Companies with long track records of dividend growth are among our favorite to own as these names have proven business models that hold up better in recessionary environments.
This is especially true for the Dividend Champions, those companies with at least 25 consecutive years of dividend growth. These companies have successfully navigated multiple recessions and still raised their dividends, making them ideal candidates for investment for those looking to create a strong portfolio.
Here, we’ll look at three high-quality Dividend Champions that have yields of up to ~4%, including:
Kimberly-Clark Corporation (KMB) Matthews International Corp. (MATW) Old Republic International Corp. (ORI)
The first name to discuss is Kimberly-Clark, a leading consumer products company that is valued at more than $38 billion. The company generates annual revenue in excess of $19 billion.
Kimberly-Clark is a global leader in its industry, with operations in 175 countries around the world. The company operates three segments, including Personal Care, Consumer Tissue, and K-C Professional. The Personal Care segment sells well-known brands such as Huggies, Pull-Ups, Depend, Poise, and Kotex while Consumer Tissue offers Kleenex, Scott, and Cottonelle. K-C Professional sells workplace health and safety products, such as apparel, wipers, soaps, and sanitizers.
The company’s products have long been trusted by consumers, which is why Kimberly-Clark holds the top or second spot in market share in many of the categories that it competes. It is because of this industry leadership that the company has effectively used price increases to largely offset inflationary pressures. Consumers have been more willing to pay up for top brands. In addition, the company is also seeking cumulative savings of $1.5 billion over the next three years as it aims to slim down its operations.
To help maintain its leadership position, Kimberly-Clark often brings extensions of product lines to market to capitalize on the popularity of its brands. The company is also making more of an effort to gain market share in regions where its not the top name. This includes developing and emerging markets such as China and Latin America. This is an important aspect of the business model as organic growth in developing and emerging markets typically runs ahead of company-wide results.
Kimberly-Clark’s leadership position in its industry has put the company in a position to pay and raise its dividend for 50 consecutive years. This qualifies the company as a Dividend King, of which there are just 45 names in the market place. The dividend has a compound annual growth rate (CAGR) of 4.9% since 2012, though that growth has slowed slightly in recent years.
The shares yield 4.1%.
The next name to consider is Matthews International, a personal services company that generates annual revenue of $1.7 billion.
Matthews International provides brand solutions, memorialization products, and industrial technologies around the world. The company has three reportable segments, including SGK Brand Solutions, which markets brand development services, printing equipment, embossing tools, and creative design services to customers in the consumer-packaged goods and packaging industries. The Memorialization business sells memorials, caskets and cremation equipment to funeral homes, and the Industrial segment offers coding and automation solutions.
Memorialization and SGK Brand Solutions are the two largest businesses within the company, contributing 46% and 43%, respectively, revenue for fiscal year 2021. The company is very diversified in its product offerings, which helps it to successfully navigate impairments to any one area the business.
The company is actively looking to expand its footprint, which currently consists of operations in 26 countries, though most revenue comes from the U.S. This includes Matthews International’s recently completed $45 million purchase of two German engineering firms that improve the company’s positioning in the area of electric vehicles and industrial automation.
With a market capitalization of just $722 million, Matthews International proves that Dividend Champions can come in all sizes. Despite its size and cyclical nature of its business, the company has increased its dividend for 28 years. The dividend CAGR is almost 10% over the last decade and the shares yield 3.7%.
Finally, the last Dividend Champion to discuss is Old Republic, an insurance company that provides products to customers of all sizes. The $7 billion company has produced revenue of $8.8 billion over the last year.
Old Republic’s primarily competitive advantage is that it sells a wide variety of insurance products through its different segments. First, General Insurance is responsible for marking, underwriting, and managing property and underwriting insurance. Title Insurance issues policies to real estate purchasers and investors. In total, Old Republic’s insurance products address needs for insurance in the areas of automobile, marine, travel, financial indemnity, and others.
The diversified business model helps provide balance for Old Republic. For example, revenue for Title Insurance fell more than 7% in the prior quarter as mortgage refinancing was down considerably as interest rates have greatly increased. This was offset by solid growth in the general insurance business
Despite this drop in revenue from what had been a very lucrative business, Old Republic underwriting endeavors have remained very profitable. As of the most recent quarter, the company had a general insurance combined ratio of 90.9% and a title insurance combined ratio of 91.4%. These ratios show that Old Republic is generating healthy profits from its activities.
The ability to continue to remain profitable even in the face of strong headwinds is a major reason why Old Republic has a very long track record of raising its distributions. Dividend growth hasn’t been exceptional over the last decade as the company’s CAGR is slightly more than 2% for the period, but Old Republic’s dividend growth streak stands at 41 years.
The stock offers a yield of 4%.
Dividend Champions can come in a wide variety of sizes and from different sectors of the economy, but they all have one thing in common: strong business models. Kimberly-Clark, Matthews International, and Old Republic are among the leaders in their respective industries. This has allowed each company to compile dividend growth streaks that are at least a quarter-century long. In the case of Kimberly-Clark, the dividend growth streak is at a half-century.
While nothing is guaranteed in investing, the ability to grow dividends through multiple recessions speaks to the strength of each company and likely means that the next economic downturn won’t impair these names’ ability to continue to raise payments to shareholders. Even better, each stock offers a very generous yield, making all three stocks a good choice for investors looking for safe high yields.