Dividend Kings are companies that have paid consistently increasing dividends for more than 50 years. To reach such a milestone, the company has to establish itself as a good business, weather economic turbulence, grow its income streams, and adapt to the ever-changing market.
However, anyone who’s been around the stock market long enough—or anyone alive long enough—knows that nothing in life is guaranteed other than death and taxes. Despite being a rare occurrence, even the coveted Dividend Kings can cut their payouts due to operational adjustments.
In some cases, the writing has been on the wall for some time.
Other times, companies on their way to the top drop out of the race at the home stretch.
So, today, we’ll look at three Dividend Kings that have lost the crown.
How I Came Up With The List
This analysis is straightforward: we’re looking at companies that used to be considered a “Dividend King” and meet one of the following criteria:
- A company which has lost its status after cutting dividend payouts,
- It is projected to lower its dividends due to operational changes, or
- A company that is almost a Dividend King but lowered dividends a few years before the 50th mark
ONCE A KING: 3M Company (MMM)
3M is a diversified multinational company that operates in many industries, including industrial, safety, consumer products, electronics, transportation, and healthcare. Or, at least, it used to operate in health care.
In Q1’24, 3M announced the completion of its healthcare segment spinoff into Solventum. As a result, 3M is planning to reset its dividend payout. Or, to put it plainly, it’s cutting dividends for the first time in 64 years.
Calculating The Next Payout
Let’s do some math to see how that works out. In 2023, 3M’s Health Care segment was roughly 25% of net sales, so we might assume it also represents 25% of its adjusted free cash flow.
Based on 2024 guidance, adjusted free cash flow, including sales from healthcare, is expected to end between $6.5 billion and $7.1 billion (based on adjusted operating cash flow). So, if the company meets guidance, we can reasonably expect adjusted free cash flow to be ~$6.84 billion (calculated by assuming that $6.5 billion represents 95% of the full adjusted free cash flow, as per company guidance.)
Then, we can take that $6.84 billion, subtract 25%, and end up with $5.13 billion. This is the expected adjusted free cash flow for 2024 without the healthcare revenue.
Next data point: the company’s latest financial statement stated that dividends will be 40% of the adjusted free cash flow in 2024. So, 40% of $5.13 billion is $2 billion.
Now, 3M ended 2023 with 553.9 million outstanding shares. The last step would be to divide $2.05 billion by the 553.9 million shares—and we’ll end up at a $3.70 per share projected annual yield.
For comparison, 3M’s trailing twelve-month dividend rate is $6.01. If I’m right, this represents a 39% decrease—quite a cut for long-time income investors.
To be clear, these are rough estimates taken from existing data and should not be taken as clear-cut facts. 3M also retained 19.9% of Solventum, and the company plans to monetize it within five years, which could bump up the dividends by a few cents. We’ll know more when 3M makes an official announcement in Q2’24.
One thing’s for sure, though: 3M is about to lose its Dividend King status.
However, investors might still find reasons to buy MMM stocks despite the dividend cut. CEO Mike Roman said Q1’24 results were “better than our expectations.” There was also no mention of not increasing future dividends, so there’s still hope for 3M stock. Its stock price is going up based on promising Q1 results.
ALMOST A KING: Walgreens Boots Alliance (WBA)
2024 was set to be Walgreens Boots Alliance’s 48th consecutive year of dividend increases. After that, it was only two short years away from Dividend King status.
Unfortunately, the company called it quits and declared a lower dividend payout for 2024.
Coasting On A Technicality
Yes, there had been suspicions that Walgreens was about to pull through on a technicality by bookending three years with only two quarterly dividend increases. This would have led to registering consecutive annual dividend increases despite effectively skipping one year.
Exxon pulled this stunt a few years back when it only increased dividends in Q2’19 and Q4’21 and still managed to continue its dividend increase streak technically.
However, the reality of its situation can only be held back for so long, and Walgreens has prioritized long-term operational viability over increasing shareholder value in the short term.
In 2024, Walgreens decreased quarterly dividends by 48%, from 48 cents to 25 cents per share. CEO Tim Wentworth said they decided “to strengthen our long-term balance sheet and cash position. This action reinforces our goal of increasing cash flow while freeing up capital to invest in sustainable growth initiatives.”
The company also cited “challenging retail market trends in the U.S.” and does not expect things to improve anytime soon.
A FALLEN CROWN: Leggett & Platt (LEG)
I’ve discussed Leggett & Platt before, ranking it as #1 among Dividend Kings with the highest yields. However, that rank is only based on yields. I was clear that L&P’s deteriorating financials and exceedingly high dividend payout ratio were causes for concern, and the company might not be a right fit for income investment.
Lo and behold, the company’s Q1’24 results confirmed my fears.
Poof Goes The Dividend
For the first time in over five decades, LEG is cutting dividends. And by cutting, I mean deeply—from 46 cents to 5 cents quarterly, representing an 89% decrease.
This is a significant blow to long-term investors who hold LEG stocks. Before the announcement, the company had an over 10% yield, which made it an attractive choice for dividend investment.
This is why I always encourage investors to avoid buying stocks based on yield—or any single metric, for that matter. Before the Q1’24 report, LEG stock had a 128.1% dividend payout ratio, which means the company is paying out more than its after-tax earnings as dividends. Like Walgreens, Leggett & Platt might be looking down the barrel of poor price performance for the foreseeable future.
Final Thoughts
Dividend Kings and other dividend stocks are considered safe investments. However, as these three companies show, no company is “too safe” to become complacent. Always monitor your portfolio, look out for any bad news, and always seek qualified investment advice.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
