This is a guest contribution by Bob Ciura of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth portfolios for the long run.
Dividend Kings are a great option for investors looking for long-term total returns and dividend growth potential. These companies have demonstrated sustained and consistent profitability over a long period of time, making them resilient during economic challenges. A streak of 50+ years of consecutive dividend growth also indicates that management prioritizes shareholders and practices prudent capital allocation. This article will look at three promising Dividend Kings that can thrive through both good and bad times.
#1. Sysco Corporation (SYY)
Sysco is the largest food distributor in the U.S. and was founded in 1969. It distributes a variety of food and non-food products to customers such as restaurants, healthcare facilities, education, government offices, and retail businesses. Sysco has approximately 600,000 customers and enjoys high-profit margins along with strong potential for future growth.
In 2020-2021, Sysco faced challenges due to the pandemic, including closures of customer businesses and supply chain issues. However, the company remained profitable and experienced significant recovery in 2022.
We expect that Sysco will achieve around 7% annualized earnings-per-share growth over the next half decade through a combination of organic sales growth, acquisition-added revenue growth, and share repurchases.
Sysco faces fierce competition in the U.S. foodservice industry from thousands of competitors including other food distributors, wholesale or retail outlets, grocery stores, and online retailers. However, Sysco’s large market share of about 16% of the U.S. foodservice industry, its extensive distribution network, and ability to keep costs low, give it a competitive advantage. Additionally, Sysco’s business model is resistant to recessions as food remains a necessity regardless of the state of the U.S. economy.
Sysco operates in a stable industry and has a strong market position that should provide steady demand, even during recessions, making it a reliable stock for income. Future returns will likely be driven by strong earnings growth and growing dividends, making Sysco a quality holding for a dividend growth portfolio.
#2. Johnson & Johnson (JNJ)
Johnson & Johnson is a global healthcare company that has been in operation for over 130 years. Founded in 1886 by three brothers, the company became a leading manufacturer of healthcare products such as baby powder and dental floss. Today, J&J has grown into a mega cap stock with a market capitalization in the hundreds of billions.
The company operates through three main segments: Pharmaceuticals, Medical Devices, and Consumer Health Products. The company has a diversified business model and has grown through acquisitions, spending tens of billions on acquisitions in recent years. Its global reach and durable competitive advantages have fueled its growth over several decades. The company also announced plans to spin off its consumer health business into a standalone entity, which is expected to unlock value for shareholders and be completed in the middle of 2023.
Johnson & Johnson’s biggest competitive advantage lies in innovation, fueled by its strong cash flow and heavy investment in research and development. This investment has allowed the company to stay ahead of the patent cliff and maintain a robust pharmaceutical pipeline, ensuring future growth. The company’s excellent balance sheet and ‘AAA’ credit rating from Standard & Poor’s also provide a competitive advantage. Johnson & Johnson’s brand leadership and consistent profitability from its trusted and necessity products enabled it to navigate the Great Recession successfully.
Johnson & Johnson has raised its dividend for 60 consecutive years, making it a reliable dividend growth stock. With a strong pipeline and a penchant for acquisitions, the company has a lengthy growth runway and should have no trouble raising its dividend for many years to come, making it a high-quality stock to buy and hold for the long run.
#3. 3M Company (MMM)
3M has a very impressive track record as a dividend stock, paying dividends for over 100 years and raising them for over 60 years in a row. However, the company faces uncertainties such as litigation headwinds, global supply chain disruptions, and the lingering effects of the pandemic on major industrial manufacturers.
Originally a small mining venture, 3M has become one of the largest industrial conglomerates in the world with a focus on attractive market segments. The company manufactures approximately 60,000 products sold in around 200 countries globally.
3M invested heavily in its core areas of focus to build a leading product portfolio that is currently divided into four divisions: Safety & Industrial, Health Care, Transportation & Electronics, and Consumer. The Safety & Industrial division produces tapes, abrasives, adhesives, personal protective gear, and supply chain management software, as well as security products. The Health Care segment supplies medical and surgical products and drug delivery systems. The Transportation & Electronics division produces fibers and circuits to reduce the cost of using renewable energy sources. The Consumer division sells office supplies, home improvement products, protective materials, and stationery supplies.
Despite struggling to generate growth over the past few years, 3M has a promising long-term outlook, with the potential to grow adjusted earnings-per-share by 5% per year over the next five years. While international markets are currently in decline, the long-term prospects for emerging markets remain attractive due to high economic growth rates. However, 3M faces challenges based on economic conditions and currency swings due to its highly global revenue base. The struggling auto industry may also pose temporary headwinds, but the company’s diversification should help it continue to grow as will its share repurchases.
3M’s biggest competitive advantages are its technology and intellectual property. The company has over 40 technology platforms and a team of scientists dedicated to innovation, resulting in over 100,000 patents to fend off the competition. 3M invests heavily in research and development, spending around 6% of annual sales. Approximately 30% of annual sales come from products created within the last five years, establishing 3M as an industry leader. These advantages help 3M remain profitable, even during recessions.
3M is expected to continue its history of dividend growth, having raised its dividend for 64 consecutive years. The company remains a high-quality business with above-average dividend yield and annual growth, making it a strong holding for dividend growth investors.
Conclusion
Over the past half century and beyond, Dividend Kings such as MMM, JNJ, and SYY have demonstrated their resilience during tough economic times. With the current uncertainty in the global economy and predictions of a potential recession in the coming quarters, it may be wise to invest in reliable dividend growers like those mentioned in this article, which have the potential to generate significant long-term returns alongside consistently growing dividend income through good times and bad.
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