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home / news releases / NDSN - My 12 Best Dividend Kings For June 2023


NDSN - My 12 Best Dividend Kings For June 2023

2023-06-06 02:19:04 ET

Summary

  • The Dividend Kings are an elite group of companies that have paid and increased dividends for at least 50 consecutive years.
  • The strategy focuses on selecting the top quarter of Dividend Kings with the best-forecasted EPS growth rate combined with the current valuation.
  • A buy-and-hold approach is recommended for this strategy, as it is easier and more tax-friendly.

Dividend Kings

The Dividend Kings are an elite group of companies that have all paid and increased dividends for at least 50 consecutive years. There are multiple lists of the kings on the internet, some that include more than 49 companies. I have chosen to use the list provided by Suredividend.com that was updated on June 2, 2023, and remains unchanged from the prior month.

The 49 companies on the dividend king list span 9 unique sectors, offer an average dividend yield of 2.73% and have an average 5-year dividend growth history of 6.87%. Even though all 49 of these companies share the status of an elite dividend stock, not all will offer great returns going forward. So, how can an investor identify the dividend kings that have a higher chance of offering better returns?

In my prior article , I shared a method for selecting the dividend kings that present the best opportunity for better than average future returns. The method leverages a long-term pattern of correlation between share price appreciation and long-term earnings growth. The pattern is more evident when applied to a group of stocks and measured over a longer time period. While this method may not work for all stocks, it can help identify a group of stocks that collectively can outperform a universe of stocks.

First, let me explain in more detail how and why this strategy may work, and then I'll share the real results.

EPS Growth Combined With Valuation

Forecasted EPS growth rates are a useful indicator of future returns, but this factor can be strengthened when combined with the current valuation of a given stock. My preferred method of valuation for dividend stocks is dividend yield theory. The premise is simple: if the current dividend yield exceeds the trailing dividend yield, a stock is considered to be potentially undervalued and vice versa.

I have decided to test this theory on the dividend king universe of stocks going forward. Each month, I will select roughly the top quarter of dividend kings that present the best-forecasted EPS growth rate combined with current valuation. I will be using analyst forecasted 5-year EPS growth rates from FinViz.com. Current valuation will be computed using current and trailing dividend yields obtained from Seeking Alpha.

I will assume that a given stock can return to fair valuation within a 5-year period that aligns with the forecasted EPS growth rate. Potentially undervalued stocks will be awarded a boost to their forecasted EPS growth rate equivalent to the annualized rate of return necessary to bring the share price back to fair value within the 5-year period. Overvalued stocks will be penalized using the same principle in reverse.

The best way to apply and measure the success of this strategy is through a buy-and-hold portfolio. I have been tracking how such a portfolio is working out, and I will share those results later on in the article.

Past Performance

The table below shows the returns for the chosen dividend kings using this methodology for the time period of July 2021 through May 2023.

Ticker

Jul 21

Aug 21

Sep 21

Oct 21

Nov 21

Dec 21

Jan 22

Feb 22

Mar 22

Apr 22

May 22

Jun 22

Jul 22

Aug 22

Sep 22

Oct 22

Nov 22

Dec 22

Jan 23

Feb 23

Mar 23

Apr 23

May 23

ABM

4.83%

6.52%

-9.11%

-1.82%

2.25%

-9.22%

2.52%

7.53%

2.70%

-0.78%

-10.20%

6.68%

ABT

-5.37%

-1.87%

0.62%

-5.74%

-0.45%

9.63%

BDX

6.42%

1.06%

CINF

-0.39%

-6.98%

-9.34%

CWT

12.86%

1.75%

3.98%

3.50%

1.68%

1.94%

FUL

1.86%

4.57%

-4.45%

9.50%

3.76%

10.72%

-11.40%

-3.36%

1.22%

6.57%

6.97%

1.03%

-7.34%

-3.52%

GRC

2.63%

-1.80%

-1.83%

GWW

19.45%

3.49%

-7.76%

5.97%

13.69%

HRL

-1.81%

-9.97%

3.81%

-2.17%

17.90%

KMB

-3.82%

8.37%

LEG

1.60%

5.51%

-8.29%

13.43%

-6.26%

1.35%

-5.66%

LOW

-0.25%

5.81%

-0.51%

15.68%

4.61%

5.68%

-7.87%

-6.86%

-1.82%

-10.56%

10.26%

1.36%

-3.26%

4.37%

9.03%

-6.26%

5.05%

-1.20%

-2.81%

4.46%

MMM

-9.57%

0.15%

-3.13%

1.06%

MO

-3.33%

5.00%

2.87%

14.59%

0.67%

0.16%

-1.47%

3.09%

-1.82%

6.48%

-6.50%

MSA

6.04%

-5.04%

6.00%

-7.06%

-8.06%

22.84%

5.39%

2.26%

-5.41%

-1.17%

-0.63%

-2.81%

6.37%

NDSN

-0.19%

6.74%

0.63%

-8.90%

-2.39%

0.26%

-5.02%

-7.09%

-6.56%

6.00%

5.11%

0.80%

2.35%

-9.49%

1.19%

-2.68%

1.05%

NUE

-0.93%

NWN

-0.91%

-4.37%

13.13%

PH

1.60%

-4.60%

1.01%

-9.60%

17.49%

-2.66%

PPG

-9.42%

-14.23%

-1.78%

-2.35%

-0.71%

-9.61%

13.08%

-1.31%

-12.83%

3.15%

1.81%

-5.97%

SJW

8.89%

SPGI

1.05%

5.17%

1.59%

SWK

-1.92%

-8.92%

2.52%

-2.33%

-7.41%

-6.84%

-13.64%

-14.05%

-1.22%

-11.07%

-7.18%

-9.48%

-13.83%

4.36%

5.13%

-8.08%

18.89%

-4.99%

7.15%

-13.17%

SYY

-3.98%

7.35%

-0.85%

-2.04%

-8.92%

12.15%

0.08%

11.45%

-5.72%

4.69%

-1.52%

1.21%

0.22%

-3.16%

-14.00%

23.23%

-0.06%

-11.63%

1.97%

-3.73%

3.57%

-0.01%

-8.85%

TGT

-12.76%

15.68%

-1.27%

-7.45%

10.69%

2.33%

TNC

-3.24%

-4.80%

13.13%

-9.60%

-6.28%

2.99%

9.53%

-3.09%

13.90%

0.98%

-2.88%

11.51%

-4.00%

TR

1.42%

-3.85%

VFC

-14.35%

12.06%

-19.78%

Return

3.40%

2.21%

-4.73%

4.19%

-1.31%

7.18%

-5.17%

-3.28%

-2.91%

-2.66%

1.36%

-6.91%

7.39%

-1.85%

-8.39%

10.30%

4.43%

-5.35%

5.75%

-1.87%

-0.33%

3.29%

-3.70%

Benchmark

1.71%

0.83%

-5.33%

4.05%

-1.68%

8.79%

-3.88%

-2.25%

0.97%

-2.41%

-0.10%

-5.39%

5.52%

-1.21%

-8.34%

10.85%

6.60%

-3.95%

3.10%

-2.06%

-0.01%

0.51%

-5.25%

Alpha

1.70%

1.37%

0.60%

0.13%

0.36%

-1.61%

-1.29%

-1.04%

-3.88%

-0.25%

1.46%

-1.52%

1.87%

-0.63%

-0.05%

-0.55%

-2.17%

-1.40%

2.64%

0.19%

-0.32%

2.78%

1.55%

Six of the 12 chosen dividend kings for May finished the month with a return better than the average dividend king universe. The selected kings collectively posted a loss of 3.70%, outperforming the average dividend king universe return by 1.55%. The main drivers of outperformance were: MSA Safety Inc. ( MSA ) +6.37%, California Water Service (CWT) +1.94%, S&P Global Inc. ( SPGI ) +1.59% and Nordson ( NDSN ) +1.05%. 3 of the chosen Kings posted sizable negative returns last month, they were: Stanley Black & Decker (SWK) -13.17%, Cincinnati Financial ( CINF ) -9.34% and Sysco (SYY) -8.85%. This watchlist doesn't beat the average dividend king universe return every month, but in the long run it is still performing well. A better measure for this strategy is with a buy-and-hold approach that is discussed later in this article.

Part of this long-term strategy is to identify Dividend Kings that are out of favor. Because of this, the initial results for this watchlist can be lower than the Dividend King universe. I believe this strategy can generate alpha if given enough time to benefit from targeting out of favor stocks.

12 Best Dividend Kings For June

Since this method relies on two factors that are constantly changing, it is likely that we will experience a high turnover rate with this strategy. I have updated the analysts' expected future earnings growth rates for all the dividend kings and applied the necessary valuation adjustments. Here are the 12 dividend kings with the best expected future growth rates for June.

Created by Author

There are two changes from the prior month: California Water Service ( CWT ) and Altria Group ( MO ) are replaced by Federal Realty Trust ( FRT ) and 3M Company ( MMM ).

3M Company has previously appeared on the top 12 list and is already part of the long term buy-and-hold portfolio. The stock posted a loss of 10.83% in May and presents a cheaper valuation in June. Federal Realty Trust is appearing on the top 12 list for the very first time this month. The stock posted a loss of 10.81% in May and is down 11.73% year-to-date. It also did not perform so well in 2022, finishing the year down 22.67%.

Please note that this stock selection strategy focuses solely on quantitative data. Further due diligence is necessary to ensure there are no major negative catalysts for each dividend king.

Buy And Hold Strategy

In addition to tracking the returns for the best dividend kings each month, I also track how a buy-and-hold portfolio has performed for this stock selection method.

EPS + Value

Benchmark

Alpha

Jul 21

3.40%

1.71%

1.70%

Aug 21

1.99%

0.83%

1.16%

Sep 21

-5.05%

-5.33%

0.28%

Oct 21

4.54%

4.05%

0.48%

Nov 21

-0.07%

-1.68%

1.60%

Dec 21

7.75%

8.79%

-1.03%

Jan 22

-4.89%

-3.88%

-1.02%

Feb 22

-0.26%

-2.25%

1.99%

Mar 22

-2.14%

0.97%

-3.11%

Apr 22

-2.20%

-2.41%

0.21%

May 22

0.79%

-0.10%

0.89%

Jun 22

-7.12%

-5.39%

-1.73%

Jul 22

6.01%

5.52%

0.49%

Aug 22

-1.82%

-1.21%

-0.61%

Sep 22

-10.01%

-8.34%

-1.67%

Oct 22

12.00%

10.85%

1.15%

Nov 22

6.49%

6.60%

-0.11%

Dec 22

-5.72%

-3.95%

-1.77%

Jan 23

4.38%

3.10%

1.28%

Feb 23

-1.39%

-2.06%

0.67%

Mar 23

-1.65%

-0.01%

-1.64%

Apr 23

1.19%

0.51%

0.68%

May 23

-4.73%

-5.25%

0.52%

Total

-1.53%

-1.39%

-0.14%

2021

12.72%

8.06%

4.66%

2022

-10.50%

-5.10%

-5.39%

2023

-2.40%

-3.84%

1.44%

Cumulative

-1.53%

-1.39%

-0.14%

Annualized

-0.84%

-0.76%

-0.08%

The buy-and-hold portfolio for this strategy posted a loss of 4.73% in May. It outperformed the average dividend king universe return but not the monthly watchlist last month. As a result, the portfolios return improved against the benchmark but the portfolio still finds itself trailing the average dividend king universe, on an annualized basis. This portfolio performed very well in 2021, did not do so well in 2022, but is holding onto the good start in 2023. The long-term margin of difference to the average dividend king universe return is very minimal now.

An interesting note is that the portfolio appears to perform better during months where the average dividend king universe return is positive. During the 23 months test there have been 10 positive return months for the dividend king universe. Of those 10 months this strategy outperformed during 7, beating the average dividend king universe by 3.79% cumulatively. During the 13 negative return months the strategy outperformed during also 7 but is trailing the average dividend king universe by 1.68% cumulatively. Should this trend hold up in the long run the strategy has very high potential to outperform the average dividend king universe since the stock market goes up more than it goes down.

The buy-and-hold portfolio consists of 28 unique dividend kings but it is top heavy as the 9 largest positions made up 64.79% of the portfolio at the beginning of May. Their average return last month was a loss of 3.22%, which was unfavorable, however it was better than the average dividend king universe return. The 7 largest holdings at the beginning of May, their allocation and returns from last are:

  1. Sysco ( SYY ) 10.59%. -8.85%
  2. Lowe's ( LOW ) 9.79%. -3.22%
  3. H.B. Fuller ( FUL ) 7.25%. -4.88%
  4. Nordson ( NDSN ) 7.10% +1.05%
  5. Stanley Black & Decker ( SWK ) 6.83% -13.17%
  6. ABM Industries ( ABM ) 6.32%. +3.71%
  7. Tennant Company ( TNC ) 6.10% -4.00%
  8. PPG Industries ( PPG ) 5.69% -5.97%
  9. MSA Safety Inc. ( MSA ) 5.11% +6.37%

Here is the current allocation of the buy-and-hold portfolio as of May 31, 2023. I've also included the April 30, 2023, allocation to show you how it has shifted as a result of contributions and market activity.

TICKER

May

April

ABM

6.59%

6.32%

ABT

2.53%

2.72%

BDX

1.17%

1.28%

CINF

1.18%

0.92%

CWT

2.97%

2.53%

FUL

6.92%

7.25%

GRC

1.11%

0.75%

GWW

2.40%

2.55%

HRL

2.60%

2.74%

KMB

0.84%

0.90%

LEG

2.58%

2.35%

LOW

9.52%

9.79%

MMM

1.44%

1.60%

MO

4.77%

4.71%

MSA

5.86%

5.11%

NDSN

7.59%

7.10%

NUE

0.32%

0.36%

NWN

1.73%

1.89%

PH

3.38%

3.40%

PPG

5.73%

5.69%

SJW

0.71%

0.70%

SPGI

1.19%

0.80%

SWK

6.29%

6.83%

SYY

10.04%

10.59%

TGT

2.12%

2.53%

TNC

6.25%

6.10%

TR

1.46%

1.52%

VFC

0.72%

0.97%

A buy-and-hold approach is a much easier and more tax-friendly investing approach to adopt. Unless a portfolio is held in a tax-free or tax-deferred account, the impact of taxes as a result of moving in and out of positions each month would significantly impact total returns.

Performance For All Dividend Kings In 2023

All 49 dividend kings lose their positive year-to-date return after May, on average they are down 4.02%. 21 dividend kings are outpacing the dividend king universe of stocks this year and are driving the return. The remaining 28 dividend kings are all trailing the dividend king universe return.

Best 5 Dividend Kings in 2023:

  1. Tennant Company +19.58%
  2. Grainger ( GWW ) +17.29%
  3. Parker-Hannifin ( PH ) +11.04%
  4. S&P Global Inc. ( SPGI ) +10.27%
  5. PPG Industries ( PPG ) +5.40%

Worst 5 Dividend Kings in 2023:

  1. Commerce Bancshares ( CBSH ) -29.27%
  2. 3M Company ( MMM ) -19.95%
  3. National Fuel Gas Company ( NFG ) -18.91%
  4. Emerson Electric ( EMR ) -18.12%
  5. Hormel ( HRL ) -14.94%

Best 5 Dividend Kings in May:

  1. Middlesex Water Company ( MSEX ) +11.96%
  2. MSA Safety Inc. (MSA) +6.37%
  3. ABM Industries ( ABM ) +3.71%
  4. Farmers & Merchants Bancorp (FMCB) +3.47%
  5. California Water Service ( CWT ) +1.94%

2 of the top 5 dividend kings in May were part of my top 12 list for last month. Additionally, ABM Industries is part of the buy-and-hold portfolio.

Summary

I believe that targeting the 12 best dividend kings with the highest forecasted growth rate based on EPS growth forecasts and reversion to fair value will offer excess returns over the dividend king universe of stocks. It may take time to fully see the results; an ideal evaluation period will be 5 years. For some investors, that is a long period of time, and I encourage all of you to do further due diligence on any of the companies I mentioned prior to investing. So far, this simple strategy is working out okay, and I look forward to seeing what this method has to offer in the future.

For further details see:

My 12 Best Dividend Kings For June 2023
Stock Information

Company Name: Nordson Corporation
Stock Symbol: NDSN
Market: NASDAQ
Website: nordson.com

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