We recently compiled a list of the Dividend Kings List: Top 15. In this article, we are going to take a look at where Northwest Natural Holding Company (NYSE:NWN) stands against the other dividend kings you should know about.
Dividend Kings are a distinguished group of companies that have achieved at least 50 consecutive years of dividend increases. While some of these companies are part of the S&P index, the two categories are not entirely overlapping. The appeal of Dividend Kings became especially clear after the disruptions caused by the COVID-19 pandemic in 2020. During this time, numerous companies either reduced or suspended their dividends, leaving income-focused investors disappointed. Many had assumed that dividend-paying stocks were inherently lower risk, only to face steep share price drops alongside payout cuts. However, Dividend Kings stand out for their remarkable consistency, boasting 50 years of uninterrupted dividend increases. This long history of reliable payouts provides a sense of stability, even in volatile market conditions.
Investors often gravitate toward firms with a track record of consistent dividend growth, as such companies tend to perform well in declining or stagnant markets. Even during periods of strong market performance, dividend growers have captured a significant share of the gains. Following a long-term dividend growth strategy can aid in compounding returns for investors. A T. Rowe Price report highlighted that, between 1985 and 2022, companies in the Russell index that consistently increased dividends outperformed the broader benchmark. Furthermore, these companies exhibited lower price volatility compared to the overall market.
Earning income through dividend stocks is a gradual process that requires patience and a commitment to long-term investing. These stocks are particularly suited for investors with a long-term horizon, as they have consistently outpaced inflation over time. According to data from Morningstar and Yale University’s Robert Shiller, since 1871, the market’s dividends per share have grown at an annualized rate 1.6 percentage points higher than inflation. Moreover, the gap between dividend growth and inflation has widened in recent years. Over the past 50 years, dividends have outpaced inflation by 2.5 percentage points annually, and in the last 20 years, the margin has grown to 4.6 percentage points per year.
During market rallies, dividend-growing stocks may underperform as investor enthusiasm and momentum often take precedence over fundamentals such as valuation and business quality. This trend has been especially noticeable in the recent past, with dividend stocks lagging behind the broader market. Nonetheless, maintaining a long-term strategy centered on dividend growth can be advantageous, as the benefits accumulate over time with each increase in payouts. Companies with solid fundamentals and robust financial stability are typically well-positioned to sustain and grow their dividends. In contrast, smaller or emerging businesses often prioritize reinvesting earnings into their operations to fuel growth. Given this, we will take a look at some of the best dividend kings with the highest yields.
Our Methodology:
To create this list, we examined a set of over 50 dividend king companies, recognized for consistently increasing dividends for 50 years or more. From this group, we selected companies with the highest dividend yields as of December 3 and organized them in ascending order based on their yield, from lowest to highest. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 900 as of Q3 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).
A construction worker welding a gas pipeline on a gas storage facility.
Northwest Natural Holding Company (NYSE:NWN)
Dividend Yield as of December 3: 4.51%
Northwest Natural Holding Company (NYSE:NWN) is a natural gas distribution company that offers a wide range of related products and services to its consumers. The company recently revealed that it had reached a $425 million agreement, including cash and assumed debt, to acquire a gas utility operating in the Texas Triangle region. It made this announcement on November 18, and since then, the stock has surged by over 3%. Its year-to-date returns came in at over 8%.
Northwest Natural Holding Company (NYSE:NWN)’s third-quarter revenue came in at $137 million, surpassing analysts’ estimates by $4.47 million. The company’s net income for the quarter came in at $34 million. Over the past 12 months, it increased its gas and water utility connections by nearly 17,000, achieving a combined growth rate of 1.9% as of September 30, 2024, largely fueled by successful water acquisitions. Palm Valley Capital Management made the following comment about NWN in its Q1 2024 investor letter:
“During the quarter, we purchased Northwest Natural Holding Company (NYSE:NWN). Founded in 1859, NW Natural is a natural gas utility operating in Oregon and Washington. While the company targets long-term earnings growth of 4%-6%, earnings per share in 2024 are expected to decline by 7% to 15%. Earnings are being pressured by above average investments in the utility’s infrastructure and higher than expected inflation. In response, management filed for a rate increase with regulators in December 2023, which would provide the utility with a 10.1% return on equity. If approved, new rates are expected to go into effect in November and should move earnings in 2025 closer to our normalized estimate of $2.80/share. NW Natural is currently trading at 13x our normalized EPS estimate and 1.2x tangible book value—both near historical lows. The firm has increased its dividend for 68 years in a row, and the stock offers a 5.3% yield. While there remains uncertainty related to regulatory decisions and interest rates, at its current price, we believe we’re being adequately compensated for risk assumed.”
Northwest Natural Holding Company (NYSE:NWN) has been generating solid cash this year. In the first nine months of 2024, the company reported an operating cash flow of nearly $220 million. It ended the quarter with over 35 million available in cash and cash equivalents. The company holds one of the longest dividend growth streaks in the market, having raised its dividends by 69 years in a row. Currently, it pays a quarterly dividend of $0.49 per share and has a dividend yield of 4.5%, as of December 3.
As of the close of Q3 2024, 14 hedge funds in Insider Monkey’s database owned stakes in Northwest Natural Holding Company (NYSE:NWN), up from 11 in the previous quarter. These stakes are valued at over $62.7 million.
Overall NWN ranks 3rd on our list of the dividend kings you should know about. While we acknowledge the potential of NWN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NWN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
