Dividend Champions are the stocks that have raised their dividend for at least 25 consecutive years. These companies usually enjoy a key competitive advantage while they are also resilient to recessions. Otherwise, they would not have achieved such long dividend growth streaks. Given also the obvious merits of a rising dividend, these stocks are great candidates for the portfolios of income-oriented investors. In this article, we will discuss the prospects of three Dividend Champions which are attractive right now.

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ABM Industries (ABM)

ABM Industries is a leading provider of integrated facility solutions in the U.S. and in international markets. It provides janitorial, facilities engineering, parking, custodial, landscaping and ground, and mechanical and electrical services. The company employs approximately 114,000 people in more than 350 offices throughout the U.S and various international locations, primarily in Canada.

The key competitive advantage of ABM Industries is its great expertise and immense scale, which have resulted from its history of more than 100 years of providing facility solutions for a wide range of customers. Thanks to its dominant business position, ABM Industries has raised its dividend for 54 consecutive years. It thus belongs to the best-of-breed group of Dividend Kings, which include the companies that have raised their dividend for at least 50 consecutive years. There are only 31 Dividend Kings in the investing universe and hence the achievement of ABM Industries is exceptional.

Moreover, thanks to its robust business model, ABM Industries has proved markedly resilient throughout the coronavirus crisis. While many companies saw their earnings plunge in 2020, ABM Industries grew its earnings per share 18%, to a new record level. Even better, momentum accelerated last year in all the business segments and thus the company grew its earnings per share by another 47%, from $2.43 in 2020 to $3.58 in 2021.

The impressive performance partly resulted from the increased demand for the virus protection services of ABM Industries. This trend is likely to remain in place for the foreseeable future, as the customers of the company are likely to continue disinfecting their locations on a regular basis. This helps explain why analysts expect ABM Industries to grow its earnings per share by another 11% this year, to a new all-time high.

Given the remarkably low payout ratio of 23%, its promising growth prospects and its resilience to recessions, ABM Industries will easily continue raising its dividend for many more years. Unfortunately, the stock is currently offering a dividend yield of only 1.9%. However, it is trading at a price-to-earnings ratio of only 12.3, which is much lower than the historical average of about 17.5 of the stock. Therefore, ABM Industries offers a rising dividend and significant potential for capital gains going forward.

Enbridge (ENB)

Enbridge is a midstream oil and gas company, with an immense network of pipelines and storage tanks, headquartered in Canada. Through its pipeline networks, the company transports approximately 25% of North America’s crude oil and 20% of the natural gas consumed in the U.S. The company operates in four segments: Liquids Pipelines, Gas Transmission, Gas Distribution and Green Power. These segments generate 53%, 29%, 13% and 5%, respectively, of the EBITDA of the company.

The energy sector is infamous for its high cyclicality, which is caused by the dramatic swings of the prices of oil and gas. However, Enbridge is a bright exception. It has a toll-like, fee-based model, which relies on charging fees to customers for the products they transport through the network of Enbridge. As the contracts have minimum-volume requirements, Enbridge enjoys reliable cash flows even when its customers transport lower volumes than anticipated. The company has thus proved rock-solid during downturns, including the coronavirus crisis. To be sure, despite the impact of the pandemic on the global energy market, Enbridge has posted record free cash flow per share in each of the last two years.

Moreover, thanks to its defensive business model, the company has an exceptional dividend growth record in place. It has raised its dividend (in CAD) for 26 consecutive years, at a 10% average annual rate. It is also offering a 6.4% dividend yield, which is exceptionally attractive for income-oriented investors. The company has a healthy payout ratio of 69% and is likely to continue growing its distributable cash flow thanks to its promising pipeline of growth projects, which involve the expansion of its network. Therefore, investors can lock in the 6.4% yield of Enbridge and rest assured that the company will keep raising its dividend for many more years.

NACCO Industries (NC)

NACCO Industries is a holding company for The North American Coal Corporation, which was founded in 1913. The company supplies coal from surface mines to power generation companies and operates in the states of North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico. It has an annual production of 35 million tons and thus it is the largest lignite coal producer in the U.S.

NACCO Industries faces a strong secular threat, namely the transition from fossil fuels to renewable energy sources. This trend has greatly accelerated since the onset of the pandemic. However, the transition from fossil fuels to clean energy sources has not proved smooth. Oil producers have greatly reduced their investments in new projects and hence there are concerns that global oil supply will not meet rising demand at some point in the future. As a result, the price of oil has rallied to an 8-year high this year.

The rally of the oil price has rendered coal much more attractive than it was in recent years. As a result, the price of coal has rallied as well and thus it has provided a great tailwind to the business of NACCO Industries. This is clearly reflected in the earnings per share of the company, which more than tripled in 2021, from $2.10 in 2020 to approximately $6.50.

Moreover, NACCO Industries is doing its best to diversify away from coal by growing its lithium production. This is undoubtedly a promising project, as the global demand for lithium will skyrocket in the upcoming years thanks to its use in electric vehicles, which require 5,000-10,000 times the amount of lithium used in mobile phones.

It is also worth noting that NACCO Industries has an exceptional dividend growth record, despite the cyclical nature of its business. To be sure, the company has raised its dividend for 36 consecutive years. In addition, the stock is currently offering a 2.6% dividend, with an extremely low payout ratio of 12%. Given also the rock-solid balance sheet of the company, investors should rest assured that the dividend will remain on the rise for many more years.

Finally, investors should note that NACCO Industries is trading at a price-to-earnings ratio of only 4.7. The depressed valuation level can be attributed to the secular decline of coal and the volatile earnings of the company. However, given the aforementioned diversification of NACCO Industries and its exceptional dividend growth record, we believe that the stock is too cheap at its current price.

Final Thoughts

As the S&P 500 has nearly doubled off its bottom in 2020, it has become challenging for income-oriented investors to identify stocks with attractive dividends. The above three Dividend Champions have admirable performance records and are currently trading at attractive valuation levels. They are thus great candidates for the portfolios of dividend investors.