Investors looking to build wealth have many choices. There are various asset classes, and within the broad asset classes, there are subsectors and myriad ways to gain exposure. However, we still believe that the clearest path to long-term wealth compounding is through finding high-quality dividend stocks to buy and hold. By doing so, investors can gain access to durable businesses that return capital to shareholders over time, providing long-term capital appreciation and income, with the added bonus of compounding of dividends through reinvestment.
When it comes to dividend growth stocks, the best are known as the Dividend Kings, a group of just 32 stocks that have at least 50 consecutive years of dividend increases. That amount of dividend longevity means these companies have durable competitive advantages, growing earnings over time, and of course, recession resilience. Without these qualities, no company can reach such a prestigious milestone, and below, we’ll take a look at three that we like for long-term dividend growth.
Not all Dividend Kings are created equal, and these three are ones that we think investors can safely buy and hold for many years to come.
Dividend King #1: Lowe’s Companies (LOW)
Our first stock is Lowe’s, one of the two major home improvement retailers in the US alongside rival Home Depot (HD). Lowe’s offers a wide variety of products for home improvement, construction, property maintenance, remodeling, repair, decorating, and more. The company’s catalog consists of hundreds of thousands of products, and its store base of nearly 2,000 has a massive supply chain supporting it.
Lowe’s was founded in 1921, employs 280,000 people, generates about $93 billion in annual revenue, and trades with a market capitalization of $143 billion.
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Lowe’s current dividend increase streak is at 57 years, making it one of the longest of any company in the market. It has been able to accomplish this through years of strong earnings growth, which has averaged about 20% annually in the past decade. We don’t expect that sort of growth to continue indefinitely, but we do think 7% annual earnings-per-share growth is a reasonable assumption.
That has helped fuel enormous dividend growth as well, which stands at 16% annually in the past ten years. Lowe’s ability to continue to generate earnings growth opens up the possibility of large dividend increases, and we believe the pieces are in place for this to continue for the foreseeable future.
Part of this is because Lowe’s has exceptional dividend safety, as evidenced by its payout ratio of just 22% for this year. That means Lowe’s could triple its current payout before even approaching any sort of undue stress on its financials, so Lowe’s receives top marks for not only dividend longevity, but its dividend growth and dividend safety outlooks as well.
Dividend King #2: PPG Industries (PPG)
Our next stock is PPG, a manufacturer and distributor of paints, coatings, and specialty materials globally. The company operates in two segments: Performance Coatings, and Industrial Coatings. The former provides coatings, solvents, adhesives, sealants, and software for automotive, commercial fleet, and other applications. The latter offers the same sorts of products for applications such as appliances, agricultural equipment, kitchenware, metal cans, plastics, and more.
PPG was founded in 1883, employs 47,000 people, generates $17 billion in annual revenue, and trades with a market capitalization of $38 billion.
PPG’s dividend increase streak stands at 50 years following its July increase, making it one of the newest Dividend Kings. PPG’s dominance in its industry, which has led to its half-century of dividend increases, has come from a strong combination of organic and purchased growth.
PPG’s strategy for many years has been to buy capacity through acquisitions while making its own investments, and it has led to nearly 9% annual earnings-per-share growth in the past decade. We see 8% annual growth in the coming years in a continuation of that success.
The dividend has grown nicely as well, adding an average of nearly 8% each year during the past ten years, a streak we believe will continue indefinitely due to PPG’s outstanding fundamentals.
From a safety perspective, PPG also receives excellent marks as its payout ratio for this year is just 30%. With dividend increases roughly keeping pace with earnings, and leaving a sizable chunk of earnings for future acquisitions, we see PPG as providing a long runway of ample dividend growth for years to come.
Dividend King #3: Stanley Black & Decker (SWK)
Our final Dividend King is Stanley Black & Decker, a manufacturer of a variety of tools, storage, industrial and security products worldwide. The company offers power tools and equipment, pneumatic tools and fasteners, lawn and garden products, welding and coating equipment, security systems, asset tracking for healthcare customers, and much more.
The company was founded in 1843 and the current version of Stanley Black & Decker is the result of myriad acquisitions and mergers that have taken place over the years. It employs 53,000 people, produces more than $17 billion in annual revenue, and trades with a market capitalization of $31 billion.
Stanley Black & Decker’s dividend streak stands at 54 years today, part of which has been achieved through organic brand building, but part of which is from frequent acquisitions, similar to PPG.
The company has averaged about 8% annual earnings-per-share growth in the past decade, and we see that same level of growth moving forward. That should be plenty to afford the company the ability to add years to its dividend increase streak for the foreseeable future.
Despite an impressive 7% average annual dividend increase streak, Stanley Black & Decker’s payout ratio is just 27% for this year, so like the other two, its dividend safety is unquestioned. This also adds recession resilience to the payout, because earnings could be cut in half during a downturn and the company could easily pay its dividend, and even raise it.
The Dividend Kings are a great place to start for dividend investors looking for their next purchase, because the group is the best of the best when it comes to dividend longevity. They possess durable competitive advantages, long-term earnings growth, and management teams that are willing and able to return capital to shareholders.
We like Lowe’s, PPG, and Stanley Black & Decker for many years of dividend growth to come, and find them to be three of the best Dividend Kings today.