Dividend Royalty: 5 Stocks With 50+ Years Of Dividend Increases

The Dividend Kings are the best-of-the-best in dividend longevity. These are stocks with 50 or more consecutive years of dividend increases, suggests growth and income expert Ben Reynolds, editor of Sure Dividend and a contributor to MoneyShow.com.

The Dividend Kings list is a great place to find dividend stock ideas. However, not all the stocks in the Dividend Kings list make a great investment at any given time.

The 5 stocks featured in this report are our top-ranked Dividend Kings today, based on expected annual returns through 2025. Stocks are ranked in order of lowest to highest expected annual returns. Total returns include a combination of future earnings-per-share growth, dividends, and any changes in the P/E multiple.

The first stock in our countdown is Lowe’s Companies (LOW) — the second-largest home improvement retailer in the US after Home Depot (HD). The company has a current market capitalization of $102 billion. Lowe’s operates nearly 2,000 home improvement and hardware stores in the U.S. and Canada.

Recommended For You

Lowe’s reported first quarter results on May 20th, and recorded net earnings of $1.3 billion, compared to net earnings of $1.0 billion in the prior-year period. Diluted earnings per share increased 35% to $1.76, while adjusted earnings per share rose 45% to $1.71.

The company generated revenue of $19.7 billion, with comparable sales increasing 11.2%. Comparable sales in the U.S. increased 12.3% as it appears the stay-home COVID-19 pandemic may have resulted in many more home projects and renovations being taken on. Lowes.com sales increased 80% year-over-year as the retail landscape moves even more online.

Between 2010 and 2019 Lowe’s grew its earnings-per-share by 18.4% a year. Profits at the time were impacted by the financial crisis, though, which has resulted in a lows tarting base for Lowe’s earnings-per-share growth during that particular year.

Earnings-per-share growth is driven by comparable store sales growth, increasing margins, and the company’s share repurchases, which have lowered the share count meaningfully. Significant buybacks mean that the company’s net earnings are split over a lower number of shares, which accelerates growth in per-share net income.

Lowe’s business is somewhat cyclical, but the company performed relatively well during the last financial crisis,nevertheless. Earnings-per-share declined by less than 20%, despite the housing market hit. Lowe’s enjoys competitive advantages from scale and brand power as it operates in a duopoly with Home Depot.

Based on expected EPS of$6.60, Lowe’s stock trades for a P/E ratio of 23.3, above our fair value estimate of 20. A declining valuation multiple could reduce annual returns by 3% per year over the next five years. However, this will be more than offset by 10% expected annual EPS growth, and the 1.4% dividend yield, leading to total expected returns of 8.4% per year.

National Fuel Gas Co. (NFG) — the second stock in our countdown — is a diversified energy company that operates in five business segments: Exploration & Production, Pipeline & Storage, Gathering, Utility, and Energy Marketing. The company’s largest segment is Exploration & Production.

On August 6th, National Fuel Gas reported financial results for the third quarter of fiscal 2020. Adjusted EBITDA declined 6% year-over-year. An increase of 2.4% in production was not enough to offset the impact of weak commodity prices. Average natural gas prices and average oil prices both fell 19% from the same period one year ago.

Despite the suppressed natural gas prices, National Fuel Gas exhibited decent performance, partly thanks to its integrated business model. The company generated adjusted operating earnings-per-share of $0.57 for the quarter.

National Fuel Gas is facing a headwind due to the spread of the coronavirus, but the pandemic has affected the natural gas market much less than the oil market. In addition, the pipeline & storage and gathering segments provide a strong buffer to earnings amid low commodity prices. As a result, management expects adjusted earnings-per-share in a range of $2.75 to $2.85.

The company also raised fiscal 2021 guidance, and now expects a more meaningful recovery next year. Guidance calls for adjusted earnings-per-share in a range of $3.40 to $3.55. Based on expected earnings-per-share of $2.80, NFG stock trades for a price-to-earnings ratio of 16.0, compared with our fair value estimate of 17.5.

An expanding P/E multiple to the fair value estimate could boost annual returns by 1.8% per year over the next five years. Combined with 5% expected EPS growth and the 4.0% dividend yield, total returns are expected to reach 10.8% per year through 2025.

Founded in 1916, Farmers & Merchants Bancorp (FMCB) — the third stock in our countdown — is a locally owned and operated community bank with 32 locations in California. Due to its small market cap ($563 million) and its low liquidity, it passes under the radar of most investors.

Nevertheless, F&M Bank has paid uninterrupted dividends for 85 consecutive years and has raised its dividend for 55 consecutive years, including a 2.8% increase in May 2020.

The company is conservatively managed and, until four years ago, had not made an acquisition since 1985. However, in the last four years, it has begun to pursue growth more aggressively. It acquired Delta National Bancorp in 2016 and increased its locations by 4.

Moreover, in October-2018, it completed its acquisition of Bank of Rio Vista, which has helped F&M Bank to further expand in the San Francisco East Bay Area.

In late July, F&M Bank reported (7/27/20) financial results for the second quarter of fiscal 2020. Despite the coronavirus crisis, the bank grew its earnings-per-share by 0.6% over the prior year’s quarter. Net interest margin shrank from 4.5% to 3.8% due to suppressed interest rates but net interest income edged up marginally, thanks to growth in interest-earning assets.

Unlike most banks, which recorded significant loan loss provisions due to the pandemic, F&M Bank has booked provisions for loan losses equal to only 1.8% of its total portfolio thanks to its conservative portfolio.

The bank currently has a tier 1 capital ratio of 9.6%, which results in the highest regulatory classification of “well capitalized.” Moreover, its credit quality remains exceptionally strong, as there are no non-performing loans and leases in its portfolio.

The prudent management results in lower leverage and thus slower growth than leveraged banks during boom times but protects the company from recessions.

The merits of this strategy were on display during the Great Recession. While most banks saw their earnings collapse, F&M Bank incurred a modest -9% decrease in its earnings-per-share, from $28.69 in 2008 to $25.57 in 2009, and kept raising its dividend.

Shares trade for a 2020 P/E ratio of 9.8, compared with our fair value estimate of 12.0. An expanding valuation multiple could increase annual returns by 4.1% per year. Plus expected EPS growth of 5% and the 2% dividend yield, total returns are expected to reach 11.1% per year through 2025.

Altria Group (MO) — the second highest ranked stock in our Dividend Kings countdown — was founded by Philip Morris in 1847. Today, it is a consumer staples giant.

Altria sells the Marlboro cigarette brand in the U.S. and a number of other non-smoking brands, including Skoal, Copenhagen, and the Ste. Michelle brand of wine. Altria also has a 10% ownership stake in global beer giant Anheuser Busch InBev (BUD).

On July 28th, Altria reported financial results for the 2020 second quarter. Revenue of $5.06 billion fell 2.5% year-over-year. Smokeable product volume declined 8.7% year-over-year, a full percentage point better than expectations.

Smokeless product volume dropped 1%, far better than the 2.7% drop that was anticipated. Adjusted earnings-per-share came to $1.09, up 1% year-over-year. Altria also announced a 2.4% dividend increase.

The company has taken precautions to shore up its financial positions, including drawing $3 billion on its revolving credit facility, suspended its share repurchases, and it withdrew its full-year guidance due to coronavirus uncertainty.

That said, the company maintained its target dividend payout ratio of 80%, in terms of adjusted EPS. If the first quarter is any indication, Altria may get through the coronavirus relatively well.

The long-term future is cloudy for cigarette manufacturers such as Altria, which is why the company has invested heavily in adjacent categories to fuel its future growth.

The company purchased a 55% equity stake in Canadian marijuana producer Cronos Group (CRON), invested nearly $13 billion for a 35% equity stake in e-vapor manufacturer Juul Labs, and recently acquired an 80% ownership stake in Switzerland-based Burger Söhne Group, for its on! oral nicotine pouch brand. These investments could provide Altria much-needed growth as the cigarette market steadily declines.

In the meantime, Altria has a very high dividend yield of nearly 8%. The payout appears secure, as Altria generates huge cash flow, even during recessions. The company has increased its dividend for 51 consecutive years. Altria ranks very highly in terms of safety because the company has tremendous competitive advantages.

It operates in a highly regulated industry, which virtually eliminates the threat of new competition in the tobacco industry. Altria enjoys strong brands across its product portfolio, including the No. 1 cigarette brand.

As a result, it has pricing power and brand loyalty. In addition, tobacco companies enjoy low manufacturing and distribution costs, thanks to economies of scale. Based on expected EPS of $4.27 for 2020, Altria stock trades for a P/E ratio of 10.3, below our fair value estimate of 11.

We also expect Altria to grow adjusted EPS by approximately 3.2% per year over the next five years. In addition to the 7.9% dividend yield as well as a small positive boost from an expanding P/E multiple, total returns are expected at 12.4% per year over the next five years.

Federal Realty (FRT) — the top rated stock in our countdown — is a real estate investment trust, or REIT. It concentrates in high-income, densely populated coastal markets in the US, allowing it to charge more per square foot than its competition. Federal Realty trades with a market capitalization of $6.1 billion today.

Federal Realty’s business model is to own real estate properties that it rents to various tenants in the retail industry. This is a difficult time for retailers, as competition is heating up from e-commerce players such as Amazon (AMZN) and many others.

Mall traffic is declining, which has put pressure on many brick-and-mortar retailers. Conditions for retail real estate have become even more challenging due to the coronavirus, which has forced many stores to close.

Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT. These qualities allow it to perform admirably, and continue growing even in a recession.

Federal Realty continues to generate positive FFO and pay dividends to shareholders, thanks to a high-quality and diversified property portfolio.

Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT. These qualities allow it to perform admirably, and continue growing even in a recession.

The company reported weak second-quarter results, not surprisingly because of the coronavirus pandemic. FFO declined 52% from the same quarter a year ago. The portfolio was 93% leased as of June 30th. However, investors are hoping the bottom is in.

Approximately 87% of Federal Realty’s commercial tenants were open and operating as of July 31st based on annualized base rent, compared with 47% on May 1st. As of July 31st, the company collected 68% of second-quarter billed recurring rents, and 76% for July 2020. Federal Realty also increased its dividend for the 53rd year in a row.

In response to the coronavirus-related shutdowns, the company is boosting its liquidity to help it get through the coronavirus crisis. Federal Realty completed a $400 million term loan issue on May 6th, and a separate $400 million note issuance on May 9th. The company has approximately $2 billion in available liquidity consisting of cash on hand and its undrawn credit facility.

Federal Realty’s FFO did not decline on a year-over-year basis at any point in the past decade, a tremendously impressive feat given that the U.S. economy dealt with the Great Recession. And it should also be noted that the company operates in the highly cyclical real estate sector.

The simple fact that it has such a consistent track record of steady FFO growth makes it one of the most desirable REITs in the market. We are forecasting 5.5% annualized FFO growth for the next five years.

Based on expected 2020 FFO-per-share of $5.73, Federal Realty stock trades for a price-to-FFO ratio of 14.3. Our fair value estimate for Federal Realty is a price-to-FFO ratio (P/FFO) of 15. We view Federal Realty stock as slightly undervalued.

A rising P/FFO multiple could reduce shareholder returns by approximately 1.0% per year over the next 5 years. However, expected annual FFO-per-share growth of 6.9%, plus the 5.2% dividend yield, lead to expected total annual returns of 13.1% per year over the next five years.

Subscribe to Sure Dividend here…

Comments are closed.