Top 3 dividend kings for 2023

Dividend kings are companies that have increased their dividends for at least 50 consecutive years.

There are only 48 companies in this best group. Most of them enjoy a meaningful trading profit; they are resilient to the recession and therefore they have consistently increased their incomes. Otherwise, they would not have achieved such a long dividend growth streak.

Let’s discuss the prospects of the 3 most attractive dividend kings in 2023.

Aim high with Lowe’s

Lowe’s companies (SHORT) is the second largest home appliance retailer in the US, after Home Depot (HD) . Lowe’s was founded in 1946 and operates or services approximately 2,200 home improvement and hardware stores in the United States and Canada.

Lowe’s has a number of meaningful competitive advantages, namely a large network, large economies of scale and a strong brand name. More importantly, the company operates an essential monopoly with Home Depot. Neither retailer has significantly expanded its stores or is interested in a price war. The existence of an essential monopoly creates a vast business moat for Lowe’s.

The advantage of a monopoly is clearly reflected in the home improvement retailer’s impressive operating record. Over the past decade, Lowe’s has grown earnings per share year on year, at a staggering 24% average annual rate. The company hasn’t slowed down in recent years, as it has averaged 25% year-over-year profit growth over the past five years.

Stocks are on the radar of most income-oriented investors.

Lowe’s achieved its exceptional growth record, not by opening multiple new stores, but by posting comparable strong sales growth and aggressive share buybacks. me. The company has shed 42% of its shares over the past decade. Additionally, thanks to its superior profitability, Lowe’s has a solid balance sheet. Since the stock is currently trading at its lowest price-earnings price in nearly 10 years of 15.2, management continues to buy back shares aggressively and as a result, it continues to appreciate in value. of shareholders.

Lowe’s has proved resilient to the recession. During the Great Recession, its EPS fell below 20%. Even better, during the coronavirus crisis, the retailer enjoyed unprecedented business momentum and as a result, its EPS more than doubled, from $5.74 in 2019 to $12. $0.04 in 2021. Of course, Lowe’s can’t continue to grow earnings at this rate forever. However, it is expected to report a roughly 14% increase in EPS for 2022.

Thanks to its vast business moat and its resilience to recession, Lowe’s is Dividend King, with 60 consecutive years of dividend growth. Due to its lackluster current dividend yield of 2.0%, the stock is on the radar of most income-oriented investors. However, it is important to note that the company has increased its dividend by an average of 20.0% per year over the past decade and an average of 19.5% per year over the past 5 years.

With a low payout ratio of 31%, a pristine balance sheet and a reliable growth trajectory, Lowe’s is likely to continue to grow its dividend in the double digits for many more years to come. As a result, the stock is attractive to growth-oriented investors as well as to income-oriented investors with a long-term perspective.

Industry ABM

ABM Industry (ABM) is a leading provider of facility solutions, including cleaning, electrical & lighting, energy solutions, facility engineering, HVAC & mechanical, landscaping & lawn, and parking . The company operates with more than 350 offices throughout the United States and various international markets, primarily Canada.

ABM Industries is one of the biggest players in the industry, largely thanks to a series of acquisitions of small competitors. As a result, the company enjoys significant economies of scale. Management has repeatedly stated that they are always looking for attractive acquisitions that will help the company maintain its long-term growth trajectory.

ABM Industries has grown EPS every year since 2003. This is certainly an extraordinary achievement. Over the past decade, the company has averaged 10.1% EPS growth per year. The growth rate of the ABM industry and its admirable consistency is testament to the power of the business model.

On the other hand, business momentum has slowed down recently. In the most recent quarter, ABM Industries increased revenue 19% qoq but EPS only increased 5% due to rising interest expenses amid high interest rates and high cost inflation. Still, the company managed to increase EPS by 2% for the full year, to a new all-time high.

ABM Industries recently increased its dividend by 13% and as a result, the company has now increased its dividend for 55 consecutive years. The company has achieved this exceptional growth streak thanks to its solid business model and resilience to the recession.

ABM Industries currently offers an unattractive dividend yield of 1.9%. The company has increased its dividend by an average of 4.3% per year over the past decade and an average of 4.7% per year for the past 5 years. Given ABM Industries has a remarkably low dividend payout ratio of 21% and a healthy balance sheet, it is likely that the company will continue to increase its dividend for many more years to come.

54 year journey

Founded in 1902, Target Corp. (TGT) has approximately 1,850 big-box stores, offering general merchandise and food, and serving as a distribution point for the company’s growing e-commerce business. After an unsuccessful expansion attempt in Canada in 2013-2015, Target only operates in the US market.

Target’s main competitive advantage comes from everyday low prices on attractive merchandise in customer-friendly stores. However, competition has been hotter than ever in the grocery business in recent years. Due to the ongoing price war, Target’s business moat has shrunk.

Furthermore, as consumers tend to reduce spending during tough economic times, retailers are not immune to an economic downturn. However, as people spend more time at home during a recession, Target has proven more resilient to the recession than most other companies. In 2008, its earnings per share fell only 14%.

Target was unable to meaningfully grow EPS from 2012 to 2017, mainly due to the massive losses it incurred in its efforts to expand into Canada in 2013-2015 as well as competition. fierce in domestic business activities. However, thanks to successful turnaround efforts, the company has returned to a long-term growth trajectory in recent years.

Target has increased EPS by an impressive 47% in 2020, partly due to the impact of the pandemic, and another 44% in 2021. The company has increased EPS by an average of 13% per year over the past decade.

Unfortunately, Target is currently facing a major recession as inflation skyrocketed to its highest level in nearly 40 years. The rise in inflation has made consumers much more cautious in their discretionary spending. As a result, Target experienced low demand for its products, and as a result, its inventory increased greatly. Additionally, due to high-cost inflation, Target has suffered a significant contraction in operating profit. As a result, the company is poised to report a nearly 60% drop in earnings per share in 2022. This helps explain the stock’s 36% drop from last year’s peak.

On the other hand, thanks to the aggressive rate hikes carried out by the Fed, inflation is likely to return to normal soon. When that happens, Target has a strong ability to bounce back from the current downturn.

Target has raised its dividend for 54 consecutive years. The company raised its dividend by 20% last year, as a sign of confidence in a strong recovery. As a result, its payout rate has skyrocketed to 79%. However, since Target is likely to recover in the coming years, its dividend should be considered safe for the foreseeable future.

Final thoughts

Bear markets are painful for most investors, but they also provide a unique opportunity to buy well-established stocks at attractive prices. Those who buy the above three Dividend Kings around their current price are likely to be highly rewarded in the long run.