Ring in 2022 with these 5 dividend kings

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Passive income is a powerful tool for building wealth, and something investors should keep in mind as we enter 2022. Well-managed dividend stocks can deliver that passive income year after year. The best can be a great investment strategy because of their ability to pay you off and rise in value.

The best of the best have earned the title of Dividend Kings, a select group of 31 companies that have managed to increase their dividend payouts every year for at least 50 consecutive years. This is fertile ground for finding stocks that can form a solid foundation for any portfolio over the long term.

Let’s take a closer look at five of these Dividend Kings that might be worth buying in 2022.

Image source: Getty Images.

1. Johnson & Johnson: the dividend pays 2.5%

Healthcare is one of the biggest and most important industries in the world. Health Conglomerate Johnson & johnson (NYSE: JNJ) develops and sells a variety of products, including pharmaceutical drugs, medical devices, and some of the world’s most recognized consumer products, such as Tylenol and Band-Aids.

JNJ Free Cash Flow Chart

JNJ Free Cash Flow Data by YCharts

Johnson & Johnson has generated over $ 22 billion in free cash flow over the past year, and we can see the company has been growing steadily for decades, the secret behind its 59-year streak of increase in dividends. Management will be transforming its consumer products business into a new company over the next 18-24 months, so investors will want to keep that in mind when reviewing the stock.

2. Hormel Foods: the dividend yields 2.2%

Many of the highest dividend paying stocks in the market tend to do things that are popular in the grocery store, where consumers buy food and drink every week. Hormel Foods (NYSE: HRL) is a prime example, expanding its old SPAM brand of canned meat to a broad portfolio of meats, spreads, soups, nuts, and more.

HRL Free Cash Flow Statement

HRL Free Cash Flow Data by YCharts

The company’s free cash flow is not as stable as that of Johnson & Johnson, mainly due to acquisitions and the impact that certain raw material costs may have on Hormel’s pork and poultry business. However, free cash flow continues to grow over the long term, and disciplined management keeps very little debt on the balance sheet to stay flexible. Investors often overlook strong leadership in stocks, but Hormel has been able to increase its dividend 55 years in a row because of it.

3. Lancaster Colony: the dividend pays 2%

Let’s stay at the grocery store, where Lancaster Colony (NASDAQ: LANC) sells its portfolio of dressings, dips and bread products. The company’s playbook is similar to Hormel’s; its products are well known to consumers, have premium storage space, and are purchased repeatedly by consumers and restaurants. It is one of the smaller companies in the Dividend King club, with a market cap of less than $ 5 billion.

LANC Free Cash Flow Chart

LANC Free Cash Flow Data by YCharts

We can see above how the business has volatile cash flow over time resulting from many of the acquisitions management has made over the years. Acquisitions can be tricky for management, who must pay the right price for assets but integrate them effectively into the business to be successful. Lancaster Colony appears to have performed well, using its balance sheet as needed not only to grow through these acquisitions but also to pay out a dividend that has grown each of the past 59 years.

4. Altria Group: dividend yield 7.7%

Many investors avoid tobacco stocks, which may be why Altria Group‘s (NYSE: MO) the stock pays the highest dividend yield on this list and one of the highest of all Dividend Kings. The tobacco company sells Marlboro, the most popular brand of cigarettes in the United States. Smoking is a slowly waning habit and the company sells fewer cigarettes each year.

MO Free Cash Flow Chart

MO free cash flow data by YCharts

However, the addictive nature of tobacco allows Altria to continually increase its prices and keep making more money each year. Free cash flow increases steadily over time, with the significant decline in 2008 when it divested its international operations as Philip Morris International.

Altria’s payment has increased by 52 years and it continues. As long as the company can continue to slowly increase its prices, investors can probably count on dividends to keep rising.

5. American States Water: the dividend yields 1.4%

Everyone needs water to live, which is arguably the most important product a business can sell. US States Water (NYSE: AWR) is a water and electricity utility that serves more than one million people in nine states.

Utilities are a very stable business model as regulators prevent competitors from entering their respective territories and allow price increases to support utility activities to invest capital to build and maintain infrastructure such as pipelines. , power lines and production facilities.

AWR Net Income Graph (TTM)

AWR Net Income Data (TTM) by YCharts

Since these large investments impact free cash flow, we can look at the bottom line, known as the bottom line, to understand how stable the business is. These constant price increases, combined with the company’s vital importance to its residents, virtually ensures that American States Water is always paid (and growing). Thus, its shareholders receive dividends which have increased for 67 years and which continue.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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