The 3 Best Dividend Kings To Own Over The Next 10 Years

Jan. 07, 2020 9:17 PM ETDOV, LOW, NDSN46 Comments


  • Dividend Kings are the ultimate blue chips, with 50+ year dividend growth streaks to their credit.
  • Over the past 26 years the dividend kings have beaten the S&P 500 by 27% annually and 53% on a risk-adjusted basis.
  • Today the kings are 19% overvalued, including the fastest-growing ones, NDSN, LOW and DOV.
  • This article explains at what prices in 2020 the 3 best dividend kings to own this decade become reasonable or attractive buys.
  • Patient investors will be able to lock in some of the safest dividends on Wall Street, as well as double-digit, long-term returns that should put the market to shame.
  • Looking for more stock ideas like this one? Get them exclusively at The Dividend Kings. Get started today »

The dividend kings are companies that have grown their dividends every year for 50+ years. They are the highest echelon of blue chips. More impressive is that these stalwarts have not just delivered rising dividends in every economic/market environment for half a century, but have also delivered superior total returns over time.

Dividend Kings Total Returns Since 1993

(Source: Portfolio Visualizer) portfolio 1 = Dividend Kings

Over the past quarter-century, the dividend kings have outperformed the broader market by 27% annually, and with 12% lower volatility to boot. Thus on a reward/risk ratio basis (excess total returns/negative volatility, aka "Sortino Ratio"), they have beaten the S&P 500 by 53% annually.

7 Proven Market-Beating Strategies Over Time

(Source: Ploutos)

That's not surprising given that the dividend kings stack several proven alpha factors on top of each other including quality, dividend growth, and low volatility.

But my motto is "quality first, valuation second and prudent risk management always."

I just completed the 2020 Dividend Kings list update for our members, meaning I now know

  • what each king is worth based on 2020 consensus fundamentals (dividends, earnings, and cash flow)
  • what's a good risk-adjusted price to buy at
  • its long-term expected growth profile
  • its realistic 5-year CAGR total return range
  • its forward PE
  • its PEG ratio

Dividend Kings Fundamentals

  • average quality score: 9.4/11 blue chip
  • average dividend safety score: 4.7/5 (very safe)
  • average yield: 2.3% vs. S&P 500 1.8% and 2% most dividend growth ETFs
  • average discount to fair value: -19% (26% at end of 2019) - S&P 500 is 13% historically overvalued
  • average dividend growth streak: 57 years
  • average 5-year CAGR dividend growth: 7.3%
  • average long-term consensus growth rate: 7.2% CAGR (vs. 5% to 7% S&P 500 historical and most dividend growth ETFs)
  • average forward P/E: 22.8 vs. 18.4 S&P 500
  • average PEG ratio: 4.3 vs. 3.1 S&P 500

Due to about 7% growth in 2020, the kings are looking slightly less overvalued than they were at the end of 2019. But a 19% average premium to fair value is still very rich.

For context, the S&P 500 is 13% historically overvalued right now. Valuations can't tell you how a stock will perform in the short to medium term. According to research from JPMorgan Asset Management, Bank of America and Princeton, valuation explains

  • 10% of 12-month forward returns
  • 46% of 5-year forward returns
  • 90% of 10+% year forward returns

Buying even the highest quality companies at a 19% premium means significantly lower future returns. Since 1956 the Gordon Dividend Growth Model has been forecasting total returns with relative accuracy over 5+ year periods based on yield + long-term earnings/cash flow/dividend growth + valuation mean reversion.

It's the model that Vanguard founder Jack Bogle, Brookfield Asset Management, and numerous asset managers (including all the dividend kings) have used for years or decades.

(Source: Ploutos)

Here's how the Gordon Dividend Growth Model estimates future returns for the S&P 500 and the dividend kings as a group.

  • S&P 500 2% yield + 5% to 7% CAGR historical EPS growth -2% to 3% valuation drag = 4% to 7% CAGR over the next five years
  • Dividend Kings: 2.3% yield + 7.2% CAGR long-term growth - 4.1% CAGR valuation drag = 5.4% CAGR total returns over next five years

The kings might still match or beat the market, depending on whether or not most asset managers' long-term return expectations are correct.

2% to 7% CAGR is what investors can expect from the S&P 500 over the next decade and even the dividend kings aren't likely to come close to their historical 12.4% CAGR total returns.

The Best Dividend Kings To Own Over The Next Decade (If You Buy Them At The Right Price)

Today there are just six dividend kings trading at fair value or better.

But this article isn't just about which kings are the best to buy right now. Rather it's to point out the fastest-growing kings which, if they achieve the forecasted growth rates, could make excellent opportunistic buys in a 2020 pullback or correction.

(Source: Google Sheets, DK Master List)

Here are all the dividend kings with consensus long-term growth rates of 7.2% or higher. That is a growth rate that is greater than what the S&P 500 is likely to deliver and creates the potential for strong long-term payout growth and outperformance.

So let me highlight the three best dividend kings you can own over the next decade, assuming you opportunistically buy them at a reasonable price.

(Source: DK Master List, Google Sheets)

Lowe's (LOW), Nordson (NDSN) and Dover (DOV) are the kings with the lowest PEG ratios, meaning they represent growth at a reasonable price. And this is from today's slightly to very overvalued levels.

But just because a company is expected to grow at an above-average rate doesn't necessarily mean that it's a great buy today.

  • Nordson: 33% overvalued
  • Lowe's: 13% overvalued
  • Dover: 26% overvalued
  • Stepan (SCL): 42% overvalued
  • SJW Group (SJW): 20% overvalued
  • Lancaster Colony (LANC): 29% overvalued
  • American States Water (AWR): 83% overvalued
  • California Water (CWT): 40% overvalued
  • Sysco (SYY): 7% overvalued
  • Emerson Electric (EMR): 16% overvalued
  • Stanley Black & Decker (SWK): 23% overvalued
  • Procter & Gamble (PG): 23% overvalued

(Source: F.A.S.T. Graphs, FactSet Research)

Nordson is an industrial blue chip with a 64-year dividend growth streak. It's also expected to be the fastest-growing dividend king.

Yet this is a company that the market has determined over the last 20 years is worth 19 to 21 times earnings. It's trading at 26.1 2020's expected EPS and assuming a return to its historically normal 20 PE, could deliver -7% CAGR total returns over the next two years if the company grows per FactSet consensus estimates.

Dover is another industrial king with a 64-year dividend growth streak. FactSet reports it is the 3rd fastest-growing king, and yet buying today means negative return potential over the next three years, assuming a return to fair value.

(Source: F.A.S.T. Graphs, FactSet Research)

Only 11/11 quality Super SWAN dividend king Lowe's, which has a 57-year dividend growth streak, has the combination of strong growth and modest overvaluation to allow it to generate decent analyst consensus medium-term total return potential.

(Source: F.A.S.T. Graphs, FactSet Research)

So what would be the prices at which these three fastest-growing dividend kings (and which have the lowest PEG ratios) would represent good buys or better?


Classification Margin Of Safety For 9/11 Quality Companies 2020 Price 5-Year CAGR Total Return Potential
Reasonable Buy 0% $123 11% to 18%
Good Buy 10% $111 13% to 20%
Strong Buy 20% $98 15% to 22%
Very Strong Buy 30% $86 17% to 24%

(Source: DK Master List, F.A.S.T. Graphs, FactSet Research, Reuters, Gurufocus, YieldChart, Gordon Dividend Growth Model)

The pink line in these graphs is the P/E ratio that represents a "very strong buy." The last time NDSN was a very strong buy was in early 2012 when it traded at 13.5 times earnings and was about 33% undervalued.

(Source: F.A.S.T. Graphs, FactSet Research)

It returned 16% CAGR total returns simply returning to fair value back in late 2019. Measured to its recent bubble highs, it returned almost 19% CAGR over the past seven years.


Classification Margin Of Safety For 11/11 Super SWAN Quality Companies 2020 Price 5-Year CAGR Total Return Potential
Reasonable Buy -4% $110 12% to 20%
Good Buy 0% $106 13% to 21%
Strong Buy 10% $98 15% to 23%
Very Strong Buy 20% $86 17% to 25%

(Source: DK Master List, F.A.S.T. Graphs, FactSet Research, Reuters, Gurufocus, YieldChart, Gordon Dividend Growth Model)

The last time Lowe's was a very strong buy was mid-2012 after it had traded sideways for two years while the market ignored objectively great growth. At a 14.7 P/E it was 27% undervalued and then merely returning to fair value in October 2019, investors enjoyed 24% CAGR total returns.

(Source: F.A.S.T. Graphs, FactSet Research)


Classification Margin Of Safety For 9/11 Blue Chip Quality Companies 2020 Price 5-Year CAGR Total Return Potential
Reasonable Buy 0% $92 4% to 12%
Good Buy 10% $83 6% to 14%
Strong Buy 20% $74 8% to 16%
Very Strong Buy 30% $64 10% to 18%

(Source: DK Master List, F.A.S.T. Graphs, FactSet Research, Reuters, Gurufocus, YieldChart, Gordon Dividend Growth Model)

Patient investors have gotten plenty of chances to buy Dover at a 10.2 or better P/E. That's what a 30% margin of safety represents.

(Source: F.A.S.T. Graphs, FactSet Research)

April 2013 was the last time Dover was a very strong buy, and it's generated 16% CAGR total returns, besting the S&P 500's 13.4% since then. And keep in mind these total returns were generated during several industrial recessions that caused DOV's EPS to grow at just 4.8% CAGR.

Dover is expected to grow more than twice as fast in the future, meaning that buying it merely at a reasonable or attractive price is likely good enough to enjoy double-digit, long-term returns.

The point is that targeting fast-growing dividend kings is a great strategy, but you need to be patient and wait for a reasonable or attractive price. Today, the kings as a group are 19% overvalued. But that just means they are at high risk of a pullback/correction.

Dividend Kings Peak Declines Since 1993

(Source: Portfolio Visualizer) portfolio 1 = Dividend Kings

Over the past 25 years, the kings have suffered just one bear market. But they've seen six corrections and plenty of 5% to 9.9% pullbacks.

And of course, individual kings, such as cyclical industrials, can fall far more than this group or the S&P 500.

Nordson Peak Declines Since 1991

(Source: Portfolio Visualizer) portfolio 1 = NDSN

Since 1991 Nordson has had 10 bear markets. Being 33% overvalued, it is at high risk of another one and thus a great watchlist name for future opportunistic buying.

Dover Peak Declines Since 1986

(Source: Portfolio Visualizer) portfolio 1 = DOV

Dover has similarly seen plenty of bear markets over the last 33 years.

Lowe's is not an industrial, but a consumer discretionary that is economically-sensitive.

Lowe's Peak Declines Since 1986

(Source: Portfolio Visualizer) portfolio 1 = LOW

Lowe's has seen three 50+% crashes since 1986 with the Great Recession being just its third-largest ever decline.

I don't point out this historical volatility to scare you out of owning NDSN, DOV or LOW. I merely want to point out the importance of good risk management in creating a diversified and prudently constructed sleep well at night or SWAN portfolio.

These are the risk management guidelines that I use in running all my portfolios, both for Dividend Kings and my retirement portfolio which generated 35% total returns in 2019 beating its benchmark by 50%.

(Source: imgflip)

Great investors create their own luck by using watchlist to buy quality companies at attractive valuations.

(Source: AZ quotes)

Bottom Line: Fast-Growing Dividend Kings Are A Great Strategy For The Next Decade

There's nothing like stacking the deck in your favor to help you achieve your long-term financial goals. Fast-growing dividend kings like Nordson, Lowe's and Dover are some of the best blue-chip dividend growth names you can own for the next decade.

All three are currently overvalued and thus NOT active buy recommendations right now. But Lowe's is just a pullback away from being reasonably priced and Nordson and Dover will at some point in the coming years, become good buys or better.

When that happens you can rest assured that I will be buying them for my retirement portfolio, Dividend Kings' portfolios, and will be publishing articles letting my readers know that now is the time to make your own luck.

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This article was written by

Dividend Sensei profile picture
Maximize your income with the world’s highest-quality dividend investments

Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).

I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.

With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.

Disclosure: I am/we are long LOW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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