The Top 3 Dividend Kings Now

Investors looking for the best place to put their hard-earned capital would do well to consider those companies that have the longest dividend increase streaks. There are plenty of lists and groups to categorize companies with dividend increase streaks, but the best of the best in terms of dividend longevity is certainly the Dividend Kings.

This is a group of just 40 stocks that have all increased their dividends for at least 50 consecutive years, making them truly in a class of their own on that measure. These companies have stood the test of time in terms of economic conditions and competitive threats to produce reliable earnings growth. Importantly, that earnings growth is shared with shareholders via rising dividends over time.

In this article, we’ll take a look at three Dividend Kings we like today for their dividends and long-term total return potential.

Our first stock is ABM Industries, a company that provides integrated facility solutions primarily in the US, but it operates internationally as well. The company operates a number of segments, and through those it provides janitorial, facilities engineering, parking, custodial, landscaping, vehicle maintenance, and mechanical and electrical services. ABM was founded in 1985, employs 124,000 people globally, generates $7.5 billion in annual revenue, and trades with a market cap of $2.9 billion.

ABM’s dividend streak stands at 54 years, but the combination of strong earnings growth and relatively smaller dividend increases has produced a payout ratio of just 23% for this year. That gives ABM exceptional dividend safety, particularly since it’s actually fairly recession resistant. ABM operates mostly essential services, so recessions have some impact on earnings, but for instance, the 2020 recession actually saw higher earnings year-over-year.

The current yield is 1.8%, about 0.5% better than that of the S&P 500. We expect 5% earnings-per-share growth in the coming years, which we see as driven mostly by revenue growth, with the small potential for margin gains. ABM doesn’t buy back stock in any sort of meaningful quantity.

The stock trades for just 12.5 times this year’s earnings estimates, which is nearly the lowest valuation the stock has had at any point in the past decade. It is also well under our fair value estimate of 17.5 times earnings. That could provide a nearly-7% tailwind to total returns in the coming years should it revert to that valuation.

That puts total return potential at a very impressive 13.5% for ABM, which is why we rate it a buy.

3M Company (MMM)

3M is an engineering company that operates globally, providing consumers and businesses with an enormous variety of thousands of largely disposable products. 3M offers abrasives, autobody repair solutions, hygiene products, masks, packaging materials, respiratory, hearing, eye and fall protection, and much more.

The company was founded in 1902, employs 95,000 people worldwide, generates $37 billion in annual revenue, and trades for a market cap of $84 billion.

3M’s dividend streak is world-beating at 63 years, putting it in rare company even among the Dividend Kings. The company’s payout ratio has climbed in recent years, but still remains below 60%. Given 3M’s recession resistance and reliable earnings, that is plenty safe in our view.

The current yield of just over 4% is exemplary as well, more than tripling that of the S&P 500. Combined with the safety of the dividend, 3M is truly an outstanding income stock.

We see 5% earnings growth in the years to come, which we see as attributable to higher revenue, roughly flat margins, and a small tailwind from share repurchases. The stock trades for 14.4 times this year’s earnings, which is well below our fair value estimate of 19 times earnings, which could provide a total return tailwind of almost 6% annually.

In concert with the yield and earnings growth, that could see 3M producing 13.8% total annual returns in the coming years.

Stanley Black & Decker, Inc. (SWK)

Our final stock is Stanley Black & Decker, a company that designs, manufactures and sells a wide variety of products in the power tools, storage, and security businesses worldwide. The company’s brands include its namesake Stanley and BLACK + DECKER marques, as well as a wide variety of others. It offers products such as power tools, pneumatic tools, fasteners, lawn and garden products, commercial and residential security systems, and more.

Stanley Black & Decker was founded in 1843, but has undergone major transformations since then through mergers and acquisitions. Today, it employs 60,000 people, generates $19.5 billion in annual revenue, and trades for a market cap of $26 billion.

The dividend streak stands at 54 years, and terrific earnings growth in recent years has put the payout ratio at just 26%. Like the others on this list, the dividend is exceptionally safe and provides a very long runway for dividend increases in the years to come.

The current yield is 2%, so Stanley Black & Decker remains a solid income stock when compared to the S&P 500’s yield of 1.3%. In addition, we see 8% earnings growth in the years to come, which will mostly be driven by revenue increases. The company has proven its ability over time to produce strong organic sales growth, in addition to its periodic acquisitions. We also expect a small measure of share repurchases to help boost earnings on a per-share basis.

We see fair value at 16.5 times earnings, but shares trade today at just 13 times this year’s earnings. That means we could see a nearly-5% annualized return from the valuation alone. Combined with 8% earnings-per-share growth and the 2% yield, we see total returns at a very robust 14.8% in the years ahead.

Final Thoughts

We see the Dividend Kings as one of the best places to start a search for one’s next dividend stock purchase. The group has exceptional dividend reliability and longevity, but not all are created equal. The three we’ve highlighted here – ABM, 3M, and Stanley Black & Decker – all offer very low valuations, good yields, and long growth runways. Because of these characteristics, we see total return potential well into the double-digits for all three, and rate all of them a buy.