Inflation continues to be a drag on the economy. The consumer price index rose 9.1% in June year-over-year, which was the fastest pace for inflation since December 1981. In response, the Federal Reserve is aggressively raising interest rates to combat inflation, which is broadly a negative catalyst for the stock market.
In this investing climate, investors looking for safe dividends should focus on high-quality companies such as the Dividend Kings.
Dividend Kings have all increased their dividends for over 50 consecutive years. This article will discuss 3 Dividend Kings that have long-term dividend growth even during recessions, thanks to their strong business models and durable competitive advantages.
Dividend King: ABM Industries (ABM)
ABM Industries is a leading provider of facility solutions, which includes janitorial, electrical & lighting, energy solutions, facilities engineering, HVAC & mechanical, landscape & turf, and parking. The company operates more than 350 offices throughout the United States and various international locations, primarily in Canada. ABM Industries has increased its dividend for 54 consecutive years.
The company has performed well so far in 2022. In the most recent quarter, revenue of $1.9 billion increased 27% year-over-year. ABM Industries was able to generate earnings-per-share of $0.89 during the second quarter, which beat the analyst consensus by $0.05. Higher costs ate into margins, but ABM Industries’ earnings-per-share still grew by 9%.
The company expects full-year earnings-per-share in a range of $3.50 to $3.70 on an adjusted basis. This implies relatively flat profits versus 2021, but it should be noted that ABM has a history of beating and raising its guidance throughout the year.
ABM Industries’ profits have risen during every year of the last decade. This underlines the consistency of the business model. The last year during which its profits declined on a year-over-year basis was 2003. Future growth is likely, organically as well as through M&A. The GCA Services acquisition has allowed the company to expand its foothold both within the United States and internationally, which comes with scale advantages for the company. ABM Industries also plans to capture a meaningful amount of synergies over the years, which could be a positive for the company’s long-term earnings-per-share growth.
ABM Industries stock currently yields 1.7%. The dividend is highly secure, as the company has an expected dividend payout ratio of just 22%. Due to the low dividend payout ratio and its very stable, recession-resilient business model, ABM Industries’ dividend looks very safe.
Dividend King: Abbott Laboratories (ABT)
Abbott Laboratories is one of the largest medical appliances & equipment manufacturers in the world, comprised of four segments: Nutrition, Diagnostics, Established Pharmaceuticals and Medical Devices. The company generated $43 billion in sales and $9.4 billion in profit in 2021. More than half the company’s sales are derived from international markets.
Abbott has a tremendous dividend history. The company has declared nearly 400 consecutive quarterly dividends, and has increased its dividend for 50 consecutive years. It has maintained this track record due to its long-term growth.
In the 2022 second quarter, Abbott generated $11.3 billion in sales representing a 10.6% increase compared to the second quarter of 2021. Adjusted earnings-per-share of $1.43 rose 22% year-over-year. Revenue was $930 million better than expected while adjusted earnings-per-share topped estimates by $0.29 per share.
Results were once again up almost across the board with Diagnostics, Established Pharmaceuticals, and Medical Devices organic sales increasing 36.9%, 9.2%, and 7.5% respectively. The company expects strong results to continue through the remainder of the year. Abbott Laboratories raised its guidance for 2022, now expecting adjusted earnings-per-share of at least $4.90 for the year, up from $4.70 previously.
Abbott’s strong growth is due to its entrenched industry positioning. It is the market leader in point-of-care diagnostics and cardiovascular medical devices. This provides competitive advantages due to Abbott Laboratories’ scale and global reach. Its competitive advantages help secure the dividend payment, even in economic downturns.
Abbott Laboratories’ dividend payout ratio has never been above 50% throughout the last decade. Therefore, its dividend looks very safe. The stock currently yields 1.7%.
Dividend King: PPG Industries (PPG)
PPG Industries is the world’s largest paints and coatings company. Its only competitors of similar size are Sherwin-Williams (SHW) and Dutch paint company Akzo Nobel. PPG Industries was founded in 1883 and now operates in more than 70 countries at 100 locations. The company generates annual revenues of about $18 billion.
The fact that this industry is virtually an oligopoly has created significant barriers to entry, which in turn has given PPG consistent profitability and long-term growth. PPG has increased its dividend for 51 consecutive years, including a recent 5% dividend hike in July. Shares currently yield 1.9%.
PPG has continued to generate steady growth in 2022, even in a difficult economic backdrop. On July 21st, PPG Industries reported second quarter earnings results for the period ending June 30th, 2022. Revenue increased 7.8% to a second quarter record $4.7 billion, beating estimates by $40 million. Adjusted net income of $430 million, or $1.81 per share, beat estimates by $0.09. Organic growth was 8% for the quarter as a 12% contribution from higher selling prices and 4% from acquisitions were only partially offset by a 4% decline in volume and a 4% headwind from currency translation.
PPG Industries is expected to earn $7.24 in 2022, which would represent 7% earnings-per-share growth for the year. This will be more than enough growth to once again raise the dividend next year. PPG Industries has a very low payout ratio, expected at just 34% for 2022.
PPG Industries’ key competitive advantage is that it is one of the most well-known and respected companies in the paints and coatings space. The company is also one of just three similarly-sized companies in this industry, which limits PPG Industries’ competitors. This gives PPG Industries size and scale and the ability to increase prices, which has certainly been the case in 2022.
Final Thoughts
2022 has turned out to be a challenging year for the U.S. economy and stock market. Inflation continues to roar, requiring the Federal Reserve to tighten monetary policy and raise interest rates. While these headwinds could continue into 2023, investors can rest assured knowing high-quality stocks like Abbott Laboratories, ABM Industries, and PPG will continue to raise their dividends. These 3 stocks remain attractive for long-term dividend growth investors looking for safe yields.
