In this article we discuss 30 dividend kings of 2021. This is a three-part series. You can skip our discussion of the merits of dividend investing, why it’s a solid long-term strategy to buy dividend kings and go directly to top 5 dividend kings of 2021 (Part I).
Dividend investing strategy proved its mettle during the coronavirus crisis. Contrary to the predictions by leading investment firms like Goldman Sachs forecasting 20% decline in dividends for 2020, the total decline for dividends in the benchmark S&P 500 stock index was less than 1%. Despite plummeting corporate earnings and shrinking economy, dividend investors kept enjoying steady streams of income amid low interest rates, strong FCF history of dividend-paying companies and government-backed stimulus packages.
What Is a Dividend King Stock?
Dividend king is a stock with 50 or more consecutive years of dividend increases. When a company has a track record of increasing its dividend consistently for 50 years, there is very little chance that it would slash or stop increasing its dividend. In a study that surveyed 384 financial executives to determine the factors that drive dividend and share repurchase decisions, executives said that they would be willing to cut even profitable investments to maintain dividends.
Is Dividend Investing a Good Strategy?
Dividend investing remains a viable investment option for those who want solid income streams and certainty in their lives. Analysts recommend dividend investing especially for post-retirement income. Dividend kings are usually mature and developed blue-chip companies with less room for growth. Instead of investing their profits back into their growth funnel, they pay their investors with regular dividends. Investing in high-yield, low-growth stocks is a useful strategy for retirement, as you can make a steady income without actively buying or selling shares to avoid losses or make big profits.
However, dividend cuts are not uncommon, especially when markets are volatile. Data shows 42 companies in the S&P 500 suspended their dividends from March 2020 through July amid the coronavirus crisis. Most of these companies are operating in vulnerable sectors like services, airlines, travel and restaurants. These companies include American Airlines, Ross Stores, Ford, Hilton, GM, Apache, Dominion Energy, Halliburton and Occidental Petroleum. As the economy comes back to normal and vaccines are made available on a wider scale, most of these companies are expected to reinstate their dividends. Companies like Darden Restaurants, Estée Lauder and Marathon Oil have already restarted paying dividends after suspending them during the start of the crisis. But to avoid uncertainties and disruptions in your income stream, dividend kings with strong balance sheets should be your top choice for investment in 2021 and beyond.
Dividend stocks outperform non-dividend stocks by wider margins when interest rates are declining, but data shows that they beat their non-dividend peers even during rising interest rates. A study by Ned Davis Research shows that dividend stocks in S&P 500 index returned 2.2% during periods when the Federal Reserve hiked rates, while non-dividend stocks in the index returned 1.8%.
It's always recommended to diversify your income stream given the volatility in the financial markets worldwide. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Nordson is an Ohio-based company that sells dispensing equipment for consumer and industrial adhesives, sealants and coatings. The company has consistently increased its dividend for the last 56 years. In fiscal fourth quarter, the company posted a non-GAAP EPS of $1.59, beating the Wall Street estimates by $0.06. Revenue in the quarter declined by 4.6% to $558.53 million, beating the Street estimates by $1.77 million.
A total of 21 hedge funds tracked by Insider Monkey were long NDSN shares at the end of the third quarter.
Confluence Investment Management said the following about the company in their Q1 2020 Investor Letter:
“Nordson Corporation was also added during the quarter. Nordson is a well-run industrial company with leading positions in its niches of operation, which pertain to fluid handling and precision dispensing. The company’s operating margins are among the best in the industrial complex as are its returns on assets and equity. One reason the company has been so successful is that its products and services allow customers to be more efficient and productive. Customers can easily ascertain and calculate their returns on investment for Nordson products (reduced downtime, materials savings, faster line speeds, reduced labor, etc.). In a world of better, faster, cheaper, and smaller, Nordson is a key facilitator. The company also has a large installed base across a diverse group of end markets and customers, with well-entrenched exposure to several durable segments of the economy like canned goods, packaging, diapers, and feminine hygiene. These less cyclical businesses are balanced with exposure to higher growth areas of the economy like technology. For example, it should be a key facilitator as production lines reposition for 5G technology and new form factors emerge. The company has been deleveraging from recent acquisitions and is once again positioned to conduct accretive M&A, which has been a successful element of the company’s growth strategy in recent years. We expect this to continue under new leadership from Illinois Tool Works.”
Illinois-based specialty chemicals company Stepan is one of the top 30 dividend kings of 2021. The company in October 2020 increased its dividend for the 53rd consecutive year. In October 2020, Stepan said its Q3 net sales increased by 3%, amid a 5% increase in global sales volume.
As of the end of the third quarter 12 hedge funds tracked by Insider Monkey held positions in the company. The total value of these stakes is $46.7 million
MSA Safety became a dividend king in 2020 after it increased its dividend by 2.4% to $0.43 per share. The Pennsylvania-based company sells safety products like gas detection instruments, filter-type respirators, gas masks, breathing apparatus and thermal imaging cameras.
Hedge fund sentiment declined for MSA in the third quarter. A total of 14 hedge funds had positions in the company at the end of September, down from 26 funds a quarter earlier.
Illinois-based Tootsie Roll makes confectionary products. It is known for Tootsie Rolls and Tootsie Pops. The company was started by an Austrian Jewish immigrant named Leo Hirshfield, who used to work at a small candy shop in the NYC. Tootsie Roll stock has gained over 5% in the last few days.
As of the end of the third quarter, 15 hedge funds tracked by Insider Monkey held stakes in the company.
Minnesota-based H.B. Fuller Company sells industrial adhesives all over the world. In the fourth quarter, HB Fuller earned a non-GAAP EPS of $1.06, above the Street’s forecast by $0.20. Revenue in the period jumped 5.2% to $777.64 million. The company upped its dividend in April 2020, its 51st consecutive dividend hike.
A total of 16 hedge funds tracked by Insider Monkey were long FUL shares at the end of September, up from 10 funds a quarter earlier.
