In periods of rising inflation and slowing economic growth, one constant investors can count on is the reliability of dividend stocks to see them through.
The asset managers at Hartford Funds looked at the performance of the benchmark S&P 500 going all the way back to 1930, and they found that dividends contributed 40% to the total return of the index over that 91-year period.
In addition to wars and recessions, the time period included the 2000s — the so-called “lost decade,” when the bursting of the dot-com bubble, 9/11, and the housing market crash resulted in the S&P 500 generating a negative return. Dividend stocks in the S&P 500, however, returned a positive 1.8%.
The study also found that from 1960 on, dividends made up an astounding 84% of the index’s total return. A $10,000 investment in the benchmark index in 1960 would have resulted in share price gains equal to $796,000. But if those dividends were reinvested, it would have transformed that same initial stake into $4.9 million.
I recently looked at three stocks that have raised their dividends for 60 years or more. Only a relative handful of companies on the market are Dividend Kings, or stocks that have hiked their payouts for at least 50 years. Even fewer have done it for six decades or more. Here are three additional stocks that have achieved this elite record.
1. American States Water (68 years)
A rather unknown utility stock that has been around for nearly 100 years, American States Water (NYSE: AWR) paid a dividend for 86 of them and increased the payout for 68 straight years. Over the past decade, it achieved a 9.2% compound annual growth rate (CAGR) in its dividend payments, surpassing the company’s targeted CAGR of 7% long-term growth.
It’s not surprising to find utilities on a list like this because they are regulated and have little competition, so their revenue streams are fairly consistent, giving management great clarity on their cash flows. It has the added benefit of sending a signal to the market that the company is confident in its ability to grow and sustain those cash flows.
American States Water primarily offers clean water and electricity to Southern California, as well as providing water and waste collection to 11 military bases under long-term, 50-year contracts with the U.S. government.
Although American State’s dividend yield of 1.7% lags behind other utilities such as Consolidated Edison (3.5%) or SJW Group (2%), it has built in sufficient safety, and with a payout ratio of 58%, room for continued growth (utilities tend to have higher payout ratios than other industries).
2. Northwest Natural (67 years)
Northwest Natural (NYSE: NWN) is another regulated utility with a long history of making regular dividend payments. The company provides natural gas service to approximately 2.5 million people in the states of Oregon and Washington (no surprise where its name came from).
It’s been around for 160 years and over that time amassed about 14,000 miles of natural gas distribution pipelines, 700 miles of transmission lines, and 10,100 miles of service lines, as well as several storage facilities boasting over 18 billion cubic feet of capacity.
Northwest Natural has been able to grow both organically and through acquisitions. While supply chain issues have disrupted customer conversion projects, the utility still increased its base 1.1% by adding 8,800 new customers over the past year, and it was able to tack on 25,000 more customers by acquiring the water and wastewater utilities business of Far West Water & Sewer in Arizona. That adds to its existing water business in Texas, which saw 11% organic growth last quarter.
Northwest Natural’s annual dividend of $1.94 per share currently yields 4%.
3. Johnson & Johnson (60 years)
Johnson & Johnson‘s (NYSE: JNJ) business is spread across three different worlds: pharmaceuticals, medical devices, and consumer products. Although arguably best known for its Band-Aid brand of bandages and its Tylenol pain reliever, consumer health represents the smallest component of the company, generating just $15 billion of its total $95 billion in annual sales.
Pharmaceuticals is the big moneymaker, accounting for 55% of revenue. Therapies like Stelara and Darzalex — treatments of plaque psoriasis and multiple myeloma, respectively — together bring in more than all of its consumer health products. The latter is also rapidly growing, with sales jumping 32% last year.
Over the past decade, J&J’s revenue has slowly but steadily climbed (stressing the slowly here), with annual sales rising 33% over that time, yet its stock has more than doubled. Generic drugs, competition, even lawsuits are always a risk for a company like J&J, but it is a long-term consistent grower, including its dividend.
Johnson & Johnson has paid a cash dividend to shareholders every year since 1944 and has increased the shareholder payout for 60 consecutive years. It currently yields 2.8% annually.
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Rich Duprey has positions in American States Water, Consolidated Edison, Johnson & Johnson, and Northwest Natural. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.