In this article, we will discuss some of the best dividend kings for safe dividend growth.

Investors often focus on stock price movements, anticipating gains, but may underestimate the value of dividends as a key component of returns. This becomes particularly attractive when looking at companies with a history of steadily increasing their dividends. That’s where Dividend Kings come into play. These businesses have consistently raised their payouts for at least 50 years. Achieving this milestone is no small feat, with only around 54 out of thousands of publicly traded US companies earning this distinction.

This dividend growth can be attributed to the solid financial positions of many high-quality companies. Since the pandemic began, these reserves have steadily increased, as a strong economy has allowed businesses to save more and earn returns on short-term investments. According to an analysis by the Carfang Group, based on the Federal Reserve’s quarterly flow of funds, US companies increased their cash holdings in the first quarter of 2024, reaching a record $4.11 trillion. This growth, supported by a resilient economy and relatively high interest rates, marked a 12.6% increase from the same period last year and was $1.28 trillion higher than pre-pandemic levels. Recent trends also showed that companies have been shifting more of their investments toward corporate and US government debt, according to Clearwater Analytics, which analyzed nearly 400 corporate portfolios with assets totaling just under $1 trillion. Despite this shift, most funds remain allocated to cash or cash-equivalent instruments, which delivered annualized returns exceeding 5.48% in May, as reported by Clearwater.

Also read: 8 Best Dividend Paying Debt Free Stocks to Invest in

Focusing on dividend growth reveals its significant appeal over the years. Stocks known for consistent dividend increases have performed exceptionally well, with the Dividend Aristocrats index standing out as a key benchmark. This index, which tracks companies with a minimum of 25 consecutive years of dividend growth, has consistently delivered strong returns, often surpassing other asset classes despite market fluctuations. ProShare emphasized the index’s value for income-focused investors, noting its history of outperforming the broader market while exhibiting lower volatility since its inception. Their report highlighted that a $10,000 investment in the index in May 2005 could have grown to over $61,000 by March 2023. The report also mentioned that the index outperformed the market during eight of the ten largest quarterly declines since 2005.

In addition to shareholder returns, dividend stocks have played a pivotal role in driving overall market performance, delivering substantial contributions. A report from T. Rowe Price highlighted that compounded dividends accounted for over 70% of global market returns. Similarly, the Harvard Business Review revealed that dividends made up nearly 37% of corporate earnings between 2003 and 2012.

Consistently maintaining dividend payouts is a significant challenge for companies, even more so than increasing them regularly. Analysts caution against falling for yield traps—stocks that offer high yields but have unreliable dividend policies. Brian Bollinger, president of Simply Safe Dividends, emphasized the importance of prioritizing quality over yield in dividend investing during an interview with CNBC. He advised focusing on high-quality companies that typically offer dividend yields of around 3% to 4%. These businesses often demonstrate consistent growth in their dividend payments, providing a steady income stream while mitigating the effects of inflation. Additionally, he noted that lower-yield stocks are generally safer, with more dependable payout structures. Given this, we will discuss some of the best dividend kings for safe dividend growth.

Our Methodology:

For this article, we scanned the list of dividend kings, which are the companies that have raised their payouts for 50 years or more. From that list, we picked 8 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the third quarter of 2024.

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).

8. Stepan Company (NYSE:SCL)

5-Year Average Annual Dividend Growth Rate: 8.06%

Stepan Company (NYSE:SCL) is an Illinois-based chemical manufacturing company that specializes in specialty chemicals for consumer and industrial purposes. The stock is down by nearly 18% since the start of 2024 due to industry-related challenges. However, the company still managed to deliver strong earnings in the third quarter of 2024. Its adjusted EBITDA experienced double-digit growth, fueled by strong performance in the Surfactant and Specialty Product segments. Surfactants showed a notable volume recovery, achieving double-digit growth across the Agricultural, Oilfield, Construction and Industrial Solutions sectors, as well as through Distribution partners. In Latin America, Surfactant volumes increased by mid-single digits, supported by robust demand in Brazil’s Agricultural markets and new business contracts in Mexico.

Stepan Company (NYSE:SCL) reported revenue of $546.8 million, which fell slightly by 3% from the same period last year. Net sales decreased due to a combination of factors, including a 1% decline in volume, reduced selling prices, and the effects of foreign currency translation. That said, the company remains on course to achieve its $50 million cost reduction target for 2024, having realized $13.3 million in pre-tax savings during the third quarter.

Stepan Company (NYSE:SCL)’s cash generation remained strong during the quarter. The company’s operating cash flow for the quarter came in at $22.7 million and its free cash flow came in at $4 million. Due to its solid cash position, the company managed to raise its payouts for 57 years in a row. Moreover, in the past five years, it has raised its payouts at an annual average rate of over 8%, which makes it one of the best dividend kings on our list. The company pays a quarterly dividend of $0.385 per share and has a dividend yield of 2.01%, as of December 9.

The number of hedge funds tracked by Insider Monkey owning stakes in Stepan Company (NYSE:SCL) jumped to 13 in Q3 2024, from 8 in the preceding quarter. The consolidated value of these stakes is nearly $33 million. Among these hedge funds, Gotham Asset Management was the company’s leading stakeholder in Q3.

7. American States Water Company (NYSE:AWR)

5-Year Average Annual Dividend Growth Rate: 9.08%

American States Water Company (NYSE:AWR) is an American utilities company that mainly specializes in delivering safe, reliable, and sustainable services and products. Established in 1886, the water utility entered the public market in 2008 with an initial share price of $21.50, reaching approximately $85 per share by December 2024. As the largest water utility stock in the US, American Water Works enjoys the advantages of being a regulated monopoly, facing no competition in its service areas. In return, its pricing is overseen by state and local authorities. The company’s growth has been driven by strategic investments in its infrastructure, acquisitions, and expansion into market-driven ventures like its military services division.

In the third quarter of 2024, American States Water Company (NYSE:AWR) reported revenue of $161.7 million, which showed a 6.65% growth from the same period last year. The revenue also surpassed analysts’ estimates by $782,000. As of September 2024, the contracted services division secured $54 million in new construction projects, scheduled for completion between 2024 and 2027.

On October 30, American States Water Company (NYSE:AWR) declared a quarterly dividend of $0.4655 per share, which was in line with its previous dividend. The company holds one of the longest dividend growth streaks in the market, raising its payouts for 70 consecutive years. With a 5-year average annual dividend growth of over 9%, AWR is one of the best dividend kings on our list. The stock’s dividend yield on December 9 came in at 2.28%.

At the end of Q3 2024, 18 hedge funds tracked by Insider Monkey held stakes in American States Water Company (NYSE:AWR), compared with 20 in the previous quarter. These stakes have a collective value of nearly $62 million. Millennium Management owned the largest stake in the company, worth over $23.6 million.