Income investors should focus on stocks that pay solid yields, but also those that have sustainable payouts and strong business models. The Dividend Kings are an excellent place to look for stocks with sustainable dividends, as the Dividend Kings have raised their dividends each year for over 50 consecutive years.
The following safe Dividend Kings have low dividend payout ratios and recession-proof business models, meaning their dividends are well-covered even during a recession.
Walmart traces its roots back to 1945 when Sam Walton opened his first discount store. The company has since grown into the largest retailer in the world, serving more than 230 million customers each week. Revenue should be around $625 billion this year.
Walmart has increased its dividend for 50 consecutive years, making it a new member of the prestigious Dividend Kings.
Walmart posted second quarter earnings on August 17th, 2023, and results were much better than expected on both the top and bottom lines. Adjusted earnings-per-share came to $1.84, which was 13 cents better than expected. Revenue was up 5.9% year-over-year to $161.6 billion, better than estimates by $2.35 billion.
The company noted its global advertising business, which is a burgeoning segment where it’s investing heavily, grew 35% year-over-year. US comp sales rose 6.4%, as eCommerce led the way at +24%; pickup and delivery were sources of strength. Comp sales were expected to be just +4%. Transactions were up 2.9%, and the average ticket was 3.4% higher. Sam’s Club comp sales rose 5.5%, with 2.9% transaction growth and 3.5% ticket growth. Walmart International saw total sales up 13.3% to $27.6 billion
The company’s payout ratio is quite low at 37% of earnings, making for a conservative dividend policy. The dividend should be very safe, even in a recession.
Procter & Gamble (PG)
Procter & Gamble is a consumer products giant that sells its products in over 180 countries. Notable brands include Pampers, Luvs, Tide, Gain, Bounty, Charmin, Puffs, Gillette, Head & Shoulders, Old Spice, Dawn, Febreze, Swiffer, Crest, Oral-B, Scope, Olay and many more. The company generated $82 billion in sales in fiscal 2023. Procter & Gamble has paid a dividend for 133 years and has grown its dividend for 67 consecutive years – one of the longest active streaks of any company.
In late July, Procter & Gamble reported (7/28/23) financial results for the fourth quarter of fiscal 2023 (its fiscal year ends June 30th). It grew its sales and its organic sales by 5% and 8%, respectively, over last year’s quarter. Organic sales growth resulted from 7% price hikes and a favorable product mix. Despite the headwind of cost inflation, earnings-per-share grew 13% thanks to price hikes.
The firm sales amid strong price hikes are a testament to the strength of the brands of Procter & Gamble. The company provided positive guidance for fiscal 2024, expecting 4%-5% sales growth and 6%-9% growth of earnings-per-share.
Procter & Gamble’s dividend payout ratio for the current fiscal year is approximately 59%. This is well within a reasonable range for such a high-quality firm. We believe that the company can keep growing its dividend at a rate roughly in line with earnings-per-share growth going forward.
Johnson & Johnson (JNJ)
Johnson & Johnson is a diversified health care company and a leader in the area of pharmaceuticals and medical devices Johnson & Johnson was founded in 1886 and employs more than 152,000 people around the world. The stock has a market cap above $400 billion.
On July 20th, 2023, Johnson & Johnson announced results for the second quarter for the period ending June 30th, 2023. For the quarter, revenue grew 6.4% to $25.5 billion, which was $860 million more than expected. Adjusted earnings-per-share of $2.80 compared favorably to $2.59 in the prior year and was $0.18 more than anticipated.
Johnson & Johnson has grown earnings over the past 10 years at a rate of 7.0%. The company managed to grow earnings before, during and after the last recession, showing that the company’s products are in demand regardless of market conditions.
Johnson & Johnson has a reasonably low dividend payout ratio. This gives the company ample room to raise its dividend, even in a prolonged recession. One of Johnson & Johnson’s key competitive advantages is the size and scale of its business. The company is a worldwide leader in a number of healthcare categories. J&J has increased its dividend for 61 consecutive years, including a 5.3% dividend increase in April 2023. Shares currently yield 2.9%.
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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