The key for dividend aristocrats is to have significant competitive advantages that attract customers to a company’s products or services regardless of economic conditions. Having a dominant position in an industry allows for companies to grow their revenue and earnings for long periods of time.
This consistent growth, in turn, enables companies to return capital to shareholders through dividends.
This article will examine three companies that have the necessary market positioning needed to increase dividends for at least 25 consecutive years. All three names have also recently raised their dividends.
Dividend aristocrats have a strong business model and the ability to offer products and services that customers need even during recessions.
These three companies such companies, making them among the dividend aristocrats with safe dividends and high dividend growth.
Dividend Aristocrats: Procter & Gamble (PG)
Procter & Gamble is one of the largest consumer products company in the world. The company’s product portfolio meets a wide range of consumer needs, from diapers to laundry detergent to toothpaste. Top brands include Tide, Bounty, Gillette and Pampers.
Procter & Gamble has gone through a tremendous transformation over the past few years as the company divested non-core brands. A few years ago, the company had approximately 170 different brands, but has since trimmed that to 65. This has allowed Procter & Gamble to focus on its most important brands. This series of divestures has helped lower costs and increase profit margins.
The remaining brands, several of which have sales in excess of $1 billion each year, largely hold the first or second position in their categories. A more focused Procter & Gamble is able to maintain these leadership positions through advertising, allowing for gains in market share.
Consumers have also come to trust the company’s products and are therefore more willing to pay a higher amount for them. This pricing powers also helps the company outlast recessions. During the Great Recession, where many companies were reporting drastic declines in profitability, Procter & Gamble’s earnings per share actually increased almost 18%.
Growth in a recession is just one reason why Procter & Gamble has raised its dividend for more than six decades. After several years of low to mid-single-digit increases, the company raised its dividend by 10% for the upcoming May 17 distribution. The company’s dividend had a compound annual growth rate of just over 4% over the last decade so the most recent increase is considerably higher than what has been the norm. This dividend increase marks 65 consecutive years of dividend growth for Procter & Gamble, one of the longest growth streaks in the market. This qualifies PG stock as a dividend king.
Even better, the most recent increase hasn’t resulted in an overheated dividend payout ratio. With an annualized dividend of $3.48 and expected EPS of $5.70 for the current fiscal year, Procter & Gamble has a payout ratio of just 61%. For context, the company’s average payout ratio over the last decade is 56%.
Given the reasonable payout ratio and dominance of its industry, PG stock should continue to raise its dividend for years to come.
Sherwin-Williams Company (SHW)
Sherwin-Williams is the largest domestic and the world’s second-largest manufacturer of paints and coats. The company possess an enviable portfolio of popular products such as Dutch Boy, Minwax, Thompson’s Waterseal and Valspar.
The company operates a vast network of more than 5,000 store locations and also sells its product wholesale. Sherwin-Williams also benefits from an exclusive contract to sell certain brands through home improvement giant Lowe’s Companies (NYSE:LOW). This gives the company an even greater reach domestically.
Sherwin-Williams has also grown through acquisitions, the most recent of which was the company’s 2017 purchase of Valspar. This purchase expanded the company’s presence in the home remodeling and new construction markets.
Sherwin-Williams has been a huge winner from the continued strength of the housing market. A resilient and growing housing markets means that home values are increasing. To take advantage of this, consumers are likely to make basic updates such as new paint. Additionally, while Sherwin-Williams has top billing in the U.S., the company’s business can still make inroads in international markets. One area in particular is the Asia-Pacific region.
Sherwin-Williams’ business was especially impacted during the last recession as home values declined drastically. EPS fell almost 20% from 2007 through 2009, but the company quickly returned to growth and established a new high for EPS in 2011.
SHW stock has been much more of a growth stock over the years, but the company’s dividend growth streak now numbers 43 years following a 23.1% increase for the March 12 payment. The company’s dividend had a CAGR of almost 14% from 2011 through 2020. Shareholders should receive $2.20 of dividends per share this year. With the company expecting to earn $8.95 per share in 2021, the projected payout ratio is 25%, matching the long-term average payout ratio.
SHW stock has provided an average dividend in the double-digit range for the last 10 years and the payout ratio has barely budged over this period of time. With a low payout ratio and multiple tailwinds for business growth, Sherwin-Williams is likely to continue to raise its dividend well into the future, just as it as for more than four decades.
Dividend Aristocrats: W.W. Grainger Inc. (GWW)
Grainger is a leading provider of maintenance, operating and repair products. The company’s products include safety gloves, ladders, test instruments and power tools.
Grainger’s chief competitive advantage is that its products are essential for its customers, which include such end markets as construction, manufacturing and even government. The company is one of the largest names in its industry. This provides for broad market access that many peers simply can’t replicate.
Further, the industry as a whole is highly fragmented. The business-to-business market is estimated at a more than $1 trillion. Grainger, a leader in this area, occupies a mid-single-digit market share. This leaves plenty of business yet to be captured.
One way the company hopes to improve its market share is through the use of e-commerce. Investments in digital capabilities has allowed Grainger to reach more clients in its key markets.
The vast collection of industries dependent on the products Grainger provides largely makes the company immune to the impacts of a recession. While the company did see a 14% decline in EPS from 2008 through 2009, overall, Grainger’s bottom line grew more than 6% during the last recession. A sign of the company’s strength was the 30% increase in EPS in 2010.
GWW stock raised its dividend 5.9% for the upcoming June 1 payment date. The dividend has a CAGR of 6.6% since 2011. This latest increase is noteworthy in that it gives the company 50 consecutive years of dividend growth. There are just 31 other companies in the entire marketplace that have at least five decades of dividend growth. The company’s annualized dividend of $6.48 would consume just 33% of the $19.75 Grainger expects to earn per share in 2021.
Grainger has shown over a long period of time that it is a quality company. With multiple competitive advantages at its disposal, it is very probable that shareholders will continue to see dividend growth.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. 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.