These dividend ‘kings’ have had average annual returns of up to 21% for 25 years
Eighteen U.S. companies have increased their dividends for at least half a century

by Philip Van Doorn

Discussions of the S&P Dividend Aristocrats are popular with MarketWatch readers. And now Ben Reynolds of Sure Dividend has identified a list of 18 “dividend kings” that takes the Aristocrats idea a step further.

The S&P 500 Dividend Aristocrats SPDAUDP, +0.20%  is a group of 50 S&P 500SPX, +0.24% (SPX) (SPY) companies that have raised their dividends for at least 25 straight years. The S&P High-Yield Dividend Aristocrats Index SPHYDA, +0.24% is a group of 100 companies in the S&P 1500 Composite Index that have increased their dividends for at least 20 consecutive years.

Both lists are maintained by S&P Dow Jones Indices. Here’s how they have performed over the past 10 years, compared with the benchmark S&P 500:

FactSet

Reynolds uses multiple sources of data to identify 18 “dividend kings,” which are companies that have raised their dividends for at least 50 years. Here’s a link to his article, which includes detailed writeups of all 18 companies.

Here are the 18 dividend kings, with current dividend yields, sorted by average 25-year total returns:

Farmers & Merchants Bancorp FMCB, +1.22%  of Lodi, Calif., is thinly traded, with FactSet data showing three-month average daily trading volume of only 33 shares. The other 17 stocks are actively traded.

As you can see, plenty of the dividend kings have relatively low yields, but the point here, as we have seen with the strong performance of the Dividend Aristocrats, is that a long-term focus by management on raising payouts to shareholders is correlated with outsized stock-price performance. Also, most of these dividend yields are significantly higher than the yield for 10-year U.S. Treasury notesTMUBMUSD10Y, +1.20%

Looking at the average total returns, which include reinvested dividends, 11 have beaten the 12% five-year average annual return for the S&P 500, while all have beaten the index’s 15-year average return of 5.4%. All but two have exceeded the 9.3% average return for the index.

Considering how difficult it is for professional money managers even to match the performance of the broad stock market, these returns measure up quite well.

Some recent numbers

It’s always interesting to look at companies’ sales growth, because the usual quarterly focus on whether companies beat or miss consensus earnings estimates doesn’t really mean anything. A company can “beat” the (recently lowered) estimates while showing a major earnings decline. A company can also experience a one-time even that can skew earnings for a quarter or a whole year.

It’s more useful to look at sales growth.

Here’s how well the 18 dividend kings succeeded in increasing their sales per share over the past 12 reported months, through Wednesday:

We focused on sales per share, rather than revenue, since the per-share figures reflect any dilution from the issuance of stock to fund acquisitions, for executive compensation or for any other reason. Sales per share also bakes in any decline in the share count from buybacks.

It’s clear how difficult it has been for companies to increase sales. The strong dollar has hurt exporters, and first-quarter earnings have measured up badly, with only four of 10 sectors expected by S&P Global Market Intelligence to post increased profits.

It’s also worth noting that Lowe’s Cos. LOW, +0.12%  not only tops the list for average 25-year returns, it is tied for the best growth of sales per share over the past 12 months. The company has boosted its dividend for 53 straight years, according to Reynolds.

The outperformance of the two groups of Dividend Aristocrats against the S&P 500 during recent years speaks for itself. A member of the much smaller dividend-kings club “must have an extremely durable competitive advantage to pay increasing dividends for five consecutive decades,” Reynolds said.

He makes a great point. Of course, a rich history offers no guarantee of what will happen in the future. So if you like the idea of management showing respect to shareholders by consistently raising payouts, and if some of the companies on the list look interesting, it’s time to do your own research. The most important thing to consider is whether the company can continue to be competitive while providing products people want or need for many more years.

Courtesy of marketwatch.com