Income investors typically want to find stocks with above-average yields, generally meaning that the stocks have higher yields than the S&P 500 average. Currently, the S&P 500 Index yields about 1.7% on average.
Beyond yield, income investors should also be sure that the dividend payout is sustainable.
Investors looking for safe dividends should consider the Dividend Kings, a group of just 50 stocks that have increased their dividends for at least 50 consecutive years.
Dividend Kings Yielding Over 3%
The following 3 Dividend Kings have current yields above 3% and recession-proof dividends.
Kimberly-Clark (KMB)
The Kimberly Clark Corp (NYSE:KMB) is a global consumer products company that operates in 175 countries and sells disposable consumer goods, including paper towels, diapers, and tissues. It operates through two segments that each house many popular brands: Personal Care Segment (Huggies, Pull-Ups, Kotex, Depend, Poise) and the Consumer Tissue segment (Kleenex, Scott, Cottonelle, and Viva), generating almost $21 billion in annual revenue.
Kimberly-Clark has increased its dividend for 51 consecutive years. Kimberly-Clark reported first quarter earnings on April 25th, 2023, and results were well ahead of expectations on both the top and bottom lines. Earnings-per-share came to $1.67, which was 30 cents better than expected. Revenue was up 2% year-over-year to $5.2 billion, and was $140 million ahead of estimates. Organic sales were up 5%, but volume declined 5%. Gross margin was up 340 basis points to 33.2% of revenue. Personal Care sales were down 1%, Consumer Tissue rose 4%, and K-C Professional sales were up 9%.
Future earnings growth will also come from cost savings. Kimberly-Clark’s management team has extended its major cost-cutting initiative to 2023, aiming for another $1.5 billion of cumulative savings over the three-year period. This will be a primary growth driver in the upcoming years, particularly as revenue growth topped out after 2020 results.
We expect 5% annual earnings growth in the years to come, as we expect volumes to normalize in 2023 and beyond. Management has publicly stated targets of mid-single-digit growth in adjusted earnings-per-share annually, -1% to +3% organic sales growth, and dividend growth in-line with earnings-per-share growth.
Kimberly-Clark’s competitive advantage is in its longstanding dominance with a variety of its brands, which are well known in the marketplace. It should also perform well during recessions as most of its products are consumable staples.
The stock has a 2023 dividend payout ratio of approximately 76%. Shares currently yield 3.5%.
Stanley Black & Decker (SWK)
Stanley Black & Decker Inc (NYSE:SWK) is a world leader in power tools, hand tools, and related items. The company holds the top global position in tools and storage sales. Stanley Black & Decker is second in the world in the areas of commercial electronic security and engineered fastening.
Stanley Black & Decker has an impressive dividend growth streak of 55 consecutive years. In the 2023 first quarter, revenue declined 11.6% to $3.9 billion, which was $78 million below estimates. Adjusted earnings-per-share of – $0.10 was $0.33 above expectations. Companywide organic growth fell 9% as a 2% improvement in pricing was more than offset be weaker volume.
The company’s cost reduction program remains on track and delivered $230 million in pre-tax savings during the first quarter. To date, the cost reduction program has generated $430 million in run-rate savings. The company’s goal is to reduce expenses by $1 billion by the end of 2023 and by $2 billion within three years. This initiative will help stabilize earnings-per-share.
SWK has a dividend payout ratio under 40% for 2023, indicating a safe dividend. The company’s low payout ratio does make it likely that dividends will continue rising even through a serious economic downturn. Stanley Black & Decker’s key competitive advantage is that its products are well-known and respected by customers. This was why the company has been able to increase prices in certain product categories. SWK shares yield 3.3%.
Black Hills Corporation (BKH)
Black Hills Corp (NYSE:BKH) is an electric utility that provides electricity and natural gas to customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Black Hills was founded in 1941, and the company is headquartered in Rapid City, South Dakota.
The company has increased its dividend for 52 consecutive years. Black Hills Corporation reported its first quarter earnings results on May 7. The company generated revenues of $920 million during the quarter, up 12% from the same quarter last year. Revenues were higher than analyst estimates by a hefty $170 million. Black Hills Corporation generated earnings-per-share of $1.73 during the first quarter, which was above the consensus analyst estimate. Black Hills Corporation forecasts earnings-per-share of $3.65 to $3.85 for the current fiscal year.
Black Hills’ growth over the coming years depends on several factors. This includes rate reviews, which drive revenues and profits per kWh. Another factor is the expansion of the company’s existing assets via new utility infrastructure. Black Hills regularly adds new projects to its growth investment backlog, which currently stands at $2.7 billion for the 2020-2024 time frame.
Its planned growth investments include new electric transmission lines and new natural gas pipelines to service its customers. Rate reviews will allow Black Hills to recover investments into its existing systems, thereby more or less guaranteeing increasing revenues.
Today, the company pays out roughly 67% of its net profits in the form of dividends. It should be noted that Black Hills Corporation was not able to cover its dividend with net profits during 2008, when profits took a hit. The same thing happened during 2011. The company nevertheless raised its dividend during those years, and its decades-long dividend growth track record gives investors assurance that a dividend cut is unlikely from this utility company. Shares currently yield 4%.
Disclosure: No positions
