We recently compiled a list of the 8 Best Dividend Kings To Invest In For Safe Dividend Growth. In this article, we are going to take a look at where Parker-Hannifin Corporation (NYSE:PH) stands against the other dividend kings.
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).
A robotic arm in a factory demonstrating the application of motion control technologies.
Parker-Hannifin Corporation (NYSE:PH)
5-Year Average Annual Dividend Growth Rate: 13.38%
Parker-Hannifin Corporation (NYSE:PH) is an American manufacturing company that specializes in motion and control technologies. The company has experienced significant growth, with its stock rising by more than 232% over the past five years, significantly outperforming the broader market’s 96% increase. The company is also recognized for its strong dividend payouts and impressive cash flow generation. For fiscal 2024, it reported a 20% increase in year-to-date operating cash flow, reaching a record $2.1 billion, which represents 14.6% of sales, up from $1.8 billion in the prior-year period. The company also achieved notable improvements in adjusted segment operating margins, with the Aerospace Systems Segment delivering exceptional performance. This solid financial performance has led to record operating cash flow. Moving forward, the company expects a 50% increase in free cash flow and plans to double its dividend over the next five years, providing shareholders with larger payouts each year, which is expected to have a positive impact on the stock’s value.
Diamond Hill Capital highlighted PH in its Q3 2024 investor letter. Here is what the firm has to say:
“Other top Q3 contributors included Parker-Hannifin Corporation (NYSE:PH) and Ciena Corporation. Diversified industrial and aerospace manufacturer Parker-Hannifin is capitalizing on strength in its aerospace business to drive better-than-expected results against a challenging macroeconomic backdrop that has weighed on peers’ results.”
Parker-Hannifin Corporation (NYSE:PH) reported strong earnings in the third quarter, despite challenges in the industrial sector. The company reached a milestone with nearly $20 billion in sales, a record adjusted segment operating margin that saw a 200 basis point improvement from the previous year, and an 18% increase in adjusted earnings per share. It also generated a record $3 billion in free cash flow. With a strong outlook for fiscal year 2025, the company is well-positioned to achieve its financial goals for fiscal year 2029.
Parker-Hannifin Corporation (NYSE:PH), one of the best dividend kings, has been growing its dividends for 68 consecutive years. The company’s 5-year average annual dividend growth rate comes in at 13.38%. It currently offers a quarterly dividend of $1.63 per share and has a dividend yield of 0.95%, as of December 9.
Insider Monkey’s database of Q3 2024 indicated that 62 hedge funds owned stakes in Parker-Hannifin Corporation (NYSE:PH), down from 67 in the previous quarter. The consolidated value of these stakes is more than $2.22 billion.
Overall PH ranks 3rd on our list of the best dividend kings to invest in for safe dividend growth. While we acknowledge the potential for PH 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 PH 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.
