With the markets in free-fall due to rising interest rates and the prospect of a global recession, investors should focus on quality. This means focusing on quality stocks with rising dividends, and there is no better place to look for these stocks than the Dividend Kings.
The Dividend Kings are a select group of 44 stocks that have all increased their dividends each year, for over 50 consecutive years. They represent the “best of the best” when it comes to quality dividend growth stocks.
The following 3 Dividend Kings all have long histories of increasing dividends, market-beating yields, and high future expected returns.
Dividend King: Lowe’s Companies (LOW)
Lowe’s dominates the home improvement retail industry, alongside close rival Home Depot. Lowe’s operates or services about 2,200 home improvement and hardware stores in the U.S. and Canada.
The company continues to generate strong financial results, even in a difficult time for the housing industry as interest rates keep rising. Still, Lowe’s reported quarterly sales of $23.7 billion in the most recent quarter. Although its comparable sales decreased 4%, earnings per share of $3.51 was a 9.3% increase from $3.21 a year earlier.
Lowe’s is an excellent generator of cash flow, which allows the company to return significant cash to shareholders. It does this through dividends as well as share buybacks, which are a key component of the company’s earnings-per-share growth. Lowe’s repurchased 19 million shares in the first quarter for $4.1 billion. Additionally, they paid out $537 million in dividends.
The company remains in a strong liquidity position with $3.4 billion of cash and cash equivalents. And, Lowe’s reaffirmed its fiscal 2022 outlook for diluted EPS in the range of $13.10 to $13.60 on total sales of roughly $98 billion. Lowe’s expects to repurchase $12 billion worth of common shares in 2022.
Shares currently yield 2.2%. We expect total returns of nearly 14% per year over the next five years.
Dividend King: Computer Services (CSVI)
Computer Services is a rare Dividend King, as it is the only technology stock on the list. Computer Services provides regional banks with a wide range of services, such as core processing, digital banking, payments processing, and regulatory compliance solutions.
In the most recent quarter, CSVI grew its revenue by 7%, from $75.5 million to a nearly all-time high of $81.0 million, and its earnings-per-share by 24%, from $0.49 to $0.61, thanks to new accounts, continued demand for digital banking services and higher demand for payments processing and regulatory compliance. Notably approximately 90% of the total revenues are generated from long-term contracts.
CSVI’s long history of dividend increases defies traditional logic about the tech sector, which is often viewed as highly risky and speculative for investors. But CSVI is a pillar of stability in an otherwise volatile sector. Its competitive advantage is that it signs multi-year contracts with its customers and offers them a wide range of services. Computer Services enjoys high renewal rates.
The company also has a strong balance sheet. Computer Services carries a negligible amount of net debt of $53 million. Thanks to its strong balance sheet and its healthy payout ratio of 43%, the company can easily keep growing its dividend at a meaningful pace.
Finally, thanks to its long-term contracts and the recurring nature of its revenues, Computer Services is resilient during recessions. In the Great Recession, it grew its earnings-per-share by 17% in 2008 and another 19% in 2009.
CSVI stock has a 2.7% dividend yield. We expect total returns above 11% per year.
Dividend King: PPG Industries (PPG)
PPG Industries is the world’s largest paints and coatings company. The company generates annual revenues of about $18 billion.
On April 21st, 2021, PPG Industries reported first quarter earnings results for the period ending March 31st, 2022. Revenue grew 11.1% to a first quarter record $4.31 billion, beating estimates by $70 million. Adjusted net income of $327 million, or $1.37 per share, compared to adjusted net income of $450 million, or $1.88 per share, in the prior year. Adjusted earnings-per-share did beat estimates by $0.26.
The company had 7% organic growth for the quarter, as a 10% contribution from higher selling prices was partially offset by a 3% decline in volume. Performance Coatings revenue increased 11% to $2.57 billion.
PPG Industries is expected to earn $7.24 in 2022, down from $8.12 previously. This would be a 7% improvement from 2021. PPG Industries’ earnings-per-share have a growth rate of 5.8% over the last decade. We expect earnings-per-share to grow at a rate of 8% through the next five years.
PPG Industries’ key advantage is that it is one of the most well-known and respected companies in the paints and coatings space. The company is also one of just three similarly-sized companies in this industry, which limits PPG Industries’ competitors. This gives PPG Industries size and scale and the ability to increase prices. This has been reflected in the company’s ability to increase product prices in order to offset volume declines. Shares currently yield 2%. We expect total returns of 12% per year.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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