We recently published a list of the 12 Best Dividend Kings to Buy For Safe Dividend Growth. In this article, we are going to take a look at where Stepan Company (NYSE:SCL) stands against other best dividend kings.
The importance of dividend stocks cannot be denied, even in today’s market environment, which is dominated by AI stocks. The S&P Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years, is down by over 4% since the start of 2025, compared with a much harsher decline of 13% in the broader market.
Dividend stocks become increasingly popular when companies grow their payouts regularly. Historically, dividend growth stocks have performed better than their peers and have shown less volatility. The dividend growth track records, backed by solid fundamentals, offer reliable investment options to income investors. According to a report by Nuveen, dividend growth stocks have outperformed other asset classes with less risk. The report revealed that companies with strong dividend growth streaks delivered an annual average return of over 10% between 1973 to 2024, as compared to a 4.2% return of non-dividend paying stocks. During this period, dividend cutters delivered a nearly -2% return.
Though dividend stocks also do not come with a promise and can also fluctuate, these stocks have made significant contributions to the market’s overall return over the decades. According to a report by Hartford Funds, dividends and reinvested dividends represented nearly 40% of the market’s return from 1930 to 2024, with capital appreciation making up the rest. The report also highlighted their significance when the economy was in the trenches. The data mentioned that during the 1940s, 1960s, and 1970s, the total returns were lower than 10%, however, dividends represented a larger portion of the market’s performance.
According to Jerome Powell, inflation in the US is likely to ramp up because of the President’s sweeping tariffs. Here are some comments from Powell:
“We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation. While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.”
While this presents an overall uncertain environment for an investment landscape, dividend investors are in the catbird seat, as dividend stocks have historically been successful in protecting capital against inflation. WisdomTree reported that from 1957 through 2023, dividends have grown by an average of 5.7%, compared with a 3.67% growth in inflation. The report also mentioned that over the past 68 years, dividend payouts have only decreased in six years, and in just one of those years, they dropped by more than 5%. In comparison, stock prices experienced declines in 18 years during the same period, with the worst drop exceeding 40% and an average decline of more than 11%. Stock prices have proven to be more than twice as volatile as the underlying dividend cash flows. This is because market sentiment often causes short-term fluctuations in stock prices, whereas dividend cash flows, which reflect the company’s long-term value, are less volatile. Given this, we will take a look at some of the best dividend kings for safe dividend growth.
An industrial complex with its towering smokestacks, showing the scale of the company’s specialty chemicals operations.
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 12 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.
At Insider Monkey, we are obsessed with hedge funds. 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Stepan Company (NYSE:SCL)
5-Year Average Annual Dividend Growth Rate: 7.69%
Stepan Company (NYSE:SCL) is an American chemical manufacturing company, based in Illinois. The company mainly specializes in specialty chemicals for consumer and industrial purposes. It reported strong earnings in FY24. Adjusted EBITDA for the full year rose by 4% compared to the previous year, despite being weighed down by a number of one-time items and pre-operating costs tied to the company’s new facility in Pasadena. The Surfactants and Specialty Products segments posted solid double-digit growth in Adjusted EBITDA, though this was partially offset by softer demand in the Polymers segment. On a broader scale, global sales volume increased by 1%, supported by a 2.5% rise in the Surfactant business. The company noted encouraging momentum in Surfactant growth across several of its key strategic end markets.
Stepan Company (NYSE:SCL) also has a strong balance sheet, supported by solid cash generation. The company’s operating cash flow for the fourth quarter came in at $68.3 million, and its free cash flow amounted to $32.1 million. This healthy cash position has enabled the company to raise its dividends for 57 consecutive years, which makes it one of the best dividend kings on our list. Currently, it offers a quarterly dividend of $0.385 per share for a dividend yield of 3.18%, as of April 4.
At the end of Q4 2024, 17 hedge funds in Insider Monkey’s database owned stakes in Stepan Company (NYSE:SCL), up from 13 in the previous quarter. The consolidated value of these stakes is more than $27 million. Among these hedge funds, Gotham Asset Management owned the largest stake in the company in Q4.
Overall, SCL ranks 8th on our list of the best dividend kings for safe dividend growth. While we acknowledge the potential of SCL as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than SCL but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
