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Royal Buys: The 5 Highest-Yielding Dividend Kings

Dividend Kings are a select group that have increased dividends for over 50 years; currently there are just 39 stocks that meet this elite status. Bob Ciura, an editor at Sure Dividend and a contributor to MoneyShow.com has reviewed all of the “Kings” and highlights the 5 highest-yielding stocks in the group.

Healthcare stocks are generally attractive for income investors, because of their above-average dividend yields and reliable dividend growth. The major U.S. healthcare companies like AbbVie Inc. (ABBV) generate huge cash flow each year, even during recessions, which allows them to increase their dividends regularly.

Healthcare stocks like AbbVie will also benefit from the aging U.S. population, which should bring continued growth over the long-term. As a result, AbbVie is one of our top-ranked Dividend Kings today.

AbbVie is a biotechnology company focused on developing drugs for immunology, oncology and virology. It was spun off by Abbott Laboratories (ABT) in 2013. Going back to its days as a subsidiary of Abbott, AbbVie has increased its dividend for 50 consecutive years.

The company has generated impressive growth in 2021. Fourth-quarter revenues of $14.9 billion represented a 7% year-over-year increase. Revenues were positively impacted by healthy growth from new products. Earnings-per-share of $3.31 increased 13% and beat analyst estimates.

AbbVie also gave strong guidance for the upcoming year. Management expects adjusted EPS in a range of $14.00 – $14.20 for 2022, which would represent another year of considerable growth for the company.

There is some concern about the future of AbbVie’s growth, as its flagship product Humira is set to face patent expiration in the U.S. in 2023. Patent expirations are a big risk for pharmaceutical companies. Indeed, AbbVie management expects sales to decline in 2023, but the company is confident that it will return to positive growth in 2024.

Despite the challenge posed by the loss of exclusivity on Humira, we believe AbbVie has long-term growth potential. AbbVie has plenty of growth in the pipeline, both its own pipeline as well as through acquired products.

First, AbbVie’s own R&D has produced potential blockbusters like Skyrizi and Rinvoq which are projected to produce combined revenues of more than $15 billion by the middle of this decade, and not reach peak sales until the early 2030s.

AbbVie has also made acquisitions over the years to help bolster its portfolio. The most recent major acquisition was the $63 billion takeover of Allergan, provided AbbVie with a high-quality aesthetics portfolio, led by Botox Cosmetic, which is trademarked and faces no patent expiration.

AbbVie is an appealing dividend stock not only for its hefty 3.9% dividend yield, as well as its dividend growth. AbbVie has generated annual EPS growth of 15% since the spin-off from Abbott. It has followed suit by raising its dividend at an aggressive pace. According to the company, AbbVie has increased its quarterly dividend by more than 250% since 2013.

AbbVie’s 3.9% current yield is a relatively high yield among healthcare stocks. And, it is nearly three times the average yield of the S&P 500 Index. Therefore, due to its high dividend yield and strong growth potential, we view AbbVie as a top Dividend King.

Northwest Natural Gas Holding Company (NWN) is the fourth highest-yielding Dividend King right now, with a current yield just above 4%. This is a very attractive yield, considering the S&P 500 Index yields just ~1.3% on average.

Northwest Natural Gas is a high-yield stock with a very high level of dividend safety. Because the company operates in the utility sector, it has a nearly guaranteed stream of revenue and profits each year. NW Natural’s safe dividend payout and high yield make it an appealing dividend stock for risk-averse income investors.

NW Natural is a natural gas utility company that was founded in 1859. It serves more than 760,000 customers today, primarily in the Pacific Northwest. NW Natural is a relatively small company, with a market cap of just $1.4 billion, making its long dividend streak that much more impressive.

2021 was another year of consistent profitability and solid growth for NW Natural. In the third quarter, revenue grew by 8.7% year-over-year. Net income grew 55% to $1.24 per share for the first nine months of 2021. The company also reported that it added nearly 12,000 natural gas meters over the past 12 months.

Future growth is likely to be modest for NW Natural. Since utilities are highly regulated, the company is not in control over its pricing and margins. However, in return a highly regulated utility like NW Natural enjoys a predictable level of earnings and growth.

Nevertheless, the company should manage low-single-digit earnings growth, which should allow for annual dividend increases. Growth will be derived from approved pricing increases and continued customer acquisition. NW Natural also has a water utilities business that will provide a small amount of growth.

As a utility, NW Natural is not likely to produce high growth. However, the benefits of investing in utility stocks is a highly secure dividend payout, with room for dividend increases even during recessions.

The reason for this dividend safety is straightforward — consumers will always need gas delivered to their homes, even when the U.S. economy enters a downturn. As a result, utility stocks are among the safest dividend stocks.

Meanwhile, NW Natural expects EPS in a range of $2.40 and $2.60 for 2021. With a current annualized dividend payout of $1.93 per share, NW Natural has a projected dividend payout ratio of 77%. This is higher than many other stocks but is not entirely unusual for a utility stock. And it leaves plenty of room for small dividend increases each year.

The company has one of the longest records of dividend increases in the entire stock market. NW Natural has raised its dividend for 66 consecutive years.

Shares of furniture components manufacturer Leggett & Platt (LEG) have significantly underperformed the S&P 500 Index. While the S&P generated a total return of 15% in the past one year, shares of LEG have declined 4% in that time.

The decline in share price has elevated Leggett & Platt’s dividend yield above 4%. As a result, Leggett & Platt is one of the highest-yielding Dividend Kings right now.

But high-quality Dividend Kings like Leggett & Platt typically do not remain undervalued for long. We believe Leggett & Platt has long-term growth potential, and the company will eventually recover from inflationary pressures.

Leggett & Platt is a designer, manufacturer, and distributor of engineered products. Most of its business is focused on furniture supply. The company operates in three segments: Bedding Products, Specialized Products, and Furniture, Flooring & Textile Products.

The company produces a wide array of products, including steel rods, foam chemicals and additives, adjustable beds, sewing and quilting machines, mattress packaging, lumbar support for automotive seating, engineered hydraulic cylinders, motion hardware for reclining sofas and chairs, among others.

2021 was a challenging year for Leggett & Platt. Inflation has picked up in the U.S., which has negatively impacted the company’s margins as its costs have been elevated across the business. However, Leggett & Platt continues to execute despite the inflationary pressures.

In the 2021 fourth quarter, sales hit a quarterly record of $1.333 billion, up 13% from the same quarter last year. Rising costs resulted in a slight decline in earnings, but the company remained highly profitable with EPS of $0.77 for the quarter.

For the full year, Leggett & Platt generated record sales of $5.073 billion, a 19% increase from 2020. Adjusted EPS of $2.78 grew from the previous year, showing the company’s unique ability to grow EPS even during inflationary times.

Expected returns for a stock include its future earnings growth, any dividends paid to shareholders, and the impact of a rising or declining valuation multiple. In our view, Leggett & Platt will generate expected returns above 10% per year over the next five years.

We believe the company is capable of generating 5% annual EPS growth. In addition, the stock has a current dividend yield of 4.3%. Lastly, we view the stock as significantly undervalued.

Based on projected EPS of $2.85 (the midpoint of company guidance) for 2022, LEG stock trades for a forward P/E ratio of 13.8; our fair value estimate for LEG stock is a P/E of 16. We believe this is a much better fair value P/E for a high-quality business such as LEG.

Therefore, total estimated returns are expected to exceed 12% per year for LEG stock. Not only is LEG one of the highest-yielding Dividend Kings, it is one of our top-ranked in terms of expected returns as well.

Tobacco stocks typically offer high dividend yields. A select few can also raise their dividends each year. While tobacco is no longer a growth industry, the major producers are still highly profitable with strong cash flows. This allows them to distribute a high dividend payout to shareholders.

Universal Corp. (UVV) has increased its dividend for 50 consecutive years, making it a Dividend King. It is not a dividend growth stock; the company usually announces small increases in the low-single digits on a percentage basis each year. However, investors primarily interested in high dividend income could find Universal stock appealing.

Universal Corporation is the world’s largest leaf tobacco exporter and importer. It is the wholesale purchaser and processor of tobacco that operates between farms and the companies that manufacture cigarettes, pipe tobacco, and cigars. Universal Corporation was founded in 1886 and is headquartered in Richmond, Virginia.

The company is off to a good start to the current year. In the most recent fiscal quarter, the company generated revenues of $450 million, up 22% from the previous year’s quarter. Revenue grew 16% during the first half of the current fiscal year, reaching $800 million due to a stronger product mix.

Universal’s adjusted earnings-per-share totaled $0.66 during the second quarter. This lifted Universal’s H1 earnings-per-share to $0.96.

Universal Corporation operates in an industry that has seen its peak and has declined for many years. At the same time, there is no need for significant capital expenditures, which results in relatively high free cash flow. This has allowed the company to raise its dividend each year.

Universal stock is appealing for income on the surface, due to the 5.7% yield. This compares very favorably to the S&P 500 Index, which on average yields 1.4%. However, investors should always look under the hood so to speak, to determine if a stock’s dividend payout is safe.

On one hand, Universal’s payout ratio is quite high, at 71% expected for 2022. On the other hand, the payout ratio is expected to decline from a previous high of 87% in 2020. And, Universal has raised its dividend for 50 consecutive years. This itself is a signal that the company has the ability to generate enough cash flow to pay the dividend, with a small raise each year.

Investors should not expect much in the way of earnings or dividend growth for the company moving forward. But income investors may find Universal stock attractive for its high dividend yield.

Tobacco giant Altria Group (MO) is the highest-yielding Dividend Kings. Altria is operating in a declining industry. Cigarette sales have steadily declined in the U.S. over the past few decades. But Altria has maintained a high level of profitability and cash flow, thanks to steady price increases and lower capital expenditures. Altria’s 7% dividend yield and consistent dividend increases make it an attractive stock for income investors.

Altria Group was founded in 1847. Today, it is a consumer staples giant. It sells the Marlboro cigarette brand in the United States. It also manufactures non-smokable brands, including Skoal and Copenhagen. Altria also has a 10% ownership stake in global beer giant Anheuser Busch InBev (BUD).

As is typical of many tobacco companies, Altria continues to post steady growth. In the 2021 fourth quarter, smokable product revenue increased by 2.3% year-over-year. Overall net revenue decreased 0.8% to $6.3 billion due to lower wine revenue. However, Altria grew its adjusted earnings-per-share by 10% due to expense controls and share repurchases. The company repurchased 15.5 million shares at an average price of $45.40 totaling $703 million.

For 2022, Altria expects to generate full-year diluted EPS guidance to $4.79 to $4.93. This means 2022 will be another highly profitable year for the company, which will fuel its dividends.

Altria is exploring multiple avenues for future growth, outside of tobacco. The company owns large equity stakes in Juul, a vaping products manufacturer and distributor, as well as cannabis company Cronos Group (CRON). Diversifying into new product categories could help jump-start Altria’s growth.

Altria’s long history of dividend growth has a lot to do with its competitive advantages, which are primarily its brand strength and economies of scale. Its flagship Marlboro brand commands over 40% retail market share in the United States. This provides Altria with a great deal of pricing power, which results in a steady revenue growth rate.

At the same time, Altria can keep its expenses low, resulting in high profit margins and cash flow. Altria uses a significant portion of its cash flow to buy back shares, which is an additional boost to earnings-per-share growth.

This is how Altria can continue to raise its dividend each year, even while the broader industry struggles. Altria also has a clear dividend policy, which is to distribute 80% of its adjusted earnings-per-share each year in the form of dividends. This gives investors a clearer view of what future dividend raises will be. Overall, Altria is an attractive Dividend King, due to its 7% yield and annual increases.

(Disclosure: The author is long ABBV)

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