Dividend Kings for 2024 - Part I

Are these worth buying?

Author

Michael Wight
November 20, 2024

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Royal Returns: The 14 Best Dividend Kings for 2024 - Part I

Dividend Kings are companies that have achieved a remarkable feat: increasing their dividend payouts annually for over 50 years. These companies typically have established business models, solid financials, and a reputation for steady growth, making them popular choices for income-focused investors. However, not every Dividend King is a perfect fit for every portfolio, so it’s helpful to consider both the strengths and weaknesses of these companies.

In this issue, we’ll look at 14 top dividend kings of the year (divided in two parts). So let’s get started:

1. Altria Group (MO)

Why Invest: Altria has a robust cash flow from its dominant position in the tobacco industry, generating billions in revenue annually. The company’s free cash flow (FCF) has consistently been above $4 billion, providing ample capacity for dividend payouts. Altria has diversified into new areas like cannabis and vaping, which could provide long-term growth. The company’s P/E ratio of around 8.5 indicates it is trading below the industry average, possibly making it an attractive value play. Additionally, Altria’s dividend yield of 8.18% is one of the highest in its sector, making it highly appealing to income-focused investors.

Why Not Invest: Altria's shrinking customer base in traditional tobacco products, due to ongoing health concerns and stricter regulations, poses a long-term risk. The company’s heavy debt load, which exceeds $20 billion, could limit flexibility and increase financial strain, particularly if regulatory pressures rise. Despite its diversification efforts, Altria faces significant competition from emerging nicotine alternatives and regulatory hurdles that could impede future growth. The declining cigarette market could lead to slower growth and lower future earnings, challenging its ability to sustain high dividend payouts long-term.

Verdict: Altria is a solid option for those focused on dividend income. However, for investors aiming for market-beating returns, the opportunity to buy may have passed, and they should consider other options. The dividend is probably the only reason to own Altria.

2. Universal Corporation (UVV)

Why Invest: Universal’s steady cash flow from its tobacco leaf supply operations makes it a reliable dividend payer. With a P/E ratio of around 11.5, the stock appears reasonably priced compared to its industry peers. The company has also shown strong dividend growth over 53 years and currently offers a 6.5% yield. Universal’s efforts to adapt to market changes, including exploring non-tobacco-related agricultural investments, provide some diversification and long-term potential. Furthermore, its focus on expanding operations in emerging markets could open up new revenue streams. Universal Corporation delivered a strong performance in fiscal year 2024, posting a net income of $119.6 million despite facing challenges like a limited tobacco supply and rising green tobacco prices. The fourth quarter alone accounted for $40.3 million of the total net income. The company also announced a quarterly dividend of $0.81 per share.

Why Not Invest: Universal's customer base is closely tied to the global tobacco industry, which is facing structural decline. The company’s narrow focus on tobacco leaves limits diversification and exposes it to price fluctuations and regulatory risks. Universal’s debt levels have also risen in recent years, making it more vulnerable to economic shifts. The stock’s relatively low growth rate and shrinking market could put downward pressure on its future earnings and dividends, potentially making it less appealing for long-term growth-focused investors.

Verdict: Given the projected annual returns of 11.2% over the next five years, Universal Corporation looks like a strong buy but we’d suggest you to look at other options as the company has faced challenges in growing earnings over the past decade, which has impacted dividend growth.

3. Northwest Natural Holding (NWN)

Why Invest: With a long history of dividend increases and a current yield of 4.83%, Northwest Natural provides stability with a diversified business model. The company’s P/E ratio of around 17.3 is in line with utility sector averages, indicating solid valuation. Northwest Natural has consistently generated strong cash flow, with operating cash flow exceeding $400 million annually. The company’s ongoing investments in infrastructure and renewable energy could provide growth opportunities, while its regulated utility operations ensure steady revenue streams.

Why Not Invest: Utility companies like Northwest Natural face slow growth due to their heavily regulated nature. Additionally, its reliance on natural gas, a fossil fuel, could expose the company to long-term risks as the global energy market shifts toward cleaner alternatives. While the company’s debt levels are manageable, any significant increase in interest rates could affect profitability due to its capital-intensive operations. Furthermore, customer growth in its service areas has been modest, which could limit future earnings growth.

Verdict: The opinion on this company is divided. The median price target for NWN from 7 analysts is $47.71, with a high estimate of $59.00 and a low estimate of $40.00. We think there will be growth. Plus, remember that NWN's periodic dividend increased to $0.49 on November 15. 

4. Black Hills Corporation (BKH)

Why Invest: Black Hills benefits from its diversified utility services in electricity and natural gas, providing stable cash flow. Its P/E ratio of 16.8 is reasonable for the utility sector, suggesting that the stock is fairly valued. The company’s strong cash flow allows for continued investment in renewable energy projects, which could position Black Hills well in the growing green energy market. Black Hills' dividend yield of 4.27% is supported by its consistent operating cash flow, which has averaged over $400 million per year. Plus, it is growing and is expected to serve Meta's first data center in Cheyenne, Wyoming, starting in 2026

Why Not Invest: Like many utilities, Black Hills faces limited growth prospects, as the utility industry is heavily regulated, and any substantial increase in interest rates could make utility stocks less attractive. The company has also accumulated a significant amount of debt to fund infrastructure improvements, which could strain its financial position if interest rates rise. Additionally, while the company is investing in renewables, these projects may take years to become profitable, and competition from alternative energy providers could negatively impact long-term growth.

Verdict: BKH uses a lot of debt to increase returns, which can increase financial risk. it has some exciting things lined up but we do not consider it a buy.

5. United Bankshares (UBSI)

Why Invest: United Bankshares is a regional bank with a history of consistent dividend payments, offering a yield of 3.9%. Its P/E ratio of 15.73 is relatively high compared to other banks, which might signal that it is overvalued. United Bankshares has strong cash flow, with net income exceeding $300 million annually, driven by a diversified portfolio of loans and financial services. The bank’s regional expansion, including acquisitions, is expected to provide solid growth opportunities.

Why Not Invest: While United Bankshares has historically performed well, regional banks are more exposed to economic downturns, especially in the event of a recession. Additionally, it may struggle to generate significant growth in a low-interest-rate environment. High levels of competition from larger banks and fintech companies could also limit its ability to capture market share. Furthermore, the company's exposure to regional economic conditions could lead to volatility in earnings.

Verdict: We think this is a hold and not a buy for now. The average 12-month price target for UBSI is $38.50, which is a 1.74% increase from the current price.

6. Federal Realty Investment Trust (FRT)

Why Invest: Federal Realty owns a high-quality, diversified portfolio of retail and mixed-use properties, which gives it stability and reliable income. The company’s dividend yield of 3.89% is supported by strong cash flow from its properties in affluent, high-demand locations. Federal Realty’s P/E ratio of around 17 indicates a solid, stable company, although it's somewhat above the average for REITs. The company's continued investments in redevelopment and urban retail projects position it well in a changing retail landscape.

Why Not Invest: Federal Realty faces significant risks from the ongoing rise of e-commerce and shifts in consumer behavior, which could lead to declining occupancy rates in its properties. .

Verdict: We think this option is overvalued and it may be a good idea to wait a little before you buy this one. There are other REITs offering similar dividends with a more solid standing, such as Realty Income Corp.

7. Hormel Foods (HRL)

Why Invest: Hormel Foods has a diverse portfolio of well-known brands, such as Spam, Skippy, and Hormel, which support strong revenue growth and stable cash flow. The company has a reasonable P/E ratio of 19, reflecting consistent performance. Hormel’s diversified product lines, including refrigerated meals, sauces, and snacks, give it resilience in tough economic conditions. Hormel’s cash flow exceeds $1 billion annually, providing ample capacity to support its 3.63% dividend yield.

Why Not Invest: Hormel faces rising raw material and transportation costs, which could squeeze profit margins. Competition in the food sector, particularly from private-label products, also presents a challenge. The company’s slow growth in mature markets may limit its potential for significant long-term capital appreciation. While Hormel has strong cash flow, any downturn in consumer spending could hurt demand for its products, impacting earnings.

Verdict: The business has faced challenges. Despite Hormel's high-profile acquisition of the Planters snack brand for $3.3 billion in 2021, earnings have continued to decline, and the deal has increased the company's debt load. While there are signs of improvement, we consider it a hold, if not a sell, and not a buy at this time.

Part 2 of this list has several exciting and some bigger names that are a buy. So, keep an eye on for the next issue.

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