Dividend Kings May Not Provide Royal Returns (2024)

Some investors restrict their stock holdings to “Dividend Aristocrats” or “Dividend Kings.”

Dividend aristocrats are companies that have raised their dividend for 25 consecutive years or more. Dividend kings are companies that have accomplished the same feat for 50 years or more.

It’s a myopic approach.

I recently did a small study on the seven stocks with the longest streaks of dividend increases. As a group, they returned 4.75% in 2023, trailing far behind the Standard & Poor’s 500 Total Return Index at 26.29%.

Over the past five years, the seven kings I studied did better, returning 85.75% on average. Yet they still didn’t beat the index, which vaulted to a 107.21% gain.

Don’t get me wrong. I like dividends, especially rising dividends.

Yet, the desire to be a dividend aristocrat or king may sometimes lead a company to strain unwisely to keep the streak alive. Sometimes, profits would be best directed to research and development, building new factories, or buying back stock, rather than paying dividends.

Kings Falter

Here are the seven stocks that have been dividend kings for the longest time – 67 to 69 years — along with their 2023 return and five-year return 2019-2023.

American States Water Co. (AWR) has a streak of 69 years. It was down 13% in 2023 and up 20% in the past five years.

Dover DOV Corp. has a 68 year streak. It was up 15% last year and 135% over the past five years.

Northwest Natural Holding Co. (NWN) also has 68 years of dividend hikes under its belt. Last year it was down 14% and it declined 23% over the five-year period.

The next four stocks all have 67-year streaks.

Procter & Gamble PG Co. fell 1% last year but was up 81% for five years.

Parker Hannifin Corp. (PH), returned 61% last year and 236% for five years, the best showing in this group.

Emerson Electric EMR Co. inched up 4% last year. Its five-year return was 85%.

Genuine Parts GPC Co. fell 18% in 2023 and was up 66% for five years.

For comparison, the Standard & Poor’s 500 Total Return Index managed a 26.29% return last year and was up 107.21% for five years, including dividends.

As this mini-study shows, four of these seven leading dividend king stocks declined in 2023. Only one of the seven, Parker Hannifin Corp., beat the index.

For the five-year period, two of the seven kings –Parker Hannifin and Dover Corp. – beat the index. The other five kings couldn’t do it.

My little study was very limited. But Standard & Poor’s has taken a longer and deeper look. It tracks all the dividend aristocrats in the S&P 500. Over the 10 years through February 16, they were up 8.18% per year, while the whole S&P 500 returned 10.53% per year.

Kings I Like

Though I wouldn’t restrict my investment focus to dividend aristocrats or dividend kings, I do recommend a handful of them. Presently there are 48 dividend kings. I think seven of them look attractive, and I own one.

Emerson Electric Co. (EMR), one of the seven kings listed above, looks cheap to me at less than six times earnings. Over the past decade, it has usually sold for about 19 times earnings.

Cincinnati Financial CINF Corp. sells home, auto, and business insurance. A few insiders have been nibbling at the stock, which sells for less than 10 times earnings.

Johnson & Johnson JNJ , the giant health-care company, is selling for about 13 times earnings, which is close to the lowest valuation in a decade.

ABM Industries ABM Inc. provides janitorial, engineering and parking services for commercial buildings and stadiums. It also does car maintenance for rental-car companies. Earnings have grown at a 14% clip the past five years.

Commerce Bancshares CBSH Inc., based in Kansas City, Missouri, is a large regional bank in the Midwest. It is unloved on Wall Street: Eleven analysts follow it, and not one recommends it. But its operating results look solid to me.

National Fuel Gas NFG GAS Co. ) is a natural gas company based in Williamsville, New York. Its industry has been struggling and the stock has been a laggard. But it yields more than 4% in dividends.

Nucor NUE Corp. (NUE) is the country’s largest steel producer. It has a handsome return on stockholders’ equity, more than 22%. The stock sells for about 10 times earnings, versus an historical average of about 17.

In Perspective

I view a stock’s status as a dividend king or aristocrat as an advantage – but a minor one.

When considering dividends, the two things I care most about are the dividend yield (the dividend as a percentage of the stock price) and the dividend growth rate over the past five years or so.

In addition, there are key factors that have nothing to do with dividends, such as a stock’s valuation ratios (stock price compared to earnings, book value, or revenue per share) and the company’s profitability.

Disclosure: I own call options on Nucor in a hedge fund I run, and also own the stock personally. I own Johnson & Johnson for some clients.

John Dorfman is chairman of Dorfman Value Investments in Boston, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at jdorfman@dorfmanvalue.com.