Today’s post is from a guest writer, Bob Ciura. Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. 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.
At Sure Dividend, we are big believers in the long-term benefits of buy-and-hold investing. Specifically, we recommend investors purchase high-quality dividend growth stocks, and hold on for the long run to let compounding interest work its magic.
There are thousands of dividend stocks to choose from, which could be overwhelming at first. We filter stocks based on a number of factors, one of which being the length of a company’s dividend growth history. Stocks such as the Dividend Aristocrats and Dividend Kings, which have raised their dividends for 25+ consecutive years and 50+ years respectively, are among the best buy-and-hold candidates.
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The following 3 dividend stocks qualify as Dividend Kings. They have several qualities in common, such as a long history of dividend increases, competitive advantages, and the potential for future growth in the years ahead. Equally important, we believe these 3 Dividend Kings have secure dividends, even in a prolonged recession.
Dividend King #1: Altria Group (MO)
Altria is a large-cap consumer products company. It owns many popular brands in the tobacco industry, such as its flagship Marlboro. It also owns smokeless tobacco brands such as Skoal and Copenhagen, as well as a wine business, and also a 10% interest in beer giant Anheuser-Busch InBev.
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Declining smoking rates in the United States are a constant challenge for Altria. Indeed, the percentage of Americans who smoke cigarettes has been on a steady decline for decades. The company has prepared for this by investing in new categories, such as vaping, cannabis, and smoking cessation products, that could represent the future.
For example, Altria has invested heavily in products that it believes carry fewer health risks, such as its $13 billion investment in vaping leader JUUL and its $1.8 billion investment in Cronos. Altria also recently invested $372 million to acquire an 80% ownership stake in Switzerland-based Burger Söhne Group, which manufactures oral nicotine pouches.
Growth in these new categories will help Altria continue its impressive dividend growth streak. The company has increased its dividend for 50 years in a row. Not only that, but it also has a very high dividend yield of 8%.
Another reason for investors to favor Altria stock is that the company operates a recession-resistant business model. Consumable products like tobacco and alcohol are purchased even during economic downturns. This is what has allowed Altria to continue increasing its dividend through multiple recessions in the past five decades.
Dividend King #2: National Fuel Gas (NFG)
National Fuel Gas is a diversified energy company with a market capitalization of approximately $3.8 billion, with operations across upstream, midstream, and downstream. The company’s upstream business consists of exploration and production of natural gas from its Marcellus and Utica shale assets. In all, it has approximately 610 million cubic feet per day of natural gas production capacity in the Appalachian region. Upstream operations represent approximately 44% of the company’s overall earnings before interest, taxes, depreciation, and amortization (EBITDA).
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Separately, National Fuel Gas’s midstream business consists of gathering pipeline and storage assets. These are transportation assets such as pipelines that move its Appalachian natural gas production. Midstream accounts for 36% of the company’s annual EBITDA. Lastly, National Fuel Gas has a large downstream unit in the form of a utility business which serves over 740,000 customers in New York and Pennsylvania. Downstream represents 20% of company EBITDA generation.
The diversified business structure provides multiple benefits for National Fuel Gas, such as recession resilience. Many energy companies that operate more heavily in upstream exploration and production are much more reliant on high commodity prices. In economic downturns commodity prices typically fall. For example, oil and gas prices have plunged over the past few years, which has been a major drag on the energy sector as a whole. National Fuel Gas’s diversification means it is shielded more adequately from low commodity prices, which explains why it is the only Dividend King from the energy sector.
National Fuel Gas recently increased its dividend by 2.3%, marking its 50th consecutive year of dividend growth. The stock has a hefty current yield of 4.3%, which is more than double the average yield of the S&P 500 Index.
Dividend King #3: Lowe’s Companies (LOW)
Lowe’s is a hardware store giant that has declared a cash dividend every quarter since going public in 1961. It has increased its dividend for over 50 years, qualifying it for inclusion on the Dividend Kings list. Its most recent dividend hike was a strong 15% increase last year. The company has yet to increase its dividend for 2020, but will likely pass along another raise to shareholders in order to keep its streak going.
Long-term dividend growth is highly likely for Lowe’s, as it benefits from very favorable industry fundamentals. Lowe’s essentially operates in a duopoly. Its only other competitor of comparable size and scale is Home Depot. Operating in a duopolistic industry provides Lowe’s with brand loyalty and pricing power to maintain profit margins. And, with few competitors to worry about, Lowe’s and Home Depot share first-dibs on any available growth opportunities.
Lowe’s operates nearly 2,000 home improvement and hardware stores in the U.S. and Canada, and has a market capitalization of $110 billion. The company continues to perform well in 2020 even during the coronavirus pandemic. Despite nationwide shutdowns, Lowe’s is still firing on all cylinders, thanks largely to its booming e-commerce business.
In the most recent quarter, Lowe’s grew its U.S. comparable sales (which measures sales at stores open at least one year) by 12.3%. Growth consisted of 9.6% increase in average ticket size, plus 1.6% growth in the number of transactions. Lowe’s saw positive comparable sales growth in 14 out of its 15 merchandise departments. E-commerce has been a major driver of Lowe’s growth, as Lowes.com generated 80% sales growth for the quarter.
Lowe’s has a below-average dividend yield of 1.5%, but it makes up for this with high dividend growth. With a dividend payout ratio between 30% and 40% in most years, Lowe’s can easily afford to increase its dividend on a regular basis without putting itself in dangerous financial position.
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Final Thoughts
Many stocks pay dividends, but only a select number of stocks have increased their dividends for 50 years in a row or longer. There are only 30 Dividend Kings, which shows how rare it is to accomplish this feat. The Dividend Kings have competitive advantages, growth potential, and shareholder-friendly management teams that are committed to raising dividends each year. Altria, National Fuel Gas, and Lowe’s continue to increase their dividends even during the coronavirus pandemic. While their stock prices may fluctuate, investors can be reasonably assured that these companies will continue to increase their dividends for many years, making them highly attractive for dividend growth investors.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
