3 Dividend Kings To Buy Right Now
This research report is by Bob Ciura, President of Content at Sure Dividend.
Dividend Kings are a great option for investors looking for long-term total returns and dividend growth potential.
These companies have demonstrated sustained and consistent profitability over a long period of time, making them resilient during economic challenges.
Possessing a history of 50+ years of consecutive dividend growth also indicates that management prioritizes returning cash to shareholders, and practices prudent capital allocation.
The following 3 Dividend Kings have dividend yields above 2%, strong dividend safety, and are expected to generate total returns above 12% per year over the next five years.
Note: Click here to instantly download your free spreadsheet of all 53 Dividend Kings now.
#1: SJW Group (SJW)
SJW Group is a water utility company that produces, purchases, stores, purifies and distributes water to consumers and businesses in the Silicon Valley area of California, the area north of San Antonio, Texas, Connecticut, and Maine.
SJW Group also has a small real estate division that owns and develops properties for residential and warehouse customers in California and Tennessee.
Source: Investor Presentation
On April 26th, 2024, SJW Group reported first quarter results. For the quarter, revenue grew 8.8% to $149.4 million, beating estimates by $8.9 million. Earnings-per-share of $0.36 compared unfavorably to earnings-per-share of $0.37 in the prior year and this was $0.02 less than expected.
The improvement in revenue was mostly due to SJW Group’s California business, which resulted from higher water rates.
Earnings-per-share growth for SJW was 15.1% annually over the past five years, an impressive growth rate for a water utility. Much of this growth is due to the merger with CTWS. We continue to forecast that the SJW Group will grow earnings at the average growth rate of 8.0% through 2029 due to revenue growth and rate increases.
SJW is a highly recession-resistant company. A key competitive advantage for SJW Group is that it operates in two areas, Silicon Valley and Central Texas, that have seen high levels of population growth in recent years. These areas need improved water infrastructure to serve a growing client base, so local governments often allow the company to raise rates at a relatively high level in order to fund these projects.
SJW stock trades for a 2024 P/E ratio of 18.9, below our fair value estimate of 26. As a result, an expanding valuation multiple could boost future returns by 6.4% per year. Along with projected EPS growth of 8% and the current dividend yield of 3.1%, total returns could reach 17% per year for SJW stock.
#2: Target Corporation (TGT)
Target is a major U.S. retailer that consists of about 1,850 big box stores, which offer general merchandise and food, as well as serving as distribution points for the company’s e-commerce business. Target generates over $100 billion in total revenue.
Target posted first quarter earnings on May 22nd, 2024. Adjusted earnings-per-share came to $2.03 in Q1, which was three cents light of estimates. Revenue was also down 3.1% to $24.53 billion, which met estimates. Comparable sales fell 3.7%, which met analyst estimates.
Source: Infographic
Target has grown its earnings-per-share at an average annual rate of about 8% during the last decade. The company has reduced its share count over time, which boosts EPS growth. Overall, we expect 10% annualized growth from what should be a modest level for 2024. In addition, sales growth remains an issue for Target. Target’s e-commerce business is growing at a high rate, although there was some pullback in recent quarter, after enormous sales growth during the pandemic.
Target’s competitive advantage comes from its everyday low prices on attractive merchandise in its guest-friendly stores. While Target is vulnerable to economic downturns, it is much more resilient than most stocks in a recession. There are challenges facing large retailers, such as inflation and competition from Internet retailers, but Target is combatting this in part with its massive push towards digital sales channels.
We expect Target to grow its annual earnings-per-share by 10% per year over the next five years, which should make up the bulk of shareholder returns going forward.
The dividend is very safe, with an expected dividend payout ratio of 47% for 2024. The company has increased its dividend for 55 consecutive years. TGT shares currently yield 3.1%.
Based on expected EPS of $9.35 for 2024, TGT shares currently trade for a P/E ratio of 15.2. Our fair value P/E is 17 for TGT stock. An expanding valuation multiple could boost shareholder returns by 2.4% per year over the next five years. This leads to total expected returns of 14.8% for TGT stock.
#3: PPG Industries (PPG)
PPG Industries is the world’s largest paints and coatings company. It was founded in 1883 as a manufacturer and distributor of glass (its name stands for Pittsburgh Plate Glass) and today has operations in more than 70 countries at 100 locations.
On April 18th, 2024, PPG Industries reported first quarter results for the period ending March 31st, 2024.
Source: Investor Presentation
For the quarter, revenue decreased 1.6% to $4.31 billion, which was $120 million less than expected.
Adjusted net income of $441 million, or $1.86 per share, compared to adjusted net income of $432 million, or $1.82 per share, in the prior year. Adjusted earnings-per-share were in-line with consensus estimates.
For 2024, the company expects organic sales to be higher by a low single-digit percentage and adjusted earnings-per-share in a range of $8.34 to $8.59. At the midpoint, this would represent a 10.4% increase from the prior year.
PPG Industries’ competitive advantage is that it is one of the most well-known and respected companies in the paints and coatings space. It 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.
PPG stock trades for a 2024 P/E ratio of 15.0, below our fair value estimate of 19. An expanding valuation multiple could boost future returns by 4.8% per year. Including expected EPS growth of 8% and the current dividend yield of 2%, total returns could reach 14.7% per year for PPG stock.
That’s it for today
That’s it for today.
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I grew up in San Jose, CA and I am familiar with the San Jose Water Company, which is a part of the SJW Group. My brother and parents still live in San Jose. I do not.
The Silicon Valley area has had a chronic shortage of water for what seems like the past 25 - 30 years. "Brown is the new green" goes the saying, meaning stop watering your lawns and garden and let what was green dry up and turn brown. There are too many people trying to pull too much water there. I'm pretty sure water is brought in from outside since the local reservoirs are almost always dry. Springs don't have a lot of water there because Silicon Valley itself is almost at sea level. This leads to high water and sewage service prices.
I don't know a thing about the other companies in SJW.
I think there are better alternatives to SJW.
Target is a great choice! The stock price was beaten down a while ago but has since recovered. There was also a short lived movement among the politically conservative to boycott Target due to their support of LGBTQ product lines and marketing lines. My local Target always has a bit of crowd. While it's not a Walmart-like crowd, people do shop there. I like to say that people go to Walmart because they have to but people go to Target because they want to. Retail is too cyclical for me so I stay away from the sector as a whole. However, if you're into retail then Target be a good fit for you.
Great companies, businesses are not going anywhere, especially with the first and third option.