There are Dividend Aristocrats -- those S&P 500 stocks that have increased their payouts for at least 25 straight years -- and then there are Dividend Kings, the real royalty among dividend stocks.
This exclusive club of 39 stocks comprises of companies that have increased their dividends for at least 50 years. This is a nice shopping list for long-term investments, the kind that provides the underpinning of passive income to accompany steady share-price growth over time.
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Here are three Dividend Kings that have the strong fundamentals to keep rewarding their shareholders for years to come, making them good choices to buy now, or if you already have them, to just keep on holding on: American States Water (AWR -2.12%), Lowe's (LOW -0.51%), and Target (TGT 2.05%).
American States Water
American States Water sits atop the list of Dividend Kings, with 67 years of consecutive increases and, on top of that, a record of paying dividends every year since 1931. Currently, that's good for a yield of about 1.63%.
One attribute of a successful company is its competitive moat. American States Water doesn't just have one, it fills it. After all, it's hard to point to a more essential product than good old H2O, and as a utility, this suburban Los Angeles company enjoys exclusive rights -- a monopoly, if you will -- to provide water service to more than a million people in nine states through its various subsidiaries.
AWR's core market includes more than 80 communities up and down California, along with water distribution and wastewater services at 11 military bases across the country under 50-year contracts. It also provides electricity to about 25,000 customer connections in San Bernardino County.
Over the past 20 years, AWR has provided a total return of 1,070% to those who bought and held, more than doubling the approximately 490.2% of the S&P 500 over that time. The company works in a highly regulated environment, but the critical nature of its business and management's desire not to break its streak of dividend increases means the flow of income and steady growth should continue for as long as an investor cares to buy and hold this stock.
Lowe's
Home improvement giant Lowe's was a bit of a go-go stock during the pandemic, jumping in price by nearly 120% in the past two years. Underlying that performance is 59 consecutive years of dividend increases, and while the current yield is a modest 1.55% or so, a $10,000 investment in Lowe's made 20 years ago would now be worth about a cool $119,970. That's a compound annual growth rate (CAGR) of about 13.2% for two decades.
How will this Dividend King keep its loyal subjects? Growing sales and earnings per share (EPS) is a good start. The company already did that in Q4 2021, beating EPS estimates by $0.06 while coming in at $1.78, itself a nice boost from the $1.33 in the year-ago quarter. Comparable-store sales rose 5.1% at the same time and its pro customer sales were up 23%.
Lowe's expects its 2022 comparable-store sales to be pretty level with 2021 and is projecting a slight improvement in its gross margin rate on sales of $97 billion to $99 billion, up from about $96 billion in 2021. It also expects to repurchase about $12 billion of its own stock.
With nearly 2,200 stores generating about 19 million customer transactions across the U.S. and Canada, Lowe's should be able to continue creating the returns that have given it a sparkling long-term record for buy-and-hold shareholders.
AWR Dividend data by YCharts
Target
Target is another venerable name in American retail that more than held its own during the pandemic. And it should be able to continue to build on its record as a Dividend King with a current streak of 50 years of consecutive annual dividend increases.
Target shares currently yield about 1.54%, a bit better than the S&P 500's yield of about 1.37% right now. But in the past 20 years, Target shareholders have enjoyed a CAGR of 10.64% for their investment as total return grew by 655%, well outpacing the greater market index.
The Minneapolis-based company has grown from The Dayton Company's first Target store in 1962 to a chain of more than 1,900 stores.
And it's not sitting still. This is a brick-and-mortar enterprise, with more than 95% of its physical and digital sales fulfilled by stores, and it plans to open 30 more stores, remodel about 200, and add five more supply chain sortation centers this year alone.
The company says 75% of the U.S. population lives within 10 miles of a Target. That's a lot of availability to a lot of customers for this general merchandise giant. There's good reason to count on many more years of steady-as-it-goes growth in dividend income and total return value for those who choose Target as a long-term buy-and-hold.
Marc Rapport has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's. The Motley Fool has a disclosure policy.
