors should also be sure that the dividend payout is sustainable.
We believe investors looking for safe dividends should consider the Dividend Kings, a group of just 31 stocks that have increased their dividends for at least 50 consecutive years. Of the Dividend King stocks, 3 that have arguably the safest dividends are Johnson & Johnson (JNJ), Procter & Gamble (PG), and Hormel Foods (HRL). Not only are Johnson & Johnson and Procter & Gamble stocks we consider the safest dividend king stocks they are also the best core dividend growth stocks.
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Dividend King Stock: Johnson & Johnson
Johnson & Johnson is an obvious choice, as it is one of the safest dividend stocks in the entire market. Johnson & Johnson’s dividend safety is derived from its AAA-rated balance sheet, diversified revenue, and consistent growth. J&J has increased its dividend for 59 consecutive years, including a 5% increase in April 2021. Johnson & Johnson’s key competitive advantages is the size and scale of its business. The company is a worldwide leader in a number of healthcare categories. Johnson & Johnson’s diversification allows it to continue to grow even if one of the segments is underperforming.
J&J has posted strong growth to begin 2021. In the most recent quarter, J&J generated 8% revenue growth along with 13% adjusted earnings-per-share growth. The company saw broad-based growth across its major segments. Pharmaceutical sales grew 10%, driven by a 18.5% increase in oncology. Immunology was up almost 8% as STELARA continues to take market share. STELARA remains the company’s top selling product. Consumer revenue declined 2.3%, attributable to COVID-19 stocking in the same quarter last year which resulted in a very difficult comparison.
Lastly, the Medical Devices segment returned to growth as sales grew almost 11% for the quarter. International Solutions increased more than 30% due to gains in atrial fibrillation and new products.
For 2021, J&J expects adjusted earnings per share of $9.42 to $9.57 for the year, up from $9.40 to $9.60 previously. At the midpoint of revised guidance, J&J expects adjusted EPS to increase 18% for the year.
Johnson & Johnson has grown earnings over the past 10 years by ~5% per year. It has also posted positive earnings growth throughout recessions, which proves that its products see consistent demand regardless of economic conditions. We expect earnings-per-share to grow at a rate of 6% per year over the next five years due to revenue growth and share repurchases.
Shares currently yield 2.5%, and with a 2021 dividend payout ratio below 50%, J&J’s dividend is highly secure.
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Dividend King Stock: Procter & Gamble
Procter & Gamble is a consumer products giant with multiple strong brands including Pampers, Luvs, Tide, Bounty, Charmin, Gillette, Febreze, Swiffer, Crest, Olay and many more. The company generates annual sales above $70 billion.
P&G is another Dividend King stock with a highly secure payout. The company has paid a dividend to its shareholders for over 130 years, and it has increased its dividend for 65 consecutive years. In April, the company raised its dividend by 10%. P&G is one of the few stocks that has paid its dividend for over 100 straight years in a row.
The company has generated accelerating growth in the past few years, due to a major restructuring of its brand portfolio. P&G sold off dozens of brands that were not considered to be a part of its future growth strategy, such as Duracell and a number of beauty brands. The result is that P&G is a streamlined, more efficient company with better margins and growth potential.
For example, in the most recent fiscal quarter P&G notched 5% revenue growth, along with 12.5% adjusted EPS growth. For the remainder of fiscal 2021, P&G expects 5% to 6% sales growth and 8% to 10% core EPS growth. This will easily allow the company to continue raising its dividend, especially since the current dividend payout of 60% is already a very secure level.
Like many other Dividend Kings, Procter & Gamble stock has competitive advantages and the company is highly resistant to recessions. Its main competitive advantage is its top-tier brand portfolio, which leads to stable profits even during recessions. During the major financial crisis of 2008 – 2009, the company remained highly profitable by posting earnings-per-share of $3.04, $3.64, $3.58, $3.53 and $3.93 in the 2007 through 2011 stretch, while the dividend kept on increasing.
Moreover, during the current COVID-19 pandemic, Procter & Gamble has proven resilient once again, with earnings increasing in 2020 and again in 2021. Shares currently yield 2.5%.
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Dividend King Stock: Hormel Foods
Hormel is a Dividend King stock with perhaps the most recession-resistant business. The company sells its products in 80 countries worldwide, and its core brands include Hormel, Skippy, SPAM, Applegate, and more than 30 others. Hormel has increased its dividend for 55 consecutive years. Shares currently yield 2.1%.
In the most recent quarter, the company beat analyst estimates on both the top and bottom line. Total revenue was $2.6 billion, which was up nearly 8% from the year-ago period. Volume was down -3% to 1.2 billion pounds, but better pricing helped drive the top line higher. Q2’s revenue number was a record. The Refrigerated Foods business saw volume rise 3%, and total sales soar 17%, while segment profit was up 32%. The segment saw a massive recovery in the foodservice business, as well as growth in retail and deli brands.
Hormel’s main competitive advantage is its ~40 brands that are either #1 or #2 in their specific category. This top market share position across brands gives Hormel the ability to generate strong profits each year, even during recessions. In addition, Hormel has a global network of distributors that few food companies can rival. Hormel’s earnings-per-share actually grew during the Great Recession of 2008 – 2009.
We expect 5% annual earnings-per-share growth for Hormel over the next five years. Organic growth through price increases, as well as external growth through acquisitions, are the main drivers of future sales growth. Hormel recently announced it will acquire the Planters snack nuts business from Kraft-Heinz (KHC) for $3.35 billion which will boost its growth. Share buybacks will add to earnings-per-share growth as well.
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Key Takeaways on the 3 Safest Dividend King Stocks
Investors looking for solid dividend stocks are naturally concerned with yield, but yield alone should not be the only consideration. Investors should also concern themselves with dividend sustainability and safety, by focusing on stocks with the longest histories of dividend growth. The 3 Dividend King stocks here have each raised their dividends for over 50 consecutive years, have yields well above the S&P 500 average, and should continue to increase their dividends even during recessions.
Disclosure: Members of the Sure Dividend Team are long some of the stocks mentioned.
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Bob Ciura
Bob Ciura is President of Content at Sure Dividend. Bob has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. Bob received a bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.