When it comes to dividend stocks, the strategy of dividend growth investing (DGI) is one of the most tried and true ways to nurture a portfolio.
The basic idea: Choose dividend stocks with steadily increasing dividends, reinvest those dividends in more shares, then keep gobbling up more dividend payments as they grow down the road. If you rinse and repeat for decades, you’ll be left with a much fatter nest egg.
When it comes to dividend growth investing, many investors find refuge in so-called “dividend aristocrats” or “dividend achievers.” These clubs are full of stocks that have not only paid dividend payments for decades, but grown them. These firms have been able to do so through many business cycles, highlighting a sustainable business model.
In short, these dividend stocks have what it takes to keep paying the goods.
The following group of dividend stocks stand head and shoulders above most of the rest. They have both maintained and improved upon their payouts for at least 50 years, making them exactly what dividend growth investors should be looking for to fade today’s wonky market.
Here are six dividend kings to buy today.
Kingly Dividend Stocks: Northwest Natural Gas Co (NWN)
NWN Dividend Yield: 4%
Consecutive Years Increasing Dividends: 60
When it comes to dividend stocks, utilities take the cake. Their boring and steady cash flows are what dividend dreams are made of.
These are true “widow and orphan” dividend stocks.
However, some utilities have cut their payouts in the face of nasty loses through non-regulated and non-utility subsidiaries. But not Northwest Natural Gas (NWN) — the 156-year-old natural gas utility has been churning out steady dividends for decade, and doesn’t appear ready to snap that streak anytime soon.
Backing those dividends is NWN’s 14,000 miles of worth of pipelines and 31 billion cubic feet (Bcf) of natural gas storage capacity. Those pipelines run through western Oregon and southwestern Washington, including the city of Portland. As the main natural gas utility for the region and city, Northwest Natural has seen steadily increasing demand for its gas as the region has boomed economically.
And unlike other sources of traditional energy, NWN’s natural gas operations are seen as clean. That has it now supplying gas to other utilities in the region who are being forced to dump coal plants thanks to regulation and pressures from Portland’s environmentally conscious consumer base.
Kingly Dividend Stocks: American States Water Co (AWR)
AWR Dividend Yield: 2.2%
Consecutive Years Increasing Dividends: 60
Providing regulated water and water-treatment services is probably one of the most boring businesses on the planet, but it does produce some pretty reliable income.
Just ask American States Water Company (AWR).
AWR is the parent company of Golden State Water and provides water service to 258,000 customers in various parts of California, including the operation of water services in several military bases. Despite the recent drought issues, that’s still a good business to be in. Even with reduced water consumption, AWR still managed to boost earnings — and analysts expect that trend to continue.
American States also should be able to continue its streak of dividend increases. AWR has grown its dividend by 11% over the past five years, and management is expecting for five-year compound annual growth to still reach at least 5% in the next five years. Helping drive that will be continued bolt-on acquisitions, such as its recent purchase of a water utility on California’s coast, that will instantly add to cash flows.
Yes, AWR is not a high yielder, but it still has the goods to be a productive holding.
Kingly Dividend Stocks: 3M Co (MMM)
MMM Dividend Yield: 2.6%
Consecutive Years Increasing Dividends: 57
To say that 3M (MMM) makes a lot of stuff would be an understatement. It produces everything from consumer products — like Ace bandages and Command hooks — to military grade aircraft adhesive and films. That breadth of product lines has helped 3M weather all sorts of economic conditions and business cycles throughout its history.
It also has made MMM a dividend machine.
Last quarter, 3M managed to see a 3.5% year-over-year bump in overall profits. Perhaps the most striking metric from its latest earnings report was that 3M was able to convert 101% of net income into free cash flows, basically turning profits into “free money” for investors. Going forward, 3M expects to turn 90 to 100% of its net income into free cash flows.
And cash flows mean dividend growth and share buybacks.
Last quarter alone, MMM managed to pay out $635 million in cash dividends and repurchased $1.5 billion of its shares, building on a long history of rewarding shareholders. This industrial stock has been paying out dividends for roughly a century, and it could keep doing so for a century more.
Kingly Dividend Stocks: Cincinnati Financial Corporation (CINF)
CINF Dividend Yield: 3.1%
Consecutive Years Increasing Dividends: 55
When done right, dividend growth investing is supposed to be boring. And nothing is more boring than insurance companies.
Cincinnati’s success is a two-pronged approach.
The first is the firm’s local agent-specific businesses model. CINF partners with already existing insurance agencies to promote its businesses. That gives it an edge when looking for new clients.
Secondly, Cincy has been great with regards to the firm’s float. An insurance company’s float is basically all the premiums it’s collected, but hasn’t paid out just yet. This money can be invested in a wide range of things — with some caveats on amounts. Most insurance companies use bonds and other fixed-income instruments, but not CINF. Like Warren Buffett and Berkshire Hathaway (BRK.B), Cincinnati Financial has a hefty portion of its float in common stocks — currently above 30%.
Ultimately, that has helped the firm realize great cash flows, which in turn means continued dividend growth for the foreseeable future.
Royal Dividend Stocks: Parker-Hannifin Corp (PH)
PH Dividend Yield: 2.5%
Years Increasing Dividends: 59
Since its founding in 1918, Parker-Hannifin (PH) has continued to evolve. Sure, the pneumatic brakes for trucks that gave it its start are still there. But today, those brakes are a hybrid system that help conserve and capture energy for running other equipment on the truck.
Including those namesake brakes, PH makes everything aircraft control systems and solar power investors to pumps and HVAC units. And that massive product line has made Parker one of America’s most reliable dividend stocks.
Last year, investors were treated to a major 31% increase in the company’s yearly payout. Granted, you shouldn’t expect that kind of bump every year, but at a 37.5% payout ratio, PH does have plenty of wiggle room to hike its dividend.
Parker’s newly updated “Win Strategy” focuses on more dividend and cash flow increases as well as margin improvements and segmental earnings jumps. If Parker delivers as planned, it’ll ultimately mean more cash flows and dividends for investors.
Kingly Dividend Stocks: Colgate-Palmolive Company (CL)
CL Dividend Yield: 2.2%
Years Increasing Dividends: 52
Colgate-Palmolive (CL) has an impressive stable of well-known consumer brands, including Soft-Soap, Speedstick and its namesake toothpaste and dish soap.
That stable of brands has helped power CL to become one of the best dividend stocks over the long-term.
Helping push Colgate into the future is its focus on emerging countries. CL operates in more than 80 countries, and more than 80% of its sales come from international operations. While that strategy may seem poor in today’s market — given the economic growing pains these nations are currently experiencing — it’s actually sound. Like here at home, citizens in South Africa, Asia and Latin America need to bath and brush their teeth — even during recessions.
The strategy seems to be working. Last year, CL managed to increase its operating cash flows by 3% and made operating profits of $4.2 billion. And that was in the face of a rising dollar.
It just goes to show that CL stock has goods to deliver in any market environment.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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