3 Dividend Kings to Buy Now for Protection Against Rising Rates
A risk-free bond now pays enough to make most dividend stocks look pointless, but three companies have raised their payouts for over 50 straight years and carry betas low enough to sleep through a rate spike.
The 10-year Treasury yield stands at 5.09%, not far from its one-year high. When a risk-free bond pays that much, a dividend stock needs to offer something the bond can’t: a payout that rises every year. The three companies below have raised their dividends for more than 50 straight years. Each one generates enough cash to cover the dividend and has a beta well below the market. That mix matters most when rates are rising, because a bond coupon stays fixed while these dividends keep growing.
Johnson & Johnson
Johnson & Johnson (NYSE:JNJ | JNJ Price Prediction) yields 2.04%. Its annualized forward dividend is $5.36 per share, and the stock trades at $261.49. That yield is the lowest of the three, largely because the shares are up 28.36% year to date. Investors are paying for quality here, and the numbers show it.
Dividend Safety Check: AAA Credit and Rising Cash Flow
J&J raised its quarterly payout 3.1% to $1.34, and the company says this is its 64th consecutive year of increases. The trailing dividend of $5.24 equals about 61% of diluted EPS of $8.63. Measured against full-year adjusted EPS guidance of $11.60 to $11.75, the forward dividend uses only about 46% of earnings.
Free cash flow started the year weak at $1.5 billion in the first quarter. It recovered to about $8.7 billion year to date, and management expects the full year to approach $21 billion. At the current share count, the dividend costs roughly $12.9 billion a year, which is about 62% of that outlook. J&J holds about $21 billion in cash and marketable securities against roughly $49 billion of debt on its balance sheet. It is also one of only two U.S. companies with a AAA credit rating.
Bull Case: Higher Rates Barely Touch the Income Statement
Management projects full-year net interest expense of just $250 million to $300 million, so higher borrowing costs have little effect on earnings. Growth is strong: second-quarter revenue rose 6.6% to $25.31 billion, and adjusted EPS of $2.90 beat the $2.85 estimate. Tremfya sales jumped 72.5% to $2.05 billion. The company’s chief financial officer said on that call: “We also remain committed to returning capital directly to shareholders, primarily through our dividend.” With a beta of 0.206, the stock has historically moved much less than the overall market.
Risk to Watch: Stelara Erosion
Biosimilar competition cut Stelara sales by 55.2%. Newer drugs are covering the gap for now. Any slowdown in those launches would show up quickly in earnings growth.
Procter & Gamble
Procter & Gamble (NYSE:PG) yields 2.83%. Its annualized forward dividend is $4.354, and the stock trades at $151.26. P&G has the longest dividend record of the three.
Dividend Safety Check: 70 Raises Backed by $15.84 Billion in Free Cash Flow
The quarterly dividend went up to $1.0885 from $1.0568. P&G called it the company’s 70th consecutive annual dividend increase and its 136th consecutive year of dividend payments. The forward dividend uses about 63% of fiscal-year core EPS of $6.89.
The cash flow numbers are even stronger. Free cash flow grew 12.74% to $15.84 billion, supported by $19.56 billion in operating cash flow. Next fiscal year, P&G plans about $10 billion in dividends and about $5 billion in buybacks. Dividends alone account for roughly 63% of last year’s free cash flow. The company holds $9.94 billion in cash and $54.3 billion in shareholders’ equity.
Bull Case: Household Staples People Keep Buying
People buy detergent, diapers, and toothpaste regardless of the 10-year yield, and P&G’s beta of 0.377 reflects that steady demand. Fourth-quarter core EPS of $1.43 beat estimates even though revenue came in short. The stock has also picked up recently, gaining 6.02% over the past month, and P&G was among CNBC’s premarket movers this week. At a forward P/E of about 21, investors pay a reasonable price for one of the most reliable dividend growth records on the market.
Risk to Watch: Cost Headwinds Squeeze Growth
Management expects about $1 billion in after-tax commodity and cost pressures next fiscal year. Its core EPS guidance runs from in line to +3%. With earnings growing that slowly, future dividend raises will probably stay small.
Altria
Altria (NYSE:MO) is the high-yield option in this group at 6.19%, which already tops the 10-year Treasury’s 5.24%. Altria’s dividend also grows, and a Treasury coupon never does. Shares trade at $71.68, up 30.35% year to date.
Dividend Safety Check: A Higher Payout With Leverage on Target
Altria’s board raised the quarterly dividend to $1.11 from $1.06, lifting the annualized rate to $4.44. Altria has increased its annual dividend for 57 consecutive years, and its payment record shows payouts have risen each year since 2009. Coverage is tighter than at J&J or P&G: the new dividend takes up about 78% of the midpoint of adjusted EPS guidance ($5.61 to $5.72).
Altria paid about $3.6 billion in dividends in the first half. Management says it usually has “about a billion excess in cash” left over after the dividend. Shareholders’ equity is negative at ($2.62 billion), so leverage is the more useful measure. Debt-to-EBITDA stood at 1.9 times, close to the company’s target of about two times, and management says it is
Bull Case: Pricing Power and a Low Valuation
Price increases keep offsetting falling volumes. Adjusted margins in the smokeable segment expanded to 64.8% in the second quarter, and Marlboro held a 59.6% share of the premium segment. In nicotine pouches, on! retail share rose to 8.6%. The stock trades at a forward P/E of about 12, the lowest valuation of the three, and has a beta of 0.461.
Risk to Watch: Shrinking Cigarette Volumes
Cigarette industry volume fell 5%, and Marlboro’s retail share slid to 39.5% as smokers moved to cheaper brands. The company’s finance chief said, “We are mindful of the challenged state of the nicotine consumers.” Altria can only offset falling volumes with price increases for so long.
Three Dividend Records Built for High Rates
J&J offers the strongest balance sheet, P&G the longest record of raises and the most free cash flow behind its payout, and Altria the highest yield. All three have low betas and growing payouts, and together they span from AAA safety to yields above the 10-year Treasury. With rates near their one-year highs, that growing income is something a fixed bond coupon can’t match. (If you want more names with half-century raise streaks, our free Dividend Kings report lists ten of them by valuation right now.)
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
