In this article, we have analyzed the list of the best dividend kings to buy for safe dividend growth.

Investors often closely track the fluctuations of the stock market, eagerly expecting price increases. However, they may overlook another significant source of returns: dividends paid by companies to their shareholders. This aspect becomes even more appealing when considering companies that have a track record of consistently increasing their dividends over time. That’s where Dividend Kings come into play. These companies have raised their payouts for at least 50 consecutive years, which is not as easy as it sounds. Hence, only 54 out of thousands of publicly traded companies in the US have managed to achieve this goal.

Dividend stocks have played an important role in the market’s overall returns historically. Dividends have accounted for 34% of the market’s returns on average from 1940 to 2023. Particularly, from the mid-1800s to the mid-1900s, these stocks were the primary factors driving stock returns along with earnings growth. Warren Buffett recognized the value of dividend growth stocks. In August 1994, his company acquired 400 million shares of Coca-Cola, valued at $1.3 billion. Initially receiving a $75 million cash dividend from Coca-Cola in 1994, this amount increased significantly to $704 million by 2022. Buffett foresaw the compounding benefits of his initial investment in Coca-Cola, understanding how dividends would enhance returns over time. He once said:

“By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings [the dividends paid] exceed 100% of what we paid for the business.”

ALSO READ: Warren Buffett’s 8 Best Dividend Stock Picks

This accomplishment was made possible by Coca-Cola’s five-year average annual dividend growth rate of close to 4% (according to FirstRate Data). Imagine the potential for investors when this growth rate surpasses that figure. Since 1960, reinvested dividends and the power of compounding have accounted for 85% of the broader market’s cumulative total return.

Dividend growth stocks have been hitting on all cylinders over the years. The Dividend Aristocrats index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has delivered impressive returns in the past, outperforming other asset classes despite fluctuating market conditions. ProShare highlighted the appeal of investing in this index, especially for income investors. The report noted that the index has consistently outperformed the broader market while maintaining lower market volatility since its inception. According to the report, an initial investment of $10,000 in May 2005 could have grown to over $61,000 by March 2023. In addition, the Dividend Aristocrats index surpassed the market in eight of the ten largest quarterly downturns since 2005. Recently, we covered the list of the 25 Best Dividend Aristocrats to Buy according to Street Analysts.

Although dividend growth stocks have delivered strong returns over the years, the challenge lies in maintaining purchasing power against inflation. High Yield Dividend Aristocrats index, tracking companies that have raised their payouts for at least 20 consecutive years, has grown its dividends at a rate that has surpassed inflation over the long term. The index generated an annualized return of 13.86% over the past 15 years, whereas the Consumer Price Index (CPI) returned 2.6% during this period. This shows how important dividend growth is in the grand scheme of things. In this article, we have discussed some of the best dividend kings that have shown solid dividend growth over the decades.

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 10 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 first 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).

10. Stepan Company (NYSE:SCL)

5-Year Average Annual Dividend Growth Rate: 8.85%

Stepan Company (NYSE:SCL) is an American corporation that specializes in specialty chemicals for consumer and industrial purposes. On April 30, the company declared a quarterly dividend of $0.375 per share, which was in line with its previous dividend. Overall, it has been growing its payouts for 56 consecutive years, which makes SCL one of the best dividend kings on our list. The stock has a dividend yield of 1.79%, as of June 19.

In the first quarter of 2024, Stepan Company (NYSE:SCL) reported revenue of $551.4 million, which showed a 15% decline from the same period last year. However, the company’s cash position remained strong. It generated over $41.6 million in operating cash flow and its free cash flow for the period came in at $11.4 million, a positive sign for a dividend-paying company. In addition, the company is committed to achieving $50 million in pre-tax savings through its previously announced cost-reduction program to counteract inflation and rising expenses. The company also expects its free cash flow to improve compared to the previous year as it completes construction on its Pasadena investment and experiences increased Agriculture volumes in the latter half of the year. We think that SCL can be a good dividend investment as it has raised its dividend payouts by nearly 9% in the past five years.

Stepan Company (NYSE:SCL) is currently trading at a share price of $83.8 and has a forward P/E of 30.03. The stock reached its all-time high in May 2021 when it was trading at around $137 per share. It has fallen by nearly 40% since then. With a positive outlook ahead, it appears that the growth has not yet been fully reflected in the share price.

At the end of Q1 2024, 6 hedge funds tracked by Insider Monkey reported having stakes in Stepan Company (NYSE:SCL), down from 9 in the previous quarter. The collective value of these stakes is over $10.4 million. Among these hedge funds, First Eagle Investment Management was the company’s leading stakeholder in Q1.

9. American States Water Company (NYSE:AWR)

5-Year Average Annual Dividend Growth Rate: 9.35%

American States Water Company (NYSE:AWR) is a California-based utilities company that specializes in delivering safe, reliable, and sustainable services and products. The company is well-positioned to benefit from its business model. These companies frequently hold a monopoly in their service area, and in return for their exclusive position, they consent to regulation by state utility commissions. When water utility companies expand and upgrade their infrastructure to enhance services for current and new customers, these commissions typically approve rate increases. Consequently, this drives up operating revenue and profits over time.

American States Water Company (NYSE:AWR), one of the best dividend kings, currently offers a quarterly dividend of $0.43 per share. The company is rewarding shareholders with growing dividends for 69 consecutive years. The stock has a dividend yield of $2.44%, as recorded on June 19.

In the first quarter of 2024, American States Water Company (NYSE:AWR) posted revenue of $135.2 million, which fell by over 16% from the same period last year. However, the revenue beat analysts’ estimates by $16.25 million. Over the past decade, the company’s dividend has grown at an annual rate of 7.8%, significantly higher than the utility sector average of 5.2%. The company is also positioned to continue growing its dividend at a high single-digit rate annually in the coming years. This is mainly due to its payout ratio of 57%, which is much lower and more favorable than the 75% payout ratio typically preferred by rating agencies for the industry. American States Water Company (NYSE:AWR) has a forward P/E of 23.09. The company’s expected annual growth rate of 7.3% for the next three years surpasses its 10-year average growth rate of 6.5%. Its P/E ratio reflects investor confidence in the company’s ability to handle market challenges more effectively than most. In the past five years, the company has raised its payouts at an annual average rate of over 9%, which places it on our list of the best dividend kings.

As of the end of Q1 2024, 19 hedge funds in Insider Monkey’s database held stakes in American States Water Company (NYSE:AWR), compared with 21 in the previous quarter. These stakes are worth over $45.8 million in total.

8. S&P Global Inc. (NYSE:SPGI)

5-Year Average Annual Dividend Growth Rate: 11.09%

S&P Global Inc. (NYSE:SPGI) ranks eighth on our list of the best dividend kings for safe dividend growth. The American capital market company offers services in financial information and analytics. The company’s earnings in the first quarter came in strong, with its revenue of $3.5 billion, which showed a 10.4% growth from the same period last year. In addition, the company’s cash position indicates that it is well-equipped to continue paying and maintaining its dividends in the future. Its operating cash flow for the quarter came in at $948 million and its free cash flow amounted to $851 million. In FY24, the company expects to return 85% of adjusted free cash flow to shareholders through dividends.

S&P Global Inc. (NYSE:SPGI) is consistently benefitting from its multiple revenue streams and shareholder-friendly policies. The company has a resilient business model that continually adapts to the current trends. It is currently investing in AI-related technologies, considering the ongoing wave, to enhance its operations. The company understands that adopting these technologies is crucial for thriving in today’s competitive market. By doing so, S&P Global Inc. (NYSE:SPGI) aims to improve its credit rating process, thereby boosting the overall credibility of its ratings. In the past 12 months, the stock delivered over 11% returns to shareholders. Israel Englander’s Millennium Management remained bullish on the stock in Q1 2024 as the hedge fund boosted its stake in the company by 79%. The hedge fund started investing in the company during the second quarter of 2016 and since then SPGI has surged by nearly 300%.

Baron Funds highlighted a few reasons to hold S&P Global Inc. (NYSE:SPGI) in its Q4 2023 investor letter. Here is what the firm has to say:

“Shares of rating agency and data provider S&P Global Inc. (NYSE:SPGI) increased due to higher debt issuance amid more favorable market conditions. Billed issuance rose 47% in October and 26% in November against subdued levels last year, with issuance boosted by declining interest rates and tighter bond spreads. Positive equity market performance in the fourth quarter benefited asset-based fees. In addition, the company reported strong quarterly financial results with double-digit growth in revenue and earnings and raised full-year earnings guidance. We continue to own the stock due to the company’s long runway for growth and significant competitive advantages.”

S&P Global Inc. (NYSE:SPGI) currently pays a quarterly dividend of $0.91 per share and has a dividend yield of 0.84%, as of June 19. With a dividend growth streak of 51 years, SPGI is one of the best dividend kings on our list. In addition, the company has raised its payouts at an annual average rate of 11.09%.

The number of hedge funds tracked by Insider Monkey owning stakes in S&P Global Inc. (NYSE:SPGI) grew to 97 in Q1 2024, from 82 in the previous quarter. The consolidated value of these stakes is more than $9.5 billion. With over 9 million shares, TCI Fund Management was the company’s leading stakeholder in Q1.

7. Target Corporation (NYSE:TGT)

5-Year Average Annual Dividend Growth Rate: 11.44%

Target Corporation (NYSE:TGT) is a Minnesota-based retail corporation that operates a chain of discount stores and hypermarkets. While the company saw substantial sales and margin growth early in the pandemic, it has since encountered stagnant sales growth and a sharp drop in margins, from which it is still trying to recover. The company faced significant setbacks due to supply chain disruptions, inflation, and reduced consumer spending on non-essential items. It reported a 3.7% year-over-year decline in its comparable sales in the first quarter of 2024. The company’s revenue of $24.5 billion also fell by 3.12% from the same period last year. It expects a 0% to 2% rise in comparable sales and projects GAAP and adjusted EPS to be between $8.60 and $9.60. The midpoint of this range, $9.10, is only 1.8% higher than the $8.94 in GAAP EPS that the company achieved in 2023.

That said, Target Corporation (NYSE:TGT) relies on providing an exceptional in-store shopping experience to justify its higher-priced product range and to maintain a higher operating margin. Additionally, with a trailing twelve-month free cash flow of $3.1 billion and operating cash flow of $8.4 billion, the company’s ability to sustain its dividends is evident. Its payout ratio is low at 49%. In the first quarter, the company returned $508 million to shareholders through dividends, up from $497 million from the prior-year period. It has been raising its dividends consistently for the past 53 years, which makes it one of the best dividend kings on our list. Over the past five years, it has raised its payouts at an annual rate of 11.4%. On June 12, the company raised its quarterly payout by 2% to $1.12 per share. The stock’s dividend yield on June 19 came in at 3.14%.

Target Corporation (NYSE:TGT) has a forward P/E ratio of 15.34, compared with a forward P/E of 28.01 for Walmart Inc. (NYSE:WMT). TGT’s low P/E ratio indicates that the stock is undervalued, which reflects our expectation of continued growth potential. The company’s earnings outlook appears optimistic, as it plans to expand by opening approximately 300 new stores over the next decade. This will significantly increase its sales volume and overall consumer foot traffic.

Target Corporation (NYSE:TGT) was a popular buy among elite funds during Q1 2024 as hedge fund positions in the company grew to 67, from 58 in the previous quarter, according to Insider Monkey’s database. These stakes have a consolidated value of over $2.26 billion. With nearly 3 million shares, Diamond Hill Capital was the company’s leading stakeholder in Q1.

6. RPM International Inc. (NYSE:RPM)

5-Year Average Annual Dividend Growth Rate: 12.03%

RPM International Inc. (NYSE:RPM) is an American paint and coating manufacturing company that specializes in specialty coatings, sealants, and building materials. On April 2, the company announced a quarterly dividend of $0.46 per share, which was in line with its previous dividend. In 2023, it achieved its Dividend King status, having raised its payouts for 50 consecutive years. The stock supports a dividend yield of 1.64%, as of June 19.

In fiscal Q3 2024, RPM International Inc. (NYSE:RPM) reported a revenue of $1.52 billion, which showed a modest growth of 0.4% from the same period last year. For FY24, the company expects its consolidated sales to be flat compared to the prior-year results. However, it is poised to gain benefits from the industry trends this year, with consumer spending on paints and coatings projected to rise by about 4% as more people return to workplaces. In addition, the company’s enhanced coordination in international markets is yielding positive results, with strong sales and profitability growth in emerging markets and notable margin expansion in Europe.

From a dividend point of view, RPM International Inc. (NYSE:RPM) is a dependable investment. The company has strong cash generation and has consistently increased its dividends for half a century now. For the first nine months of the year, the company generated an operating cash flow of over $941 million, which showed a massive growth from the $263 million cash recorded in the prior-year period. During this period, it returned $210.1 million to shareholders through dividends and share repurchases. With a market capitalization exceeding $14 billion as of the writing of this article, its dividend growth streak is impressive. The investment is even more appealing to investors given that the company has distributed around $3.4 billion in dividends to shareholders over the past 50 years. It is among the best dividend kings on our list.

TimesSquare Capital Management highlighted the strong business potential of RPM International Inc. (NYSE:RPM) in its Q4 2023 investor letter. Here is what the firm has to say:

“Within Materials, we seek well positioned companies that are less susceptible to swings in commodity prices. RPM International Inc. (NYSE:RPM), a producer of coatings, sealants, and building materials, gained 18%. Fiscal first quarter revenues and earnings topped consensus projections. Growth was led by business lines touching building maintenance, infrastructure, and plant spending while sales to Original Equipment Manufacturers were weaker.”

RPM International Inc. (NYSE:RPM) was a part of 25 hedge fund portfolios at the end of Q1 2024, compared with 27 a quarter earlier, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $129 million.

5. Abbott Laboratories (NYSE:ABT)

5-Year Average Annual Dividend Growth Rate: 12.05%

Abbott Laboratories (NYSE:ABT) ranks fifth on our list of the best dividend kings for safe dividend growth. The global healthcare company declared a quarterly dividend of $0.55 per share on June 14, which was consistent with its previous dividend. Overall, it holds a 52-year streak of consistent dividend growth. The stock’s dividend yield came in at 3.62% on June 19.

Healthcare is commonly seen as a defensive sector because people tend to prioritize essential medical treatments over other goods and services. Abbott Laboratories (NYSE:ABT) has fully leveraged the advantages of its industry and has positioned itself as a leader in several rapidly expanding healthcare areas, including diabetes management, diagnostics, cardiovascular care, and nutrition. The company’s diagnostic segment took a hit in the first quarter of 2024 due to decreased demand post-pandemic. Despite this, Street analysts predict that this healthcare giant will achieve over 11% top-line growth in 2024 and 2025. They hold a consensus Strong Buy rating on the stock with a $127.7 price target, which reflects a 22.8% upside potential. Abbott Laboratories (NYSE:ABT) is one of the best dividend kings on our list because the company has raised its payouts by over 12% on an annual average basis over the past five years.

Polen Capital also expects Abbott Laboratories (NYSE:ABT) to show growth in the second half of 2024. Here is what the firm said in its Q1 2024 investor letter about ABT:

“We increased our positions in ThermoFisher Scientific, Visa, Zoetis, Nike, and Abbott Laboratories (NYSE:ABT). Each of these companies is durable and available at attractive valuations, in our view, for the growth we see ahead. In fact, in the case of ThermoFisher, Nike, and Abbott Labs, we expect accelerating earnings growth in the back half of 2024 after more difficult earnings growth periods pass for each of these companies. ThermoFisher and Abbott will finally wind down most of their COVID-19 testing and vaccine-related efforts due to a lack of demand, so these should no longer be revenue growth headwinds.”

According to Insider Monkey’s database of Q1 2024, 62 hedge funds owned stakes in Abbott Laboratories (NYSE:ABT), compared with 64 in the previous quarter. These stakes are collectively worth nearly $2.7 million. Two Sigma Advisors was one of the leading stakeholders of the company in Q1. The hedge fund also boosted its ABT stake by 6,911% during the quarter.

While we acknowledge the potential of healthcare stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.