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The first half of 2022 was the worst first half for the stock market in the last 52 years. The dismal performance resulted from the surge of inflation to a 40-year high and fears that the resultant interest rate hikes of the Fed may trigger a recession. During such tumultuous periods, Dividend Kings offer a reliable income stream to investors. In this article, we will discuss the prospects of three Dividend Kings that offer a reliable income stream to their shareholders, thus enabling them to endure the ongoing bear market more easily.
 

Altria (MO)

Altria is a consumer staples giant. It sells cigarettes, chewing tobacco, cigars, and e-cigarettes under the Marlboro brand in the U.S. It has also tried to diversify away from its flagship tobacco products, and thus it has a 10% equity stake in Anheuser-Busch InBev (BUD), a 35% stake in e-cigarette producer JUUL, and a 45% stake in marijuana company Cronos Group (CRON). Nevertheless, Altria still generates a vast portion of its sales and earnings from its smokeable tobacco products.

Altria is facing a secular headwind in its business, as the percentage of the smoking population in the U.S. has been in a slow but steady decline over the last four decades. The tobacco giant invested $15.8 billion to acquire a 35% stake in JUUL in an effort to offset the decline of its flagship business with the high growth of the leader in e-cigarettes. However, the timing of the investment has proved disastrous. Since that investment, regulators have greatly restricted the growth efforts of JUUL. Even worse, they recently ordered the company to recall all its products because of their popularity with the young population. However, regulators recently put a stop to the recall, claiming that they need to analyze the situation more deeply.

Despite all the efforts of regulators to limit the use of its products, Altria has an exceptional performance record. Thanks to the inelastic demand for its products, the company has consistently raised its prices at a fast pace and thus it has more than offset the secular decline of the percent of the smoking population. To be sure, during the last decade, Altria has grown its earnings per share every single year, at a 9.4% average annual rate. This is a testament to the strength of the business of Altria.

Due to the aforementioned negative developments related to JUUL, the stock of Altria has plunged 25% in about two months and thus its dividend yield has climbed to a nearly 10-year high of 8.8%. While such a high yield usually signals the risk of an imminent dividend cut, this is not the case for Altria. The stock has a payout ratio of 74%, which is a nearly 10-year low level. Given also the resilient business model of the tobacco giant, investors should take advantage of its exceptional dividend yield.
 

Procter & Gamble (PG)

Procter & Gamble is a consumer products giant that sells its products in more than 180 countries and generates nearly $80 billion in annual revenues. Its brand portfolio includes several well-known brands, such as Pampers, Luvs, Tide, Gain, Bounty, Charmin, Puffs, Gillette, and Head & Shoulders.

Procter & Gamble stagnated during 2011-2016 due to the increased price sensitivity of consumers and a boom of private label products. The company was also hurt by numerous laggards in its brand portfolio, which were exerting a strong drag on its overall performance. However, Procter & Gamble executed a major restructuring program, which involved the divestment of about two-thirds of its brands. Thanks to that restructuring program, the consumer products giant has been able to focus much more efficiently on its most promising brands and thus it has returned to its multi-decade growth trajectory.

Moreover, thanks to its strong brands, Procter & Gamble has always proved essentially immune to recessions. This has proved to be the case throughout the coronavirus crisis as well. While other companies were severely hurt by the pandemic in 2020, Procter & Gamble has posted record earnings per share in each of the last three years and is on track for another record this year.

Thanks to the strength of its brands and its resilience to recessions, Procter & Gamble has grown its dividend for 66 consecutive years. This is one of the longest dividend growth streaks in the investing universe. Given also the healthy payout ratio of 62% and the reliable growth trajectory of the company, it is safe to expect dividend hikes for many more years. The only caveat is the lackluster 2.5% dividend yield of the stock, which has resulted primarily from its premium valuation. Therefore, investors may want to wait for a meaningful correction of the stock before purchasing it.
 

Parker-Hannifin (PH)

Parker-Hannifin is an industrial manufacturer that specializes in motion and control technologies. It has a history of 105 years and enjoys some key competitive advantages, such as its immense scale, its global distribution network, and its technical expertise.

Due to the obscure and mundane nature of its products, Parker-Hannifin passes under the radar of most investors. However, this is a shame, given the exceptional performance record of the company.

During the last decade, Parker-Hannifin has more than doubled its earnings per share thanks to its proven ability to perform highly profitable acquisitions. The company has acquired smaller companies and has incorporated their products efficiently into its portfolio while it has also generated great synergies from these acquisitions.

In addition, the company enjoys sustained business momentum right now. To be sure, it has exceeded the analysts’ earnings-per-share estimates for more than 20 consecutive quarters. Overall, Parker-Hannifin is on a reliable growth trajectory and has proved remarkably resilient to the coronavirus crisis.

Moreover, Parker-Hannifin has one of the longest dividend growth records in the investing universe, with 65 consecutive years of dividend growth. The stock is currently offering a 2.2% dividend yield, which may seem uninspiring on the surface. However, the lackluster yield is the result of an exceptionally low payout ratio of 29%. In other words, the company prefers to invest its funds in acquisitions instead of paying a higher dividend. Given the admirable growth record of Parker-Hannifin, its shareholders should be satisfied with the capital allocation strategy of the company.

In addition, long-term investors are likely to be rewarded by the double-digit dividend growth rate of the stock. Parker-Hannifin has grown its dividend by 11% per year on average over the last decade and over the last five years.
 

Final Thoughts

Income-oriented investors are especially vulnerable to bear markets, as the latter usually trigger several dividend cuts. The above three Dividend Kings have admirable and reliable growth records and have proved resilient to economic downturns. As a result, they are offering safe income streams in the ongoing bear market.

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