For many, dividend investing is all about the yield. They search for stocks that offer high yields, thinking that’s enough to pull them through the treadmill of life before slowing down in retirement. But after trading stocks for over 20 years, I’ve seen my fair share of supposedly invincible high-yield dividend stocks whose dividend, stock price, or both go to zero in the face of a recession, financial crisis, or something in between. So, believe me when I say that yields aren’t everything.
Bernard McGinn and McCoy Penninger of McGinn Penninger Investment Management, Inc. agree. According to them, “Investing in dividend stocks can be a powerful strategy for long-term wealth creation, but it’s essential to focus on quality rather than simply chasing high yields.”
Quality vs quantity, it’s a commonly spoken term and I couldn’t agree more. Investing in quality companies with a long track record of increasing dividends is one simple way almost anyone with enough time can build a seven or eight-figure portfolio that also offers income in retirement.
“Not all dividends are created equal—companies that fund dividends through debt or operate in shrinking industries may struggle to sustain payouts, limiting long-term appreciation.” warns McGinn and McCoy.
Indeed, their definition of a quality dividend stock fits most, if not all, of the Dividend Kings. These powerhouses have paid increasing dividends for over 50 years, through recessions, wars, and crises, all while displaying the type of operational prowess and regard for shareholder value that McGinn and McCoy value.
Today, I’ll screen the Dividend Kings list for companies operating in defensive, non-cyclical industries for above-average income generation.
How I Came Up With These Stocks
As with all of my analyses here, I started with Barchart’s Stock Screener tool and entered the following filters:
- Annual Dividend Yield: Left blank so it appears on the results.
- Dividend Payout Ratio: Less than 60%. This metric indicates how much of the company’s after-tax earnings is spent on dividends. 60% is the high end of the accepted healthy range for dividend payouts.
- Current Analyst Ratings: 4 (Moderate Buy) to 5 (Strong Buy).
- Market Sectors: Consumer Staple, Medical, and Utilities. These are defensive sectors, less likely to be severely impacted by market overreactions and cyclical movements.
- Watchlists: Kings. I maintain several watchlists on Barchart, but I’ll limit my search to Dividend Kings for now.
With those set of filters, I ran the search and came up with the following companies:
I arranged the results from the highest to lowest yields.
Abbvie Inc (ABBV)
Dividend Payout Ratio: 56.91%
AbbVie is a global biopharmaceutical company that develops advanced therapies for complex and chronic conditions, including immunology, oncology, neuroscience, and eye care. It’s one of the biggest biopharma companies in the world and boasts spending over $63 billion in R&D since it was spun off from Abbott Laboratories in 2013.
AbbVie has a long history of promising and delivering on shareholder value. The company has increased its dividends for 53 years in a row, including when it was part of Abbott, and currently pays $1.64 quarterly. That translates to a $6.56 forward annual payout and an aproximate 3.78% yield.
Sysco Corp (SYY)
Dividend Payout Ratio: 46.06%
Sysco Corporation is a global distributor of food products, supplies, and services to restaurants, healthcare facilities, and other food service operations. The company operates in 90 different countries through its network and has 340 distribution facilities worldwide.
Sysco pays $2.04 annually based on its latest 51-cent quarterly dividend payout, which translates to an approximate 2.79% yield. However, the company has been known to announce dividend hikes in April, so expect that value to change.
California Water Service Group Holding (CWT)
Dividend Payout Ratio: 31.94%
Capping off this list is Cal Water, one the largest regulated water utility companies in the US. It operates in several states, including its namesake, Mexico, Hawaii, and Texas. Earlier this week, I featured California Water Service Group as part of my oversold Dividend Kings list, and CWT’s stock price has increased from $42.30 to $44.75, or about 5.79%. But that’s not all as it would appear the company still has more to offer. Analysts rate the stock as moderately buy with a high target price of $61, inferring a 36% potential upside. Meanwhile, the company pays 28 cents a quarter, translating to a forward dividend of $1.12 annually or an approx. 2.50% yield.
Final Thoughts
Finding defensive Dividend Kings operating in non-volatile sectors and with a long history of promoting shareholder value can be a great boon for you and your retirement portfolio. They say that time in the market is what makes investors rich, so with that, I think only one question remains: what will you do with this information?
