Five Dividend Kings that Smart Money Likes the Most

Among the best dividend stocks that money can buy, dividend kings represent an elite group of companies that have been consistently paying out dividends for at least 50 years. A company must have a very stable business to ensure dividend payments for such a long time and it’s not surprising that more conservative investors like Warren Buffett are fond of these companies. While the returns from investing in a dividend king might not be as rewarding as investing in a hot technology or biotech company, they are much less risky and over the long term they can still provide solid returns. With this in mind, we have selected five dividend kings which the investors from our database like the most. Unsurprisingly, Warren Buffett held shares of three of these companies.

Why are we interested in the picks of a select group of investors? The reason is simple: we believe that by imitating some of their ideas, we can generate returns that can beat the broader market. Our strategy involves imitating the 15 most popular small-cap stocks among over 700 hedge funds and other investors and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by some 53 percentage points (see more details here).

Let’s start with 3M Co (NYSE:MMM), in which 40 funds from our database held positions equal to 2.10% of its outstanding stock at the end of June. Even though the stock fell by 7% during the third quarter amid a broader market sell-off, it is still 5% in the green year-to-date. 3M’s latest financial results were solid, with EPS of $2.05, beating estimates by $0.05, although its revenue came in lower than expected. Amid a global economic slowdown and a stronger dollar that affected 3M Co (NYSE:MMM)’s top and bottom lines, the company has announced plans to cut around 1,500 employees as it expects a similar environment at least for the next year. This year, 3M raised its quarterly dividend to $1.02 from $0.86 and its stock currently sports a dividend yield of 2.63%. Meanwhile, Edgar Wachenheim‘s Greenhaven Associates increased its stake in 3M Co (NYSE:MMM) by 12% during the third quarter, reporting ownership of some 2.25 million shares in its latest 13F filing.

Lowe’s Companies, Inc. (NYSE:LOW) lost some popularity among the funds we track, with the number of investors with long positions declining by four to 56 during the second quarter. Nevertheless, these funds held stakes equal to some 4.90% of the company’s outstanding stock at the end of June. Lowe’s stock inched up by 3% during the third quarter and it currently has a dividend yield of 1.52%. Recently, analysts at Oppenheimer reiterated their ‘Outperform’ rating on the stock, along with a price target of $85.00 on it, while overall Lowe’s Companies, Inc. (NYSE:LOW)’s stock has a consensus price target of around $77.40, which indicates an upside potential of 5%. Greenhaven Associates reported holding 9.84 million shares of Lowe’s Companies, Inc. (NYSE:LOW) in its latest 13F filing.

Procter & Gamble Co (NYSE:PG)‘s stock is down by 15% year-to-date, but the company has increased its dividend this year to $0.66 from $0.64, which gives its stock a yield of 3.44%. In its financial report for the third quarter, Procter & Gamble said that its organic sales inched down by an annual 1%, on the back of an 8% drop in China, which is struggling with a worsening macroeconomic environment and where the company lost some market share to higher-end companies. During the second quarter, the number of investors from our database bullish on Procter & Gamble Co (NYSE:PG) declined to 58 from 64, while the aggregate value of their holdings was equal to 4.50% of the company’s market value at the end of June. Buffett’s Berkshire Hathaway has been a long-term shareholder of Procter & Gamble Co (NYSE:PG), holding around 52.79 million shares as of the end of June.

The Coca-Cola Co (NYSE:KO) also lost some popularity among the funds we track, with 62 investors reporting long stakes as of the end of June, down from 65 a quarter earlier. Overall, these funds amassed stakes with a total value of $19.53 billion, which represented around 11.40% of the company’s outstanding stock at the end of June. One of the main problems the company is currently struggling with is currency headwinds, and last week, The Coca-Cola Co (NYSE:KO) said that a stronger dollar will affect its sales and profits throughout the next year and possibly into 2017 as well, although its cost-cutting efforts and diversifying into other businesses amid declining soda sales will offset some of those losses. The Coca-Cola Co (NYSE:KO) represents the second-largest position in Berkshire Hathaway’s equity portfolio, the firm owning 400 million shares of the beverage producer. Warren Buffett has been bullish on the company since the late 1980’s and has made a pile of cash on its dividends alone since then.

Johnson & Johnson (NYSE:JNJ) was the favorite divided king stock among the funds we track. The company was included in the equity portfolios of 78 funds, which held 1.60% of its outstanding stock at the end of June. However, it was significantly below the top spot on the list of the most popular companies, which was occupied by Allergan PLC (NYSE:AGN), in which 151 funds reported stakes. A stronger dollar and the slowdown of emerging markets are affecting Johnson & Johnson (NYSE:JNJ)’s sales, but these trends are viewed by most investors as short-term concerns. The stock has inched down by 4% year-to-date and it sports a dividend yield of 2.99%. Meanwhile, billionaire Ken Fisher’s Fisher Asset Management has been consistently increasing its position in Johnson & Johnson (NYSE:JNJ) for the past three quarters and most recently reported ownership of 10.69 million shares in its filing for the third quarter.

Disclosure: None