Though the stock market offers few certainties to investors, one fact that can be taken to the bank is that dividend-paying stocks have handily outperformed their non-dividend-paying counterparts over the long run.
If we take a step back and think about the logistics behind a dividend payout, this really shouldn't be surprising. A dividend is nothing more than a company sharing a percentage of its earnings with investors. That means dividend-paying stocks are almost always profitable, and they typically have time-tested business models. This is why dividend stocks tend to be so successful over the long term, and why they're so attractive to income-seeking investors.
Dividend stocks are also at the heart of Wall Street's best-kept, but plain-as-day, secret: dividend reinvestment. Being able to enroll in a DRIP -- dividend reinvestment plan -- allows an income investor to purchase more shares of dividend-paying stock with their payout, thereby compounding their income stream and owned stock over time. This is what the world's most successful managers do to build wealth for their clients.
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These income stocks define dividend consistency
Arguably the toughest question for income investors is: What to buy?
There are hundreds of companies that are currently paying a dividend, and yield doesn't always tell the full story. That's why income investors might benefit from considering the stock market's most tried-and-true dividend stocks. No publicly traded companies have been paying a dividend for a longer period of time than the following eight companies, each of which has a streak that extends well beyond 125 years.
1. York Water: 203 years
Though it's a big unknown, water and wastewater utility York Water (NASDAQ: YORW) has an incredible streak going of paying out a dividend to investors for 203 consecutive years. York operates in 48 municipalities in Pennsylvania.
What's allowed York Water to be so consistent over the years is the fact that it provides a basic-need good/service. If you own a home or rent, you need water. And there's often very little competition for homeowners and renters to choose from when it comes to where you get your water and wastewater services. This leads to relatively predictable cash flow, thereby allowing management to ensure that costs don't outpace revenue. Not to mention, York Water is a regulated utility, meaning its price hikes must be approved by the Pennsylvania Public Utility Commission, thereby reducing its exposure to wholesale water pricing.
2. Stanley Black & Decker: 142 years
Surprised to find power tools and home accessories provider Stanley Black & Decker (NYSE: SWK) among the most committed dividend payers? Well, you shouldn't be, because the company tends to be tied at the hip to the U.S. economy. Though recessions are part of the economic cycle, the U.S. economy spends far more time expanding than contracting, which is why Stanley Black & Decker's profits have grown at a steady pace over the long run.
Stanley Black & Decker has also not been shy about making acquisitions from time to time to broaden its portfolio of products or to bolster its brands.
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3. ExxonMobil: 137 years
Integrated oil and gas giant ExxonMobil (NYSE: XOM) sports the third-longest streak among dividend-paying companies, much in part due to its diversified operations. Although ExxonMobil generates a significant chunk of sales from its drilling operations, it's able to hedge weakness in crude prices with its midstream (pipeline) and downstream (refining and chemical) operations. This is why it holds up much better than many of its peers when oil turns lower.
Further, ExxonMobil hasn't been tempted by the same debt demons that haunt a number of its peers. Despite $46.5 billion in net debt, the company has generated $34 billion in operating cash flow over the trailing 12-month period, and its debt-to-equity is a manageable 25.5%.
4. Eli Lilly: 134 years
That's right, when it comes to dividend payout commitment, Eli Lilly (NYSE: LLY) surpasses all of its drug-making foes with a 134-year streak, and counting. The beauty of Eli Lilly's business model is that branded prescription medicines typically have very high price points and margins, which helps counteract their often short exclusivity periods. A diversified portfolio of branded therapies has been Eli Lilly's secret to healthy profits, and has fueled its ability to share a percentage of these earnings with its shareholders.
Similar to Stanley Black & Decker, Eli Lilly also loves a good value when it sees it. Aside from internal research and development, Eli Lilly has made 20 acquisitions since 1977 to keep its innovation engine running.
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5. Consolidated Edison: 134 years
Another name that likely rings a bell is Consolidated Edison (NYSE: ED), a provider of electric and gas services to New York City and northern parts of New Jersey. Like York Water, the key to Consolidated Edison's success is that it supports a basic-need product: electricity and/or natural gas. Demand for these products tends to remain relatively consistent and predictable, allowing Con Ed, as the company is known, to forecast its spending and cash flow with confidence.
Con Ed's utility operations are also regulated, meaning it has to seek approval before passing along electricity and gas rate hikes. While this is viewed by some folks as a nuisance, it's actually a good thing since it removes the possibility of wholesale pricing fluctuations from the equation.
6. UGI Corp.: 134 years
UGI Corp. (NYSE: UGI), which has an impressive streak of rewarding its shareholders, is a utility, and more. Like Con Ed, UGI provides basic-need services in the form of supplying more than 600,000 people in Pennsylvania with natural gas, as well as over 60,000 customers with electricity. Providing a basic-need good means that UGI can count on a pretty steady level of demand.
This is also a company that's well known for being the general partner of propane distributor AmeriGas Partners, which has approximately 1,900 distribution locations throughout the country. This ability to diversify into so many facets of the energy market -- electricity, natural gas, propane, as well as liquid fuels, storage, and managing pipelines -- keeps the engine running and the profits flowing for UGI.
Image source: Getty Images.
7. Johnson Controls: 132 years
Coming in with 132 consecutive years of dividend payouts to shareholders is Ireland-based Johnson Controls (NYSE: JCI), which is a heating, ventilation, and air conditioning giant, as well as a producer of control systems and electronic security systems for commercial, industrial, and residential customers. Johnson Controls can attribute much of its growth over the years to its ties to the U.S. economy. Recessions may be inevitable, but the U.S. economy spends far more time expanding than contracting, which is good news for Johnson Controls' shareholders.
Johnson Controls looks to keep its dividend streak alive following its 2016 merger with Tyco International. The merger not only diversified Johnson Controls' product portfolio, but moving its headquarters to Ireland via a tax inversion saves the company quite a bit of money come tax time since Ireland's peak corporate marginal tax rate is lower than in the United States.
8. Procter & Gamble: 128 years
Last, but certainly not least, is consumer products giant Procter & Gamble (NYSE: PG), which is working on a 128-year streak of paying a dividend to its shareholders. Procter & Gamble's success derives from having a portfolio of brand-name products (e.g., Tide, Crest, Gillette, Bounty, and Head & Shoulders) that are sold in more than 70 countries worldwide. In many instances, these are products that are practically recession-proof, such as toothpaste and detergent, creating that highly predictable cash flow that's common with this list of dividend payers.
Selling a lot of basic-need products also provides P&G with a healthy amount of pricing power. Being able to pass along price hikes that keep pace with -- or top -- the inflation rate ensures that the company's bottom line expands over time, which pushes its payout ever higher.
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