Dividend Kings, stocks with at least 50 consecutive years of dividend growth, are favorites of many income investors.
High-dividend yields can be a warning sign that the underlying company’s business is struggling or, worse for income investors, that the dividend could be at risk for of being cut.
However, when those stocks offering high yields also have extremely long track records of dividend growth, investors can rest easier knowing that the company has demonstrated a long-term commitment to growing its distribution.
This article will examine three of our favorite high-yield Dividend Kings, including:
Dividend Kings: Kimberly-Clark (KMB)
Topping our list of Dividend Kings is Kimberly-Clark, a top name in consumer products. The $42 billion company grosses annual revenue in excess of $19 billion.
Kimberly-Clark maintains a portfolio of well-known brands used and trusted by consumers. The company’s personal care segment includes Huggies, Pull-Ups, Kotex and Depend while the Consumer Tissue business holds brands such as Kleenex, Scott and Cottonelle. Kimberly-Clark’s professional segment includes products used to support workplace health and safety, including soaps, sanitizers, tissues, wipes and apparel.
The company’s brands hold leading positions in a number of categories in development markets, which doesn’t leave much room for additional market penetration. In emerging and developing markets, however, Kimberly-Clark has only begun to scratch the surface of its potential. The company has focused on accelerating its growth in these regions, choosing to highlight its offerings in the personal care and professional segments as a means to reach a greater number of consumers.
Areas such as China and Latin America are likely going to be the key for Kimberly-Clark’s ability to grow its business in the coming years. To this end, the company is investing in its infrastructure and marketing in these regions. The company typically spends more than $1 billion in advertising and research and development in order to grow its brand presence. Focusing some of these dollars on areas where the company has a lesser position should help to grow the business.
In addition, Kimberly-Clark is also undertaking a talk about cost reduction program in order to reduce operating costs. This has led to gradually higher margins over the last decade.
Kimberly-Clark’s has so successfully grown its business over a long period of time that the company has been in a position to return capital to shareholders. Following a 1.8% increase for the April 4, 2022 payment date, Kimberly-Clark has raised its dividend for 50 consecutive years. The expected payout ratio for 2022 is 77%, which is elevated, but close to the long-term average payout ratio of 71%. Shares of Kimberly-Clark yield 3.7% today, ahead of the 10-year average yield of 3.2%.
NW Natural (NWN)
Our next pick among high yielding Dividend Kings is NW Natural, a natural gas utility company. NW Natural is valued at $1.7 billion and has annual revenue of $860 million.
NW Natural was found in the 1850s and began providing service just a few customers. Over time, the company has grown and expanded and services more than 760,000 connections today. In total, NW Natural provides natural gas to close to 2.5 million people, primarily in Oregon and southwest Washington state. Though small compared to most other utility companies, NW Natural happens to operate in fast-growing areas.
The company also owns and operates underground gas storage facilities capable of holding close to 35 billion cubic feet of natural gas.
In addition, NW Natural has expanded to include water and wastewater services. The company has nearly 28,000 connections providing services to 67,000 people across Oregon, Washington state, Idaho and Texas. These areas are seeing some of the fastest population growth in their respective regions. Natural gas still contributes the bulk of net income, but the water business is expected to grow steadily over time while also offering some diversification for the business model.
Regulated utilities require rates case to be approved in order to earn a return on their investments in infrastructure. NW Natural historically has had difficulty seeing rate increases approved. That said, guidance from the company shows that rate base growth is projected to be 4% to 6% over the next few years. This growth will be supported by customer growth of 1.4% going forward.
Despite its size and limited earnings growth, NW Natural has been one of the most reliable dividend growth companies in the market. The most recent raise was just 0.5%, but it extended the company’s dividend growth streak to 66 years. Our expected payout ratio for 2022 is 75%, which is below the long-term average payout ratio of 83%. NW Natural yields 3.5%, matching the average yield since 2012.
Dividend Kings: Universal
Our final pick for high-yield Dividend Kings is Universal, the global leader in the exporting and importing of leaf tobacco. Universal is valued at $1.4 billion and had revenue of just over $2 billion.
Universal is engaged in the purchasing, selling, and processing of flue-cured, burley and other leaf tobaccos used in the manufacturing of consumer tobacco products. The company acts as a conduit between farms and those companies involved in the production of tobacco related products, such as cigarettes and pipe tobacco.
Universal has operations in more than 30 countries on five continents, giving the company a vast global network that is difficult for peers to match. The company has leveraged this leadership position to create contracts with leading tobacco companies.
More than three-quarters of sales are to those customers with leading market share in their respective markets. This includes such companies as Altria Group (NYSE:MO) and Philip Morris International (NYSE:PM). The biggest names in tobacco control more than 80% of the global market. Though tobacco usage has been in steady decline, Universal’s partnerships with the top names in the tobacco industry means that the company is likely to weather this storm better than the competition.
Universal increased its dividend just over 1% for the August, 2, 2021 payment date, which is in-line with recent raises. This gave Universal the required 50th year of dividend growth to gain entrance into the Dividend Kings. Universal has a projected payout ratio of 71% for the year. This is well above the long-term average payout ratio of 58%, but just ahead of the medium-term average of 66%. Shares of the stock yield 5.5%, superior to the 10-year average yield of 4.5%.
Final Thoughts
In order to become a Dividend King, a company must have a business that supports dividend growth. Without this support, increases likely to cease or the dividend could be cut under difficult economic conditions.
Kimberly-Clark, NW Natural and Universal are three examples of companies whose business models work in all portions of the economic cycle. This has enabled the three companies to grow dividends for at least five decades.
Dividend growth for all three is on the low side, but each stock offers a high yield that looks to be safe considering the payout ratios.
This suggests that investors looking for sources of safe and secure income consider owning Kimberly-Clark, NW Natural or Universal.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.