In this article, we will take a look at some of the best dividend kings to invest in.
Investing in dividend stocks has been a focal point for investors for several years. The attractive income generated from these stocks motivates many to invest. Among these, dividend growth stocks stand out, as they offer the potential for increasing income over time, which is highly appealing. In the US, numerous companies have consistently raised their dividends for over five decades, earning them the prestigious title of Dividend Kings.
Analysts have long supported dividend stocks due to their historically robust performance. Kirsten Cabacungan, an investment strategist at Merrill and Bank of America Private Bank, has highlighted several reasons to consider investing in these stocks. She pointed out that the income generated by dividend stocks can assist investors in meeting their liquidity needs. In addition, dividend-focused investments have shown a tendency to reduce volatility and mitigate losses during market downturns. Cabacungan particularly emphasizes the value of dividend growth stocks in this context. Here are some comments from the analyst:
“Companies that have consistently increased their dividends tend to be more stable, higher-quality businesses, which historically have weathered downturns and are more likely to have the ability to pay dividends consistently.”
In 2024, dividend stocks lagged behind the broader market, but their future remains promising. Analysts are optimistic about a rebound, as cash flow remains a key priority for investors. Capital Group has advised looking for opportunities in overlooked dividend-paying companies, such as pharmaceutical firms overshadowed by the focus on weight loss treatments, as well as utilities and select banks. In addition, dividend growth stocks with substantial yields continue to attract interest. Companies offering dividends alongside strong balance sheets and appealing yields can deliver steady income, cushion against market downturns, and foster solid investment growth. A report from ProShares noted that the Dividend Aristocrats Index has historically outperformed the broader market with less volatility. For example, a $10,000 investment in May 2005 could have grown to more than $61,000 by March 2023.
Also read: 12 Most Reliable Dividend Stocks To Buy According to Hedge Funds
Investor preferences have led many US companies to increase and sustain their dividends in 2024. Financial experts anticipate continued dividend growth in 2025. Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, predicts an average dividend increase of around 8% for the current year. He expects another record payout in 2025, estimated at approximately $685 billion, compared to the projected $630 billion for 2024. Silverblatt attributes this growth to record earnings, anticipated future earnings, declining interest rates, strong employment, and overall economic growth.
In addition, the broader market’s dividend yield has recently hit a 20-year low, dipping below 1.19%, well below the long-term average of 4.3%. As interest rates rise on risk-free options like Treasuries, companies are increasingly aware of the competition for yield. In response, many are boosting their dividends or starting to offer them for the first time. Notably, several major tech firms began paying dividends in 2024, indicating their intention to position themselves as value investments within the traditionally high-growth tech sector. Given this, we will take a look at some of the best dividend kings to invest in.
Our Methodology:
For this list, we reviewed the Dividend Kings companies and selected the ten stocks that were most favored by hedge funds in the third quarter of 2024, using data from Insider Monkey’s database. The stocks are ranked by the number of hedge fund investments, starting with the lowest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 49
Target Corporation (NYSE:TGT) is an American retail corporation that operates a chain of hypermarkets and discount department stores. In Q3 2024, the company reported revenues of $25.7 billion, reflecting a slight 1.06% increase compared to the same period in the previous year, though falling short of analysts’ forecasts by $231.8 million. Looking ahead to the fourth quarter, the company anticipates comparable sales to remain stable, with GAAP and adjusted earnings per share (EPS) projected between $1.85 and $2.45. For the entire year, Target expects GAAP and adjusted EPS to be in the range of $8.30 to $8.90.
Target Corporation (NYSE:TGT) has demonstrated steady growth in operating income over the past year and maintains a robust financial standing. Although its debt levels are relatively high, its cash, cash equivalents, and short-term investments are sufficient to cover its short-term obligations. The company’s growing cash reserves and an interest coverage ratio of 11.6 further reinforce its financial stability. Target’s liquidity is bolstered by a clean balance sheet, free of intangible assets, and a solid return on invested capital (ROIC) of 11.5%.
In addition to its strong financials, Target Corporation (NYSE:TGT) generated $4.07 billion in operating cash flow in the first nine months of 2024 and concluded the quarter with $3.4 billion in cash and cash equivalents. During this period, the company returned $516 million to shareholders through dividends. The company offers a quarterly dividend of $1.12 per share and has a dividend yield of 3.25%, as of January 13. With a 53-year streak of consistent dividend increases, TGT is one of the best dividend kings on our list.
At the end of Q3 2024, 49 hedge funds tracked by Insider Monkey reported having stakes in Target Corporation (NYSE:TGT), compared with 52 in the previous quarter. These stakes are valued at nearly $1.4 billion in total. Among these hedge funds, Diamond Hill Capital was the company’s leading stakeholder in Q3.
9. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 54
Colgate-Palmolive Company (NYSE:CL) is a New York-based manufacturing company that specializes in a wide range of consumer products. In the past 12 months, the stock has surged by over 8.5%, grabbing investors’ attention. The company is well-known in the consumer goods industry, providing products across Oral Care, Personal Care, Home Care, and Pet Nutrition. Lately, it has placed significant emphasis on sustainability and expanding its product range. Its commitment to making all packaging recyclable by 2025 underscores the growing environmental concerns of both consumers and regulators. By engaging in initiatives like renewable energy partnerships, the company is adapting its operations to meet future market demands and regulatory requirements.
In the third quarter of 2024, Colgate-Palmolive Company (NYSE:CL) reported revenues of $5.03 billion, a 2.4% rise from the same quarter the previous year, exceeding analysts’ projections by $27.2 million. The company has maintained its dominant position in the toothpaste market, with a global market share of 41.6% year-to-date. It also continues to lead in the manual toothbrush category, holding a 32.3% global market share during the same period.
Colgate-Palmolive Company (NYSE:CL)’s cash position also remained strong in 2024. In the first nine months of the year, the company generated an operating cash flow of nearly $3 billion. This cash position has enabled the company to increase its payouts for 62 years in a row. Its quarterly dividend comes in at $0.50 per share for a dividend yield of 2.29%, as of January 13.
As of the end of Q3 2024, 54 hedge funds tracked by Insider Monkey held stakes in Colgate-Palmolive Company (NYSE:CL), up from 52 in the previous quarter. These stakes are collectively valued at over $3.4 billion.
