The 3 Highest-Yielding Dividend Kings Now
By Josh Arnold for Sure Dividend
Income investors are faced with many choices when it comes to selecting the stocks they wish to hold in their portfolio. These choices include high current yield, dividend growth potential, dividend safety, dividend longevity, and more.
However, there are certain stocks that possess more than one of these qualities. It is the intersection of these characteristics where we believe we find the best dividend stocks.
One place we like to start is with the Dividend Kings, a group of just 35 stocks that have increased their dividends for at least 50 consecutive years. This longevity implies these companies all have sustainable competitive advantages, as well as exemplary recession resistance.
These 3 Dividend Kings have each raised their dividends for over 50 consecutive years, and are currently the highest-yielding Dividend Kings today.
Our first stock is Altria, a manufacturer and distributor of cigarettes, oral tobacco, and more. The company sells the very famous Marlboro brand of cigarettes, Black & Mild cigars, and chew tobacco under the Copenhagen, Skoal, Red Seal, and Husky brands.
Altria was founded in 1822, employs about 7,000 people, generates $21 billion in annual revenue net of excise taxes, and trades with a market capitalization of $83 billion. The company’s dividend increase streak stands at 52 years. Altria’s dividend yield is currently 7.9%.
Altria reported its most recent earnings for the third quarter on October 29th, 2021, and results were weaker than expected on both the top and bottom lines. Total revenue was off 4.7% from the year-ago period, coming to $6.8 billion before excise taxes, which was entirely due to smokeable product revenue declining 5.4%. Earnings-per-share came to $1.22 on an adjusted basis, which was actually slightly higher than the $1.19 from last year’s comparable period.
Management announced it repurchased 6.7 million shares during the quarter, and boosted its existing buyback authorization to try and offset declining volumes. Our estimate for this year now stands at $4.62 for earnings-per-share.
Altria’s recession resistance is outstanding given its products are literally addicting to the company’s customers. Tobacco products in general hold up very well during recessions because even consumers on the margin prioritize tobacco. This affords Altria stable and predictable cash flows irrespective of economic conditions, which it has used over the past five decades to consistently increase its dividend payment.
We expect a 78% dividend payout ratio for this year, which is quite comfortable for a tobacco company. More cyclical companies would like see a dividend cut during a recession with that kind of payout ratio, but tobacco stocks – including Altria – see minor impacts to earnings during tough economic periods. Therefore, we see that payout as safe under any reasonable recession scenario.
High-Yield Dividend King: Universal Corporation (UVV)
Our next stock is Universal, a company that processes and supplies leaf tobacco and plant-based ingredients to manufacturers worldwide. Unlike Altria, Universal doesn’t actually sell finished product to wholesalers; it is further down the supply chain and produces what amount to ingredients to create final products. This still ties Universal’s fortunes very closely with those that do sell the final products, but Universal isn’t beholden to a single brand name or product succeeding for this reason.
Universal was founded in 1886, employs 9,000 people, generates $2 billion in annual revenue, and trades with a market capitalization of $1.2 billion. Universal’s dividend increase streak is currently 50 years. In addition, its dividend yield stands at 6.1%.
Universal’s most recent earnings were reported on November 3rd, 2021, and results were strong compared to the same period a year ago. Total revenue came to $450 million, which was 22% higher than last year’s Q2, and gained 16% for the first half of the year. Last year’s comparable period was heavily impacted by the pandemic, but those conditions have normalized, resulting in what is certainly an unsustainable level of sales growth.
Earnings-per-share came to 66 cents on an adjusted basis in Q2, which puts first half earnings at 96 cents per share. We currently expect $4.40 in earnings-per-share in fiscal 2022.
Universal doesn’t face a huge amount of competition given its industry has been in decline for many years. As the demand for cigarettes and other tobacco products continues to wane, the need for tobacco leaf wanes as well. That means new entrants aren’t attracted to compete with Universal, and that means the need for constant investment doesn’t exist. Universal, therefore, has strong cash flows it can return to shareholders.
The payout ratio stands at 71% for this year, which we find to be quite safe given the company’s stable earnings. We don’t see a huge amount of payout growth on the horizon given the structural challenges a tobacco leaf provider faces, but for the foreseeable future, we think Universal’s dividend will be reliable.
High-Yield Dividend King: Northwest Natural Holding Company (NWN)
Our final stock is Northwest Natural, a regulated natural gas utility based in Oregon. The company serves 2.5 million natural gas customers in 140 communities. It was founded in 1859, employs 1,200 people, generates about $830 million in annual revenue, and its market capitalization is $1.4 billion. Northwest’s dividend increase streak stands at 66 years, and its current yield is 4.2%.
The company reported its most recent results on November 5th, 2021, and results were well ahead of expectations on both the top and bottom lines. Northwest reported revenue that grew 8.7% year-over-year to $101 million during the seasonally weak quarter. Northwest also added 12,000 new metered connections, and reaffirmed guidance for $2.40 to $2.60 in earnings-per-share for this year.
Like other regulated utilities, Northwest enjoys what amounts to a monopoly in its service area. This allows it pricing power and high margins, as well outstanding recession resilience.
That helps dividend safety, which we give the highest marks to Northwest for given its 66-year dividend increase streak. The payout ratio stands under 80% for this year, and we see that as plenty safe given the utility’s very stable and predictable earnings profile.
Final Thoughts
Investors with capital to invest today would do well to start with the Dividend Kings when making a dividend stock investment. We like the Dividend Kings for their inherent recession resistance, and dividend longevity.
However, Altria, Universal, and Northwest Natural offer those benefits in addition to very strong current dividend yields.
