When times get tough, investors turn to dividend stocks, particularly Dividend Kings.
Rising prices, elevated energy costs, and slowing economic growth mean the one constant investors can count on is the reliability of dividend stocks to see them through. That’s why you should include Dividend Kings in your portfolio.
Dividend Kings are the elite of dividend stocks. They are companies that increased their payout every year for 50 years or more.
It’s proof they’re not only solid businesses, but they also have a bedrock commitment to returning value to shareholders.
The asset managers at Hartford Funds looked at the benchmark S&P 500’s performance going all the way back to 1930. They found dividend stocks never lost money over any decade.
They found that during the 50-year period between 1973 and 2022, companies that consistently raised their payout outperformed all other categories of stocks.
Only 47 companies qualify as Dividend Kings. That makes it a very exclusive list. But the following seven stocks are down between 10% and 29% over the past year and should be bought on the dip.
Leggett & Platt (LEG)
Leggett & Platt (NYSE:LEG) is the leading manufacturer of mattress and sofa innerspring coils and a major supplier of adjustable beds. Bedding accounts for 46% of revenue, but combined with flooring and automotive, the three segments represent 81% of the total.
Naturally, that makes it subject to the vagaries of the housing and auto markets, both of which have been tested recently.
Yet they are showing signs of resilience and stabilization. New home sales were up 4.4% in July while new car sales jumped 15% in August.
Still, the spring maker lowered full-year guidance because it sees ongoing volatility in its primary end markets with no visibility into how long it will last. The stock is down 28.8% over the past year, causing its dividend yield to jump to 7%.
Yet with a 52-year track record of raising its payout, Leggett & Platt is a Dividend King you can sleep comfortably owning knowing it will survive the turmoil.
Black Hills (BKH)
Electric and gas utility Black Hills (NYSE: BKH) is another relatively unknown Dividend King. Based in South Dakota, Black Hills serves 1.3 million customers in Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming.
Utility stocks are boring compared to tech stocks and biotechs, but they’re supposed to be. Investors buy them for their stability and regularity of income. Black Hills has also raised its dividend for 52 years and targets long-term growth between 4% to 6% annually.
The stock is down 28.8% over the last 12 months after deemphasizing capital expenditures in favor of strengthening its balance sheet. That was a smart strategy by management, but pushed the dividend yield to 4.1%. It plans to resume infrastructure spending in 2024.
Customer growth is expanding in key states and it is seeing traction in new markets, such as data centers and blockchain customers. With a depressed stock and an enviable history of dividend increases, Black Hills is one of the Dividend Kings to count on.
Commerce Bancshares (CBSH)
The financial market was thrown into crisis after Silicon Valley Bank, Signature Bank (OTCMKTS: SBNY) and First Republic Bank were seized by regulators.
The upheaval hit regional banks like Commerce Bancshares (NASDAQ:CBSH) hard. Ratings agency Moody’s (NYSE:MCO) downgraded its credit rating, along with nine others. The stock crumbed 27.5% over the last 12 months.
Although they all remain investment grade, rising interest rates forced the banks to pay more for deposits while weakening the value of their securities and loans. Over the past year, the Federal Reserve raised its benchmark interest rate from near-zero to a high of 5.5%.
Commerce Bancshares operates primarily in the Midwest. It provides a broad range of retail, mortgage banking, corporate, investment, trust, and asset management products and services to both individuals and businesses.
It’s been in business for over 150 years and is one of the 50 largest banks in the U.S. based on total assets.
Despite the downgrade, Commerce Bancshares remains solid. Its Tier 1 capital ratio, a measure of how well capitalized a bank is in the event of an economic downturn, is 14.75%. That puts it among the best of the biggest banks based on assets.
Commerce Bancshares has raised its dividend for 54 years and counting and the payout yields 2.2% annually. It’s a company you can bank on weathering the storm.
Target (TGT)
Discount retailer Target (NYSE:TGT) was a pandemic darling whose stock rocketed 80% higher over the two-year period of 2020 to 2021. Since then shares are down 47% and they’ve lost 25.6% of their value in the last year alone.
An excess of stimulus check spending fueled the Covid boom. Lockdown consumers went on a “revenge shopping” spending spree. Unfortunately, Target misjudged trends and ended up with significant excess inventory. Skyrocketing inflation also caused consumers to become more cautious about spending money.
Target also waded into the culture wars with an LGBTQ marketing campaign targeting children. The consumer backlash was swift and quarterly sales fell for the first time in six years.
Where the retailer once was an exemplary e-commerce powerhouse, online sales tumbled over 10%. Total sales were down 5% in this year’s second quarter.
Yet Target looks back on track. Inventory is under control again and full-year earnings are tracking higher than the pandemic bubble. Target’s raised its dividend for 54 years and the 3.6% yield is a lucrative enticement to a depressed stock.
Hormel (HRL)
Packaged meats producer Hormel (NYSE:HRL) is well-known for its own branded products and for Dinty Moore, Spam and Skippy. It also recently bought the well-known Planters snack nuts brand.
Its stock was hurt by the latest outbreak of avian flu amongst turkies (it also owns the popular Jennie-O turkey brand). The stock is down 16.8% over the past year.
But this is a passing issue. In its just completed third quarter, Hormel reported volume sales increases across all segments, but especially in turkey, and it continues to reduce inventories to historic levels.
Hormel is an international company and China plays an important role. Ongoing softness there led to a 6% drop in international sales.
Management had forecast a quicker, stronger recovery to China’s economy, but president and CEO Jim Snee told analysts, “we were wrong.” Hormel is still expecting regrowth, but it’s weighing on performance at the moment.
In the meantime, investors can find solace in Hormel’s dividend. It’s made a payout since going public in 1928 and has raised the dividend every year for the last 57 years. The dividend yields 2.8% annually.
Northwest Natural (NWN)
Another electric utility, Northwest Natural (NYSE:NWN) provides natural gas utility services to the northwestern states of Oregon and Washington. It also provides water service in Texas and Arizona.
It’s been in business since 1859 and has paid a dividend for over 70 years. It is also the one Dividend King on this list that has the longest unbroken string of dividend increases, some 67 consecutive years. Yet the stock is down 15.4% for the last 12 months.
That’s because Northwest Natural is under pressure from inflation. Unlike other businesses, utilities cannot simply raise prices to meet rising costs.
They need to go through regulators for rate increases. While rates generally do rise in relation to expenses, whether from higher input costs or those necessary to maintain and upgrade infrastructure, it’s a lagging tailwind. The utility’s margins have been under pressure.
Having hit its lowest levels in nearly a decade, Northwest Natural’s stock is on the rise again. Shares are 10% off their lows. Expect them to keep rising. As populations rise in its service markets, the utility will add more customers, increasing revenue and profits.
Tootsie Roll Industries (TR)
Confectioner Tootsie Roll Industries (NYSE:TR) is not so much unknown, as it is unpopular. Trading volumes are extremely low, averaging only 175,000 shares daily.
In contrast, Hershey (NYSE:HSY) trades about 1.2 million shares a day and Mondelez International (NASDAQ:MDLZ) does 6.2 million.
The stock is also heavily shorted with days to cover standing at 7.9. That’s the time it would take short sellers to cover their position. Anything over seven days is a lot.
Founded only two years after Hershey in 1896, Tootsie Roll has been majority-owned by the Gordon family since the 1930s. That gives Tootsie Roll stability, but it is also a liability of sorts. Where Hershey expanded into healthy snacks, the Gordons prefer to just keep making candy.
There’s something to be said for sticking to your knitting, but chocolate consumption is declining. The National Confectioners Association says units sales fell 4.2% in 2022 and volume was 2.6% lower. The stock is down 11.3% in the past year.
With the Gordons in their 90s, there is the likelihood of change. That could spur new growth and ignite the stock once more.
Sysco (SYY)
Food distributor Sysco (NYSE:SYY) leads the industry with a 17% share of a highly fragmented market. It operates 334 distribution facilities globally and serves approximately 725,000 customer locations.
Like many of the companies in this list, Sysco feels the heat applied by inflation and high commodity costs. The Dept. of Labor said food and energy drove inflation to its biggest monthly increase this year in August.
Sysco’s sales, volume, and profits were all higher in its fiscal fourth quarter that ended in July. For the full year, the company generated sales of more than $76 billion and operating income is at record highs.
Earnings per share soared 45% over last year while adjusted earnings were up 16.5% from the year ago period.
CEO Kevin Hourican told analysts the tailwinds Sysco is experiencing comes from healthcare, education, travel, and hospitality where it is “winning market share profitably in those sectors.”
Sysco has a 53-year record of raising its dividend that currently yields 2.8%. It’s a stock that will deliver for investors over the long haul.
On the date of publication, Rich Duprey held a LONG position in LEG, NWN, TR, and SYY stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.