Procter & Gamble Has Raised Its Dividend for 70 Years. These 4 Stocks Share Its Reliability

Yield is relatively easy to find. A dividend that keeps arriving through recessions, patent cliffs and housing slumps is much harder to find, and that kind of reliability is the hook for this group. Every name below covers its payout with real cash flow, has a long record of raises and keeps its payout ratio at a level that leaves room for mistakes. Procter & Gamble (NYSE:PG | PG Price Prediction) sets the standard: management says its latest increase marks the 70th consecutive year of dividend increases and 136th consecutive year of dividend payments, putting it firmly in the Dividend Kings club (we ranked ten of them by valuation in a free report here). The other four pair long dividend records with cash flow that covers the payout.

Johnson & Johnson: 64 Straight Raises With Cash to Spare

Johnson & Johnson (NYSE:JNJ) yields 2.05% at a recent price of $254. It pays $1.34 per quarter, or $5.24 a year per share.

Dividend safety: The annual dividend uses about 61% of trailing GAAP EPS of $8.63, and that EPS figure already reflects legal charges. Free cash flow was $19.7 billion last year, roughly 1.56 times the current dividend run rate of about $12.6 billion. Management expects full-year free cash flow approaching $21 billion. Net debt is a manageable approximately $28 billion, with about $21 billion in cash and marketable securities. The board’s latest raise lifted the quarterly payout from $1.30, which the company says marks 64 consecutive years of dividend increases.

Bull case: Johnson & Johnson has 28 products and platforms that each bring in more than $1 billion a year. As the chief financial officer put it on the second-quarter call, “We are not dependent on one or two products.” Management also said it remains “committed to returning capital directly to shareholders, primarily through our dividend.” The stock slipped 7.71% over the past month, so the yield is slightly higher than it was a month ago.

Risk: Stelara is losing sales fast to biosimilars. Its sales fell 55.7% in the second quarter, and newer drugs have to keep making up the difference.

Procter & Gamble: 136 Years of Checks Backed by Growing Free Cash Flow

Procter & Gamble yields 2.94% at $147.95, the highest yield in this group. The quarterly dividend rose to $1.0885 from $1.0568.

Dividend safety: The annual dividend of $4.259 per share uses about 62% of core EPS of $6.89. Free cash flow rose 12.7% to $15.84 billion. That covers the roughly $10 billion in planned dividends about 1.58 times, and the company still plans to spend ~$5 billion on buybacks. The dividend record shows the quarterly payment rising from $0.285 in 1999 to today’s rate.

Bull case: Guidance calls for core EPS of $6.89 to $7.11 and organic sales growth of 1% to 3%. That is slow growth, but it is reliable. The stock is roughly flat over the past year (-0.02%) and trades at 21 times forward earnings, so income buyers are not paying a premium for momentum. Its beta of 0.377 shows how little the stock tends to move with the broader market.

Risk: P&G expects a ~$1 billion after-tax commodity, energy and transport headwind, which the company estimates is about an 8% drag on core EPS growth. That leaves less room for big dividend increases.

Coca-Cola: Low Leverage and Cash Flow That Clears the Payout

Coca-Cola (NYSE:KO) yields 2.43% at $86.63, after the quarterly dividend rose to $0.53 from $0.51.

Dividend safety: The $2.08 annual dividend uses about 62% of trailing EPS of $3.33. Full-year free cash flow guidance of ~$12.4 billion covers roughly $10 billion in planned dividends about 1.24 times. The chief financial officer reported net debt leverage of 1.4 times EBITDA, which is below our target range of 2 to 2.5 times, and interest coverage stands at 8.3x. In the dividend record, the quarterly payment rises from $0.16 in 1999 to today’s level.

The bull case is straightforward: The business is growing. Management expects organic revenue growth of approximately 5% and comparable EPS growth of 9 to 10%. Trademark Coca-Cola posted volume growth of 5% for the quarter, its strongest volume growth in 17 years, excluding COVID recovery. The stock is up 26.33% year to date, and it outperformed competitors again on Monday on a strong trading day.

Risk: Coca-Cola is still fighting ongoing IRS tax litigation. A bad result would take cash that could otherwise go toward dividend growth.

ADP: Payroll Cash Flow That Pays for Raises and Buybacks

ADP (NASDAQ:ADP) yields 2.58% at $260.11. Its quarterly dividend rose to $1.70 from $1.54.

Dividend safety: The $6.64 annual dividend uses about 61% of trailing EPS of $10.94. Operating cash flow rose 10% to $5.44 billion, roughly 2.07 times the $2,626.3 million paid in dividends. ADP also spent $2,083.3 million on buybacks. The dividend record shows the quarterly payment rising from $0.07625 in 1999 to today’s rate. The chief financial officer pointed to the company’s “longstanding commitment to growing our dividend.”

Bull case: Clients rarely leave. Employer Services retention was 92.1%, and interest earned on client funds rose 15% to $355M in the fourth quarter. Guidance calls for adjusted EPS growth of 9% to 11%. Management summed up the appeal: “The workforce is changing, but the need to manage people, pay them accurately and remain compliant is not.”

Risk: ADP’s outlook for U.S. pays per control growth is just 0% to 1%, a sign that hiring is soft. That would slow the per-employee revenue that funds future raises.

Lowe’s: Lowest Payout Ratio in the Group After a Steep Sell-Off

Lowe’s (NYSE:LOW) yields 2.68% at $180. Its quarterly dividend rose to $1.25 from $1.20.

Dividend safety: The $4.85 annual dividend uses only about 41% of trailing EPS of $11.74, the lowest payout ratio of the five. Its free cash flow yield of 7.60% is about 2.9 times its dividend yield on the same pricing basis. The balance sheet is the weak spot. Shareholders’ equity is negative because of years of buybacks, net debt/EBITDA is 3.54 and interest coverage is 6.6x. The dividend record shows the quarterly payment rising from $0.16 in 2013 to today’s level.

Bull case: Shares are down 24.21% year to date and trade at 15 times trailing earnings. That is the lowest multiple in this group, compared with 29 for Johnson & Johnson and 26 for Coca-Cola. Same-store sales were positive for the fifth consecutive quarter, and the company returned $673M to shareholders through dividends in its latest quarter alone.

Risk: Do-it-yourself spending remains under pressure. Comparable transactions fell 2.1%, and gross margin contracted 77 bps as slow home sales hold back big projects.

Five Payouts Built to Keep Arriving

Each of these five has a payout ratio at or below about 62% of earnings and free cash flow (or, for ADP, operating cash flow) that well tops the dividend bill. Each also has a dividend record that shows decades of rising checks. Johnson & Johnson and Procter & Gamble have the longest documented streaks, Coca-Cola and ADP back their payouts with steady cash flow and Lowe’s has the most coverage at the lowest valuation. Together they show records of dividend increases from businesses that look very different from one another.

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