In the bustling realm of dividend investing, “blue chips” often steal the spotlight. These industry titans, including giants such as Procter & Gamble (PG) and Coca-Cola (KO), are celebrated for their generous payouts and seemingly untouchable stability. But while these giants certainly deserve their accolades, overlooking lesser-known “dividend aristocrats” could be missing out on hidden gems offering equally compelling income streams and promising growth potential.
These under-the-radar aristocrats, defined as companies with at least 25 consecutive years of dividend increases, possess the same hallmarks of reliability and financial prowess as their larger counterparts. Yet, they often trade at lower valuations, boast faster-growing dividends, and operate in exciting, under-appreciated sectors.
So, if you’re seeking to diversify your portfolio with high-quality dividend stocks that offer both income and the chance to beat the market, here are 5 emerging dividend kings worth scrutinizing for 2024:
1. AbbVie (ABBV): The Undisputed King of Biotech Dividends
Boasting a 57-year streak of dividend increases, AbbVie reigns supreme in the biotech arena. This pharmaceutical powerhouse, born from Abbott Laboratories, is a leader in immunology, oncology, and neuroscience, boasting blockbuster drugs like Humira and Imbruvica.
With a robust pipeline and consistent revenue growth, AbbVie confidently projects a 10% annual dividend increase through 2025. Offering a 4.4% yield as of writing, it’s no surprise AbbVie attracts income-seeking investors. However, its potential for dividend growth and its position in the growing biotech sector, make it a compelling pick for long-term investors seeking both income and capital appreciation.
2. Lowe’s Companies, Inc. (LOW): Home Improvement Hero with Hidden Dividend Muscle
While Lowe’s might not immediately spring to mind when thinking of dividend aristocrats, its 67-year record of consecutive dividend increases speaks volumes. The home improvement giant has navigated a turbulent economic landscape with remarkable resilience, capitalizing on the pandemic-driven housing boom and DIY trends.
Lowe’s currently boasts a 2.8% yield as of writing this, and its commitment to share buybacks suggests management prioritizes rewarding shareholders. Moreover, its focus on digital transformation and expansion into complementary markets like pro services positions it for continued growth in the years to come. For investors seeking a defensive play with solid dividend growth potential, Lowe’s deserves serious consideration.
3. Genuine Parts Company (GPC): Auto Parts Juggernaut Fueling Consistent Income
The automotive industry might not be the first place you’d look for dividend stability, but Genuine Parts Company defies expectations. This leading distributor of auto parts and industrial replacement equipment has quietly achieved a 68-year streak of annual dividend increases.
GPC’s diverse portfolio, spanning across North America, Europe, and Australia, provides an inherent hedge against economic downturns in any single region. Its focus on serving both professional mechanics and DIYers further bolsters its resilience. Currently offering a 2.6% yield, GPC might not be a high-flyer, but its unwavering commitment to dividends and strategic growth initiatives make it a reliable income engine for long-term portfolios.
4. W.W. Grainger, Inc. (GWW): Industrial Powerhouse Driving Dividend Growth
W.W. Grainger, a global distributor of industrial supplies, maintenance equipment, and safety gear, might fly under the radar, but its 48-year history of dividend increases showcases its commitment to shareholder rewards. Despite operating in a cyclical industry, Grainger’s focus on essential products and a diversified customer base provide stability.
Its recent acquisition of online industrial distributor Zoro Tools significantly expands its digital reach and positions it to capitalize on the e-commerce trend within the industrial sector. Grainger’s current 2.3% yield might not be eye-catching, but its consistent dividend growth and promising strategic moves make it a compelling long-term hold for income-focused investors.
5. Cardinal Health, Inc. (CAH): Healthcare Guardian with Underrated Dividend Potential
Cardinal Health, a leading distributor of medical and surgical products, plays a crucial role in the healthcare supply chain. While its 32-year dividend growth streak might not rival some longer-standing aristocrats, its strong fundamentals and growth prospects make it a compelling pick.
Cardinal Health benefits from a fragmented healthcare market, consolidating purchasing power and leveraging its scale to secure favorable deals with manufacturers. Its focus on automation and data analytics further enhances its efficiency and cost-effectiveness. Currently offering a 2.8% yield, Cardinal Health’s growth prospects and commitment to increasing dividends make it a promising choice for income investors who are seeking exposure to the resilient healthcare sector.
Beyond the Numbers: A Final Note on Due Diligence
While these five under-the-radar dividend kings offer compelling income and growth potential, it’s crucial to remember that no investment comes without risk. Before leaping into any position, thorough due diligence is essential. Here are some additional points to consider:
- Valuation: While these companies trade at lower valuations than many blue-chip giants, ensure they aren’t undervalued just because they’re lesser-known. Analyze their price-to-earnings (P/E) ratios, price-to-book (P/B) ratios, and other metrics to determine fair value.
- Debt levels: Excessive debt can strain a company’s finances and limit its ability to sustain dividend payments.Scrutinize their debt-to-equity ratio and debt service coverage ratios to assess their financial health.
- Competitive landscape: Understand the competitive landscape in which each company operates. Are they facing strong competition eroding their market share? Can they maintain their competitive edge and continue growing?
- Management track record: Evaluate the management team’s experience and past performance. Do they have a history of shareholder-friendly decisions, and successfully navigating challenges?
Remember, diversification is key to a sustainable investment strategy. Don’t put all your eggs in one basket, even when it comes to promising dividend aristocrats. Spread your investments across different sectors and asset classes to mitigate risk, and maximize your portfolio’s potential.
By combining these insights with your own research and risk tolerance, you can make informed decisions and leverage the hidden potential of these under-the-radar dividend kings for a strong and income-generating portfolio in 2024 and beyond.
Happy investing!
