For those hoping to retire young and wealthy, the dividend kings are an excellent class of assets to consider. They are a prestigious group of publicly traded stocks with a record of increasing their dividend payouts every year for the past 50 consecutive years or more.
The list of dividend kings is exclusive. The most recent list includes 53 companies and can be considered a list of the ultimate survivors. In fact, these companies are more than just survivors because they’ve managed to thrive throughout macroeconomic cycles over many, many decades.
They’re also exceptionally stable firms. It requires deep financial stability to be able to pay an uninterrupted dividend for 50 plus years. The result is that many investors have chosen to rely on the dividend kings to provide them with a lifetime of income. Many more will do so in the future. Here are three choices to consider from within that exclusive list.
Hormel Foods (HRL)
Hormel Foods (NYSE:HRL) is a very strong choice among dividend kings stocks. I say that because it offers exceptional safety and a relatively high yield.
Only 12 of the 53 current dividend kings have higher yield than Hormel Foods at 3.51%. Yet many more have a higher beta than Hormel Foods.
Let’s run a hypothetical scenario and what an investor can reasonably expect by buying and holding HRL shares today and holding until the end of 2027. The company is expected to provide $2.19 of earnings in 2027. It is expected to provide $1.61 this year. If we use the median P/E ratio of 23.77 over the last decade then HRL shares should trade for $52.05 (23.77 x 2.19) by the end of 2027. That equates to 63% returns over that time period without dividends.
Reinvest those dividends and returns will increase. Choose not to and you’ll receive an additional source of income that can be used to pay bills or to reinvest elsewhere.
Black Hills (BKH)
Black Hills (NYSE:BKH) is another strong choice among the dividend king stocks blending safety and yields. Its dividend yields 4.4% currently. That’s the fifth highest yield among all of the dividend kings. The higher yielding dividend kings are arguably risky, and as a result Black Hills is a good choice for those who are less risk tolerant.
It’s a utility company, providing electricity and natural gas to customers. Utility companies tend to be stable businesses with predictable cash flow, as people consistently need these services. That inelasticity of demand makes Black Hills relatively safe and is part of the reason it has done so well for so long.
The company operates throughout the midwest delivering gas and electricity to a region that is experiencing growth as population shifts in the U.S. That means the company is expected to benefit from greater demand as well that should improve the company operationally.
Universal (UVV)
Universal (NYSE:UVV) is the riskiest dividend king stock on this list and perhaps the riskiest of any dividend king overall.
That risk results in greater rewards in the form of dividend yielding 6.3% at present. While that dividend is high compared to others, it’s barely outside the healthy range with a payout ratio of 0.63.
The company isn’t going to reduce its dividend anytime soon. There is effectively zero risk of that occurring. UVV will have to continue to understand the new landscape in its industry. The company provides leaf tobacco to cigarette makers. Cigarette sales are on the decline as more and more people choose not to smoke. However, Universal’s sales continue to grow today.
The result is that investors could establish a position in Universal today and simply pay attention to internal results. The negative changes – if any – will occur slowly. That means investors can collect dividends for a while before anything bad happens, again, if it happens at all.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.