Three Kings: 50 Years of Dividend Increases

07/21/2017 2:52 am EST

Focus: DIVIDEND

Bob Ciura

Contributing Editor, Wyatt Investment Research

In today’s investing climate, a retiree looking for income might feel like a king without a castle. However, there are still good sources of income to be found and investors should start with the Dividend Kings, suggests Bob Ciura, editor Wyatt Research's Daily Profit.

Dividend Kings are an exclusive group of just 19 stocks. Each has over 50 years of consecutive dividend increases Think for a moment of how stable a company must be in order to raise its dividend each year for five decades running.

The past 50 years included several wars and recessions. And yet, not only did the Dividend Kings maintain their dividends through troubled times, they continued to raise them each year. Investors looking for stable, blue-chip dividend payers, should focus on these three Dividend Kings.

Johnson & Johnson (JNJ)

J&J might just be the Dividend King to rule them all. It has a strong business model, operating in pharmaceuticals, medical devices and consumer products businesses. J&J is a highly recession-resistant business, with growth potential thanks to the aging U.S. population.

2016 was a challenging year for Big Pharma, under the weight of a strong U.S. dollar, weak economic growth and political pressure over drug pricing. And yet, J&J continues to generate reliable growth, year after year.

J&J has plenty of growth potential moving forward. Its oncology and immunology segments are particularly attractive, as these two areas contributed revenue growth of 24% and 15%, respectively, in 2016. J&J has multiple potential blockbusters in its pipeline, including Stelara and Imbruvica.

With such strong cash flow, J&J has increased its dividend for 55 years in a row. The stock offers a market-beating dividend yield of 2.6%.

Procter & Gamble (PG)

Consumer products giant P&G is a titan of industry. It has dozens of brands that each collect more than $1 billion in sales each year. Among its key brands are Pampers, Tide, Charmin, Bounty, Febreze, Crest, Gillette, Old Spice, Pantene and Head & Shoulders.

In all, P&G generates more than $65 billion in annual sales. Going forward, there is plenty of growth potential left for P&G, thanks in large part to its massive portfolio restructuring.

P&G has sold off dozens of low-growth brands, such as Duracell and several beauty brands. This has streamlined P&G’s product portfolio, and given it a clear path to return to growth.

Throughout its transformation, P&G has taken more than $10 billion out of its cost structure. The company is also using a significant amount of the proceeds from its asset sales to buy back stock. P&G has increased its dividend for 61 years in a row. It has a hefty 3.2% dividend yield.

3M (MMM)

Last but not least is 3M, whose dividend track record makes it the king of the industrial sector. 3M has distributed uninterrupted dividends for more than 100 years. Moreover, it has increased its dividend for 59 years in a row. The stock offers an attractive dividend yield of 2.3%.

3M generated more than $30 billion of revenue in 2016. It is a diversified industrial giant. Last year, it generated a very healthy return on capital of over 20%.

It is off to an equally impressive start to 2017. The company had a classic “beat-and-raise” first-quarter performance. That means it not only beat analyst expectations for the quarter, but it also raised guidance for the remainder of the year.

Going forward, 3M expects 2% to 5% organic revenue growth this year, which will be more than enough to continue raising its dividend. That makes 3M a top pick for income investors.

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