In this article, we will discuss some of the best dividend knights that beat the market last three years.

The broader market has been performing strongly this year, rising by nearly 30% since the beginning of 2024. According to Morningstar Direct, the S&P 500’s return has exceeded this level in only 17 of the past 74 years. For instance, in 1954, the index saw a gain of over 52%, and in 1989, it increased by about 31%. However, analysts caution investors to manage their expectations, as years with such exceptional returns are uncommon. Cathy Curtis, a certified financial planner and the founder and CEO of Curtis Financial Planning made the following comment about the market’s performance this year in one of her recent interviews with CNBC:

“Investors should know that the stock market has an average annualized return of over 10% for decades. The past year has seen growth way over this amount and it would be highly unusual for that to continue for a multi-year timeframe.”

Regardless of where the market ends up, dividend stocks have strong potential, as demonstrated over the years. During past periods of inflation, dividend stocks performed better compared to other asset classes. Since the 1940s, dividends have accounted for 40% of the market, with this share increasing during times of higher inflation, according to Hartford Funds. The report also highlighted the performance of dividend stocks in the 1970s, when they made up 73% of the market’s returns. Additional studies, including one from Fidelity International, showed that dividends typically grow faster than inflation. Fidelity’s research indicated that since 1900, the 10-year annual average growth of dividends in the market has outpaced CPI growth nearly 73% of the time.

In addition to their considerable impact on overall market returns, dividend stocks provide investors with a way to mitigate risks linked to market volatility. According to DWS Group, over the past 20 years, the monthly volatility of dividend returns was just 0.10%, compared to 3.75% for price returns. The report also noted that despite market fluctuations, investors have seen positive overall returns during this period. While riskier factors played a significant role in these returns, it was the dividend stream that proved to be a more stable and safer option amid the uncertainties of the stock market.

Also read: 10 Best Consistent Dividend Stocks To Invest In Right Now

Although dividend stocks have recently lagged behind the broader market, they remain a popular investment choice due to their strong long-term returns. The Dividend Aristocrats Index has grown by just nearly 11% this year, but the outlook for dividend growth among US companies is promising. According to Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, large-cap stocks outperformed many others in the first three quarters of 2024, driven by record earnings and an anticipated record dividend payout for the year. He further added that the market’s large caps are expected to see a 6% increase in dividend payments for 2024, compared with 5.1% in 2023 and 10.8% in 2022.

When it comes to dividend investing, investors often prefer companies with a strong track record of dividend growth and solid returns as they help prepare for challenging market conditions. Additionally, investors focus on a company’s ability to generate cash flow and maintain a strong balance sheet, as these factors support the sustainability of future dividend payouts. In view of this, we will take a look at some of the best dividend knights that have outperformed the market in the last three years.

Our Methodology:

For this list, we used a stock screener and selected dividend companies that have outperformed the market in the past three years. These companies also have strong dividend growth track records under their belt. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024. The stocks are ranked in ascending order of their three-year returns.

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. Linde plc (NYSE:LIN)

3-Year Share Price Gains as of  December 4: 40.5%

Linde plc (NYSE:LIN) is a multinational chemicals company that manufactures products for a wide variety of industries. Though economic challenges continued in the third quarter, the company delivered impressive results, achieving a 9% increase in EPS, raising ROC to 25.8%, and improving operating margins by 130 basis points to 29.6%. Alongside managing short-term performance, the company secured its largest-ever sale-of-gas project, boosting its project backlog to $10 billion. This move ensures future growth within the traditional industrial gas model while adhering to its disciplined investment standards. In the past 3 years, the stock has surged by over 40%, which makes it one of the best dividend knights that beat the market.

Linde plc (NYSE:LIN) reported revenue of $8.4 billion, which showed a 2.46% return from the same period last year. The revenue also beat analysts’ estimates by $9.33 million. The company’s operating profit came in at $2.1 billion and its operating profit margin came in at 25%. Mar Vista Investment Partners, LLC mentioned LIN in its Q3 2024 investor letter. Here is what the firm has to say:

“Linde plc (NASDAQ:LIN) is the world’s largest, global industrial gas producer. The company enjoys the highest profit margins and returns on capital in the industry. Linde’s primary products are atmospheric gases and process gases. Industrial gases have benefitted from secular growth trends in decarbonization and carbon sequestration. Moreover, the opportunity in blue and green ammonia and hydrogen are substantial. Projects in these areas are quickly being added to its backlog for future growth. We see these secular trends as long-term positives for Linde and the entire industrial gas industry.

Linde believes it can grow its volumes with new applications; the buildout of small, on-site plants using its technologies; and focusing on growing geographies such as India, Malaysia, Vietnam, China and Brazil. Despite the long-term growth opportunities, recent demand trends have slowed due to weak global industrial production and a challenging year-over-year comparable. Among the regions, the U.S. remains resilient, with volumes flat to slightly negative. Europe, Latin America, the Middle East, and China are all sending mixed to negative economic signals. We believe these slower trends are transitory in nature, providing an opportunity to purchase shares in Linde at attractive prices.”

Linde plc (NYSE:LIN)’s cash position also remained strong in the third quarter. The company generated $2.73 billion in operating cash flow, up 8% from the prior-year period. Its free cash flow came in at $1.66 billion. During the quarter, it returned $1.3 billion to shareholders through dividends and share repurchases. The company offers a quarterly dividend of $1.39 per share and has a dividend yield of 1.23%, as of December 5. It maintains a 29-year streak of dividend growth.

At the end of Q3 2024, 63 hedge funds tracked by Insider Monkey held stakes in Linde plc (NYSE:LIN), the same as in the previous quarter. The consolidated value of these stakes is over $3.6 billion.

9. JPMorgan Chase & Co. (NYSE:JPM)

3-Year Share Price Gains as of  December 4: 55.7%

JPMorgan Chase & Co. (NYSE:JPM) is an American multinational investment banking company. It has delivered exceptional performance in recent years, outperforming its banking peers in key metrics and achieving outstanding earnings. The bank’s success can be attributed to its strategic patience and effective capital management across the interest rate cycle. During 2020 and 2021, when the Federal Reserve cut interest rates to near zero and rates on treasuries and mortgages dropped significantly, many banks invested heavily in low-interest-earning assets due to excess deposits. However, JPMorgan took a different approach, retaining a substantial portion of its capital in cash and liquid securities.

In the third quarter of 2024, JPMorgan Chase & Co. (NYSE:JPM) reported revenue of $42.7 billion, which saw a 7% growth from the same period last year. The firm delivered solid financial and operational results, reporting $12.9 billion in net income and achieving a return on tangible common equity (ROTCE) of 19%. Within its Corporate & Investment Bank (CIB) division, investment banking fees increased by 31%, and Markets revenue showed strength with an 8% growth.

JPMorgan Chase & Co. (NYSE:JPM) is a strong dividend payer. The company returned $3.6 billion to shareholders through dividends in the most recent quarter. It currently pays a quarterly dividend of $1.25 per share and has a dividend yield of 2.03%, as of December 5. With a 3-year share price gain of 55.7%, JPM is one of the best dividend knights.

As of the close of Q3 2024, 105 hedge funds in Insider Monkey’s database owned stakes in JPMorgan Chase & Co. (NYSE:JPM), compared with 111 in the preceding quarter. These stakes have a total value of over $8.6 billion. With nearly 17 million shares, Fisher Asset Management owned the largest stake in the company.