Photo by Deepal Tamang on Unsplash

After two decades with almost negligible inflation, investors are currently facing a great challenge due to the surge of inflation to a 40-year high. Due to this strong headwind, investors should do their best to protect the real value of their portfolios. In the current investing environment, high-yield Dividend Kings are ideal candidates for the portfolios of income-oriented investors. They offer above-average yields while they also enjoy significant competitive advantages and have proved resilient even to the fiercest recessions. In this article, we will discuss the prospects of three high-yield Dividend Kings, namely Coca-Cola (KO), Genuine Parts (GPC) and National Fuel Gas (NFG).

Coca-Cola

Coca-Cola is the largest beverage company in the world, as it owns or licenses more than 500 unique non-alcoholic brands. It has a market capitalization of $267 billion and sells its products in more than 200 countries worldwide. Notably its brands account for about 2 billion servings of beverages worldwide every day.

Coca-Cola enjoys two unique competitive advantages, namely its unparalleled suite of beverage brands and its immense global distribution network. Moreover, the beverage giant is extremely resilient to recessions. In the Great Recession, while most companies saw their earnings collapse, Coca-Cola kept growing its earnings per share. In the recession caused by the pandemic in 2020, public venues were closed and thus the downturn affected Coca-Cola. Nevertheless, the company incurred just an 8% decrease in its earnings per share.

Even better, Coca-Cola is now recovering strongly from the pandemic. In the fourth quarter of 2021, the company grew its organic revenue 9% over the prior year’s quarter thanks to 10% growth in pricing and mix, which offset a 1% decrease in volumes. Organic sales in EMEA and North America grew 17% and 14%, respectively, thus offsetting a 3% decline in Asia-Pacific. In addition, the strong performance was uniform across the various product categories. Overall, in 2021, Coca-Cola grew its earnings per share 19% over the prior year and thus achieved 10% growth over its pre-pandemic earnings per share.

As mentioned above, Coca-Cola has expanded in almost every country in the world and its daily servings are more than one-fourth of the global population. These metrics reveal the exceptional brand strength of Coca-Cola and its admirable expansion in almost every region around the world. On the other hand, the past success of Coca-Cola inhibits the company from growing at a fast pace due to size limitations.

Due to size limitations and the increased health consciousness of consumers, Coca-Cola has exhibited a volatile and uninspiring performance record during the last decade, after having grown at a fast pace for decades. The beverage giant has grown its earnings per share by only 1.8% per year on average during the last decade. However, Coca-Cola has regained its growth momentum lately, with record earnings per share of $2.32 in 2021 and another record expected this year, around $2.45.

Moreover, Coca-Cola has an exceptional dividend growth record with 59 consecutive years of dividend growth. The stock is offering a 2.8% yield, which is in line with the historical yield of the stock. As Coca-Cola has a somewhat elevated payout ratio of 69%, we expect it to keep raising its dividend at a rate around its 5-year dividend growth rate of 3.7%.

Genuine Parts

Founded in 1928, Genuine Parts has grown into a sprawling conglomerate that sells automotive and industrial parts, electrical materials and general business products. Its global span includes more than 3,000 locations in North America, Australia, New Zealand and Europe.

As its customers were affected by the pandemic in 2020, Genuine Parts incurred a 7% decline in its earnings per share in that year. However, the company has emerged stronger from this downturn. In the most recent quarter, the company grew its revenue 13% over the prior year’s quarter thanks to 11.3% growth of comparable sales and 1.9% growth from acquisitions. As a result, it grew its earnings per share 18%, from $1.52 to $1.79, and exceeded the analysts’ estimates by $0.20.

Notably Genuine Parts has exceeded the analysts’ consensus by a wide margin for 7 consecutive quarters. This is a testament to the sustained business momentum of the company. Moreover, Genuine Parts posted record earnings per share in 2021 and is on track for another record this year.

Genuine Parts has grown its earnings per share at a 5.9% average annual rate over the last decade, primarily thanks to acquisitions. Given the industrial nature of many of the customers of Genuine Parts, most investors would reasonably expect the company to be highly cyclical. However, Genuine Parts has proved markedly resilient to downturns thanks to the essential nature of its products for its customers.

This is a major competitive advantage, which has been a key factor behind the exceptional dividend growth record of the company. Genuine Parts has raised its dividend for 66 consecutive years, one of the longest dividend growth streaks in the investing universe. Moreover, the stock is now offering a 2.8% dividend yield. Given its healthy payout ratio of 47%, its rock-solid balance sheet and its resilience to recessions, Genuine Parts will easily continue raising its dividend for many more years.

National Fuel Gas

National Fuel Gas is a diversified, vertically integrated, natural gas company. Its upstream segment (exploration & production) generates 46% of its EBITDA while its midstream segment (gathering, pipeline & storage) and its utility segment generate 38% and 16% of its EBITDA, respectively.

Approximately 90% of the production of National Fuel Gas is natural gas. As the upstream segment generates nearly half of the total earnings, National Fuel Gas is obviously highly sensitive to the cycles of the price of natural gas. This helps explain the volatile performance record of the company during the last decade. On the other hand, its pipeline & storage and gathering segments provide a buffer to the overall performance during downturns.

On the bright side, National Fuel Gas enjoys strong production growth thanks to its high-quality assets in prolific areas, such as the Appalachia. In the first quarter of fiscal 2022, the company grew its production 7% over the prior year’s quarter, mostly thanks to the development of core acreage positions in Appalachia. In addition, National Fuel Gas benefited from an increase in the price of natural gas rose thanks to strong demand and tight supply. As a result, it grew its adjusted earnings per share 40%, from $1.06 to $1.48, and exceeded the analysts’ consensus by $0.15.

National Fuel Gas has exceeded the analysts’ consensus for 11 consecutive quarters. This is a testament to its sustained business momentum. In addition, management raised its guidance for the earnings per share of this year for a second consecutive quarter, from $5.05-$5.45 to $5.20-$5.50. At the mid-point, the new guidance implies 24% growth. Given also the proven tendency of management to issue conservative guidance and the favorable prices of natural gas, we expect National Fuel Gas to exceed the high end of its guidance.

Moreover, National Fuel Gas has an impressive dividend growth record, especially for an energy company. It has paid uninterrupted dividends for 119 consecutive years and has grown its dividend for 51 consecutive years. It has thus become the first energy company to become a member of the group of Dividend Kings. Given its solid payout ratio of 33% and its rock-solid balance sheet, the company can easily keep raising its dividend for many more years.

Final Thoughts

During tumultuous periods in the stock market, Dividend Kings are great candidates for the portfolios of risk-averse investors. These stocks are resilient to recessions and enjoy significant competitive advantages. Otherwise, they would not have been able to achieve such long dividend growth streaks. The above three Dividend Kings are offering above-average dividend yields, with a wide margin of safety.