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 benefits. 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 the dividends. It’s a long-term approach, but start early enough, and the passive income stream snowballs.
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 (NYSE:JNJ) and Coca-Cola (NYSE:KO). However, some companies are not as famous but still worth buying. Below we discuss five little-known dividend kings.
|FMCB||Farmers & Merchants Bancorp||$960.00|
|NWN||Northwest Natural Holding Company||$46.07|
|TR||Tootsie Roll Industries||$33.81|
Computer Services (CSVI)
Computer Services (OTCMKTS:CSVI) is one of the smaller and lesser-known dividend kings. The company only has a market capitalization of about $1.56 billion and was founded in 1965. Computer Services provides payment processing, digital banking, regulatory compliance and so on, to community and regional banks in the U.S. Total revenue was about $321 million in the past 12 months.
Computer Services has a dividend yield of approximately 2%. The dividend has increased for 51 consecutive years, and the most recent quarterly increase of 7.4% to 29 cents per share was on July 21. 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 $56.24, so there is little upside now, but it may interest those who engage in merger arbitrage.
Farmers & Merchants Bancorp (FMCB)
Farmers & Merchants Bancorp (OTCMKTS: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 12 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 about 18%. Unlike most U.S. companies, the bank pays its dividend semi-annually.
The stock has performed well in 2022 and is flat for the year. It is up about 6.6% in the past year. The trailing price-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 (NWN)
Northwest Natural Holding Company (NYSE: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 12 months.
The utility has a solid dividend yield of 3.9%, among 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 five 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 down about 1% in one-year and 6% year-to-date (YTD). The forward P/E ratio is about 19.8X, below the five-year range and at the lower end of the past 10 years. Although the dividend growth rate is low, investors are getting an undervalued stock with a nearly 4% dividend yield.
Tootsie Roll Industries (TR)
Tootsie Roll Industries (NYSE: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 and more. 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 12 months was about $636.2 million.
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 five-year and 10-year range. The stock has performed well in 2022 and is down only about 3%, but it is up about 15% in the past year. Investors desiring a low-volatility stock with a 4% yield should look at Tootsie Roll.
Stepan Company (SCL)
Stepan Company (NYSE: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 12 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% compound annual growth rate (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 about 15.1X, below the market average and less than the five-year and 10-year averages. The stock price is down about 24% 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.
On the date of publication, Prakash Kolli did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.