To The Moon

While investing in stocks for lifelong income is a major challenge, Dividend Kings are among the rare stocks that can meet this demanding criterion.

Dividend Kings are companies that have paid and increased dividends for at least 50 consecutive years. Achieving this requires exceptionally stable operations and performance, able to weather economic cycles, geopolitical risks, and other disruptions.

For long-term, even lifetime investments, especially those focused on passive income, Dividend Kings are the ideal stock pool. Here are three Dividend Kings to consider:

1. $Emerson(EMR)$

After its Q3 report in early August, Emerson Electric’s stock has fallen 11.5% this month, presenting a rare buying opportunity at a lower price.

The earnings report wasn't disastrous, though. For example, Rockwell Automation's forecast for the year’s sales growth was reduced from -2% to 4% to -10%. Emerson's management noted that while discrete automation and testing and measurement sectors are under cyclical pressure, their core process and hybrid automation businesses are still growing modestly.

Management expects $2.8 billion in free cash flow for 2024, with a price-to-cash-flow ratio of 21, suggesting a reasonable valuation.

2. $Illinois Tool(ITW)$

Over the past decade, Illinois Tool Works has outperformed the $S&P 500(.SPX)$ in total returns (price appreciation + dividends). However, this year, its stock has declined despite a rising market, creating a buying opportunity.

ITW, as a diversified industrial giant, has used its diverse business model and efficient operations to counteract cyclical fluctuations in single-end markets, maintaining stable and growing dividends. In August, the company increased its quarterly dividend by 7% to $1.50 per share, with a forward dividend yield of 2.4% and a payout ratio of 59%. The company also achieved a record 26.2% operating profit margin in Q2 2024.

While ITW’s valuation is somewhat high, the P/E ratio has recently returned to historical averages.

3. $California Water Service(CWT)$

California Water Service is characterized by its low-risk business model and steady growth through acquisitions. The company aims to grow its customer base by 1% annually over the next five years and possibly expand into other states.

Additionally, about 91% of its 2023 operating revenue comes from regulated markets, providing high cash flow predictability.

The company has paid dividends for 318 consecutive quarters and increased them for 57 years, currently offering a dividend yield of 2.1%. With an average payout ratio of 62% over the past decade, its dividend policy remains robust. Currently, California Water Service’s price-to-cash-flow ratio is at a relatively low 7.6, compared to its five-year average of 12.6.