Dividend kings are companies that have increased their dividends every year for the last 50 consecutive years or more, which means growth, stability, and reliability — the three keys to successful dividend investing. They’re the safest because companies that have come as far as increasing their payouts for five decades are least likely to cut dividends.
Having paid uninterrupted and growing dividends for such a long time, these companies exhibit the highest qualities of resilience, discipline, and commitment, all of which are also essential attributes of a king, hence the befitting name.
Has increased its dividend for the 50th straight year. The company has an uninterrupted dividend record of 142 years.
From a small hardware shop in 1843 to the world’s leading tools and engineered fasteners manufacturer and the second-largest commercial security services company.
Stanley Black & Decker generated $13 billion in sales last year. Nearly 80% of the 175-year old company’s revenue growth so far has come in just the past two decades, thanks to acquisitions. Since 2002, the company has spent $9 billion on acquisitions, including a buyout of Craftsman brand and Newell Tools last year, which contributed a combined 19% to its fiscal 2017 revenue.
In the past five years, Stanley Black & Decker’s earnings per share (EPS), free cash flow (FCF), and dividends grew at compound rates of 10%, 11%, and 6%, respectively. The company grew its dividends by 7% in the past decade and paid out roughly 37% of net profits in dividends over the trailing 12 months. Management has well-defined long-term financial goals, which include:
- Revenue: 10% to 12% growth with 4% to 6% organic growth.
- Earnings per share: 10% to 12% growth, 7% to 9% excluding acquisitions.
- Free-cash-flow: 100% or more of net income.
- Capital allocation: Return 50% FCF to shareholders in the form of dividends and share repurchases, and use 50% for acquisitions.
- Target payout ratio: 30% to 35%.
Oldest of Dividend Kings.
American States Water has the longest streak of dividend increases among publicly listed companies: 63 consecutive years.
American States Water operates two subsidiaries: Golden State Water Company (GSCW) and American States Utility Services (ASUS). GSWC is a regulated water and electric utility that contributed 77% and 78% to the company’s revenue and net income, respectively, in fiscal 2017. ASUS is a contracted water and wastewater systems provider that serves 11 military bases in the U.S. under 50-year contracts, and it accounted for 23% of American States Water‘s revenue last year.
American States Water‘s success with dividends can be credited to six broad factors:
- A strong position in a capital-intensive industry with high barriers to entry.
- A highly regulated and contracted business model.
- A healthy water rights portfolio, which includes 73,600 acre-feet of owned adjudicated groundwater rights, and 11,300 acre-feet of surface water rights.
- A stable customer base in a resilient industry.
- A strong management team with extensive experience in utilities.
- Strong financials and commitment to shareholders.
Between 2011 and 2017, American States Water grew its EPS and dividends at compound rates of 8% and 10.4%, respectively. In the long run, management aims to grow dividends at a compound rate of “more than 5%.
The king of Dividend Kings.
The company has paid uninterrupted dividends for more than 100 years now. Credit goes to 3M‘s ubiquitous products, a hugely diversified portfolio, and disciplined deployment of capital.
3m‘s has many successful products, think Post-it notes and Scotch tape. Those are just two of the company’s well-known brands. 3M also owns Scotch-Brite, Scotchgard, Filtrete, Command, and Nexcare brands, among others, and a portfolio of more than 60,000 products that are sold across 70 countries today.
3M might be an industrials company, but its tag line isn’t even close. “Science. Applied to Life” — that’s what it says. The company is living up to its slogan. Today, nearly one-third of 3M’s sales come from products invented in the past five years.
3M is on target to achieve the below five-year goals through 2020 as unveiled in 2016:
- Revenue: Local-currency organic growth of 2% to 5%.
- EPS: 8% to 10% growth.
- FCF: 100% conversion of net income to FCF.
- Return on invested capital: 20%.