In this article, we discuss 10 companies likely to be dividend kings in the future. You can skip our detailed analysis of the returns of dividend growers, and go directly to read 5 Companies Likely to be Dividend Kings in the Future.
Dividend Kings are companies that have raised their payouts for 50 years or more. Due to consistent interest rates hike and growing inflation, investors are steadily loading up on dividend securities to ensure regular income. Moreover, these stocks also offer potential for capital appreciation as the stock price increases over time. When considering dividend stocks, investors focus on companies that hold extended track records of dividend growth. West Pharmaceutical Services, Inc. (NYSE:WST), The Procter & Gamble Company (NYSE:PG), and Exxon Mobil Corporation (NYSE:XOM) are some companies that have been rewarding investors with growing dividends for decades.
Dividend-growing stocks perform well during inflation as increased income can protect investors’ purchasing power. Various reports revealed that dividend growers exhibited strong performance during previous inflationary periods. The S&P 500 dividend growth has outpaced inflation since 2000, as reported by Wall Street Journal. The report cited S&P Dow Jones Indices and Bureau of Economic Analysis data and mentioned that dividends now represent 7.3% of personal income, up from 3.2% in 1980. Another report by ClearBridge Investments showed that dividend growers delivered an annual average return of 11.1% in a 12-month period starting after the rate hikes in 1994 to Q3 2022, versus a 9.2% return of the broader market. Similarly, in 12 months before the Fed rate hike during the same period, dividend growers returned 21.4%, compared with a 15.7% return of the S&P 500.
Another important factor worth considering is the payout ratios of dividend companies. This is important to measure the proportion of the company’s earnings that is paid out as dividends to shareholders. Moreover, it also shows the financial health of the company and the stability of its future dividends. Generally, companies with payout ratios below 50% are considered healthy as these companies have sufficient cash flow generation to fulfill shareholder obligations.
In view of this, we will discuss companies that are likely to be dividend kings in the future.
Our Methodology:
For this article, we shortlisted dividend companies that have raised their payouts for 29 years or more. From that list, we selected companies that have a 5-year average dividend payout ratio of less than 50%, which shows the stability of their future dividends. This also indicates that these companies allocate a healthy portion of their earnings in dividend payouts. The stocks are ranked in descending order of their consecutive years of dividend growth.
10. Chubb Limited (NYSE:CB)
Consecutive Years of Dividend Growth: 29
5-Year Average Dividend Payout Ratio: 32.1%
Chubb Limited (NYSE:CB) is a New Jersey-based insurance company that specializes in personal and commercial property insurance. In January, BMO Capital initiated its coverage on the stock with a Market Perform rating and a $225 price target. The firm expects the company’s margins to improve this year.
In the fourth quarter of 2022, Chubb Limited (NYSE:CB) reported net premiums of $10.55 billion, which showed a 13.2% growth from the same period last year. The company’s operating cash flow came in at $2.65 billion. It returned $345 million to shareholders in dividends during the quarter.
Chubb Limited (NYSE:CB) currently pays a quarterly dividend of $0.83 per share and has a dividend yield of 1.57%, as of February 7. The company has been raising its dividends consistently for the past 29 years. With a 5-year average dividend payout ratio of 32.1%, CB is likely to be a dividend king in the future.
In addition to popular dividend stocks like West Pharmaceutical Services, Inc. (NYSE:WST), The Procter & Gamble Company (NYSE:PG), and Exxon Mobil Corporation (NYSE:XOM), Chubb Limited (NYSE:CB) is also gaining investors’ attention.
As of the close of Q3 2022, 41 hedge funds tracked by Insider Monkey owned stakes in Chubb Limited (NYSE:CB), up from 35 in the previous quarter. These stakes are worth nearly $2 billion collectively. Among these hedge funds, Viking Global was the company’s leading stakeholder in Q3.
Aristotle Capital Management mentioned Chubb Limited (NYSE:CB) in its Q1 2022 investor letter. Here is what the firm has to say:
“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”
9. T. Rowe Price Group, Inc. (NASDAQ:TROW)
Consecutive Years of Dividend Growth: 37
5-Year Average Dividend Payout Ratio: 38.2%
T. Rowe Price Group, Inc. (NASDAQ:TROW) is an American investment management company, based in Maryland. On February 6, the company announced a 1.7% hike in its quarterly dividend to $1.22 per share. This was the company’s 37th consecutive year of dividend growth. The stock’s dividend yield on February 7 came in at 3.95%. The stock has a solid 5-year average payout ratio of 38.2%.
In FY22, T. Rowe Price Group, Inc. (NASDAQ:TROW) reported a strong cash position. The company returned $2 billion to shareholders in dividends during the year. Moreover, it had $1.7 billion available in cash and cash equivalents at the end of December 31, 2022.
In December, Wells Fargo initiated its coverage on T. Rowe Price Group, Inc. (NASDAQ:TROW) with an Equal Weight rating and a $125 price target. The firm appreciated the company’s performance in volatile markets.
As per Insider Monkey’s Q3 2022 database, 30 hedge funds owned stakes in T. Rowe Price Group, Inc. (NASDAQ:TROW), with a total value of nearly $320 million. Ken Fisher and Ken Griffin were some of the company’s leading stakeholders in Q3.
8. McCormick & Company, Incorporated (NYSE:MKC)
Consecutive Years of Dividend Growth: 37
5-Year Average Dividend Payout Ratio: 43.6%
McCormick & Company, Incorporated (NYSE:MKC) manufactures and markets spices, condiments, and other flavoring products. In Q4 2022, the company reported revenue of $1.69 billion, which fell by 2.3% from the same period last year. In FY22, its operating cash flow came in at $652 million. The company is likely to be a dividend king in the future with a 5-year average dividend payout ratio of 43.6%.
McCormick & Company, Incorporated (NYSE:MKC) pays a quarterly dividend of $0.39 per share for a dividend yield of 2.10%, as of February 7. In 2022, the company extended its dividend growth track record to 37 years.
Bernstein upgraded McCormick & Company, Incorporated (NYSE:MKC) to Outperform in January with a $90 price target. The firm expects a recovery in the company’s fundamental performance over the course of 2023.
At the end of Q3 2022, 29 hedge funds in Insider Monkey’s database owned investments in McCormick & Company, Incorporated (NYSE:MKC), compared with 33 in the previous quarter. These stakes have a total value of nearly $1.3 billion. With over 15.5 million shares, Fundsmith LLP was the company’s leading stakeholder in Q3.
7. Atmos Energy Corporation (NYSE:ATO)
Consecutive Years of Dividend Growth: 38
5-Year Average Dividend Payout Ratio: 45.2%
Atmos Energy Corporation (NYSE:ATO) is a Texas-based natural gas distribution company that serves about three million customers in over nine states. In December, Wells Faro raised its price target on the stock to $132 with an Overweight rating on the shares, presenting a neutral stance on the sector.
In fiscal Q4 2022, Atmos Energy Corporation (NYSE:ATO) reported revenue of $722.6 million, up 27.1% from the same period last year. For FY22, the company generated $977.6 million in operating cash flow.
Atmos Energy Corporation (NYSE:ATO) offers a quarterly dividend of $0.74 per share, having raised it by 8.8% in November 2022. The company maintains a 38-year streak of consistent dividend growth. The stock’s dividend yield on February 7 came in at 2.55%. With a 5-year average payout ratio of 45.2% and solid dividend growth over the years, the company is likely to be a dividend king in the future.
As of the close of Q3 2022, 23 hedge funds in Insider Monkey’s database reported having stakes in Atmos Energy Corporation (NYSE:ATO), up from 21 in the previous quarter. These stakes have a consolidated value of over $293 million.
Aristotle Capital Management mentioned Atmos Energy Corporation (NYSE:ATO) in its Q1 2022 investor letter. Here is what the firm has to say:
“Headquartered in Dallas, Atmos Energy is the largest fully regulated natural gas-only utility in the U.S. It serves over three million distribution customers across eight states, primarily in the South. Approximately 70% of its revenue comes from Texas, where it owns one of the largest natural gas pipeline systems in the state. (Click here to view the full text)
6. Cintas Corporation (NASDAQ:CTAS)
Consecutive Years of Dividend Growth: 39
5-Year Average Dividend Payout Ratio: 32.4%
Another company that is likely to be a dividend king in the future is Cintas Corporation (NASDAQ:CTAS), which is an Ohio-based business services corporation. The company’s 5-year average dividend payout ratio stands at 32.4% and it has raised its payouts for 39 years in a row. It offers a per-share dividend of $1.15 every quarter for a dividend yield of 1.04%, as of February 7. West Pharmaceutical Services, Inc. (NYSE:WST), The Procter & Gamble Company (NYSE:PG), and Exxon Mobil Corporation (NYSE:XOM) are some other stocks that also maintain long dividend growth track records.
Cintas Corporation (NASDAQ:CTAS) is gaining positive ratings from Street analysts following its fiscal Q2 earnings. In December, both Wells Fargo and Deutsche Bank raised their price targets on the stock to $450 and $507, respectively.
At the end of September 2022, 42 hedge funds in Insider Monkey’s database reported having stakes in Cintas Corporation (NASDAQ:CTAS), jumping from 32 in the previous quarter. These stakes are worth roughly $1.3 billion collectively.
TimesSquare Capital Management mentioned Cintas Corporation (NASDAQ:CTAS) in its Q3 2022 investor letter. Here is what the firm has to say:
“Cintas Corporation (NASDAQ:CTAS), a supplier of corporate identity uniforms and facility services, gained 4%. Fiscal first quarter results featured beats to revenue and earnings estimates. The company is successfully winning new business and cross-selling into existing customers.”
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Disclosure. None. 10 Companies Likely to be Dividend Kings in the Future is originally published on Insider Monkey.