Dividends are a key component of investing, accounting for the vast majority of the S&P 500‘s returns over the past 60 years. Even better, companies that initiated a dividend or raised their payouts to shareholders have not only outperformed the broad market index since 1973, but handily trounced those that kept their dividend policies unchanged — or worse — cut or eliminated their payments. And they did so with significantly less volatility.
Dividends are an investor’s hedge against market downturns when stock price appreciation is hard to come by. And when they’re reinvested to take advantage of the power of compounding, they can help build wealth over time. That’s why it pays for investors to take careful note of companies that have consistently increased their dividend payments over long periods of time.
Dividend Kings are a unique and rare group of companies that have hiked their payouts for 50 years or more. Of the thousands of stocks on the market, fewer than 50 have achieved this royal status, and the four companies below are among an even tinier subset of stocks that have raised their dividends for 60 years or more.
Coca-Cola (60 years)
It’s definitely more than just Coca-Cola‘s (KO) 60-year history of raising its dividend that makes this one of Warren Buffett’s favorite stocks, one he’s owned for over 30 years and says he will never sell. But with 400 million shares, the Oracle of Omaha is making over $700 million a year from the $0.44 per share quarterly dividend payment for doing nothing more than owning it.
Coca-Cola began paying a dividend in 1920 and there’s no reason to believe it won’t increase the payout once more later in February when it typically announces its dividend policy.
The reason it’s such a reliable dividend stock is because Coca-Cola is a global beverage giant selling its products in more than 200 countries and territories, producing a prodigious amount of free cash flow. Management estimates it will generate $10.5 billion this year, a 20% increase from last year.
Coke stock isn’t necessarily cheap at 26 times earnings, 6 times sales, and 60 times free cash flow, but its dependable dividend that yields 3% annually makes it a tough one to pass up.
Dover (67 years)
Industrial conglomerate Dover (DOV 0.07%) doesn’t capture the headlines, but its production of pumps and clamps, printing systems, and car wash equipment has made it an under-the-radar, rock-solid dividend stalwart for 67 years.
Hurt by the pandemic, which impacted its base of industrial customers, Dover has picked up where it left off, generating four-year 4% annual compound growth in sales of $8 billion, 16% growth in earnings, and 13% growth in free cash flow of nearly $1 billion. It also typically announces its dividend policy in February so expect an increase in its payout, too.
Dover has been able to generate such consistent growth over time because of a strategic aim to expand both organically and through acquisitions. With a payout ratio (the amount of its profits paid out as dividends) of under 23%, Dover might even be considered stingy, though that provides plenty of cushion for future increases of the industrial stock‘s dividend, which currently yields 1.3% annually.
Genuine Parts (74 years)
There is no stock on the market with a longer history of increasing its dividend than Genuine Parts (GPC 2.24%), owner of the 9,600-store NAPA Auto Parts retail chain.
It has been especially well-positioned to profit from the situation in the auto industry that has seen both the new and used car market become a difficult sell. First, supply chain issues created a computer chip shortage, which caused an inventory shortage that made prices soar. Car owners decided it was best to keep their cars operational, which meant parts for maintenance and repair were a hot commodity.
It’s not just car parts that Genuine Parts trafficks in, but industrial parts too, and that business, though smaller, has been hot. Sales are up 35% over the first three quarters of the year, and the company anticipates full-year sales growth of 31% to 32%.
Overall, the company expects to have generated free cash flow of as much as $1.4 billion over the past year.
On a total return basis (dividends plus capital appreciation), Genuine Parts shares have delivered a return of 223% to investors compared with 172% for the S&P 500. With a dividend that yields 2.1%, the auto parts retailer ought to have at least another century of growth ahead of it.
Rich Duprey has positions in Coca-Cola and Genuine Parts. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.