Image source: Getty Images.
Continue Reading Below
Dividends stocks are the heart and soul of most retirement portfolios. Historically, dividend stocks have handily outperformed non-dividend-paying stocks over the long run, and dividend-paying companies often have time-tested business models that act as a beacon for income-seeking investors.
Of course, that's not the only allure of dividend stocks. They can also act as a hedge against inevitable stock market corrections, and payouts can be reinvested into more shares of dividend-paying stock in what's known as a dividend reinvestment plan, or DRIP. A DRIP is a popular strategy among money managers to compound the wealth of their clients over many years.
But, dividend stocks are somewhat a dime-a-dozen. There are thousands of companies that have paid their shareholders a dividend (either recurring, annual, or one-time) over the trailing 12-month period. However, not all dividend stocks are created equally. There's a very special class of dividend stocks known as Dividend Aristocrats, which represents around 100 companies that have increased their payouts annually in at least each of the past 25 years. Dividend Aristocrats are the hallmark of dividend consistency.
This year, four companies appear set to increase their payouts for an impressive 55th consecutive year.
Image source: Getty Images.
Johnson & Johnson
It's probably no surprise whatsoever that one of the steadiest healthcare names, Johnson & Johnson (NYSE: JNJ), is primed to increase its payout for a 55th straight year. Johnson & Johnson's success is mostly due to its business structure and the diversity of its operating segments.
In terms of structure, Johnson & Johnson is comprised of more than 250 different subsidiaries. Having so many working parts under one umbrella allows J&J to divest and acquire businesses with relative ease, and without disrupting its entire business. For instance, in 2016 J&J completed 13 acquisitions, 67 innovation deals, and 21 new investments in its J&J Development Corporation.
The other aspect of J&J that investors tend to like is that each of its three main operating segments -- pharmaceuticals, medical devices, and consumer health -- have a purpose. Consumer health is the slowest growing segment, but it also brings predictable cash flow and solid pricing power to the table. The medical device segment been struggling due to increased competition in recent quarters, but it also offers excellent long-tail growth opportunities since the U.S. Census Bureau is anticipating a near-doubling in the U.S. elderly population between 2012 and 2050. Finally, pharmaceuticals provide the margin and growth punch for J&J with its exceptional pricing power.
Lastly, it probably doesn't hurt that most of J&J's products are inelastic. In simpler terms, people can't choose when they're going to get sick, or what ailment they'll have, which means J&J's products are always in demand.
Image source: Coca-Cola.
Another superior dividend stock set to raise its payout for a 55th year in a row that isn't a surprise to be found among the most elite of Dividend Aristocrats is beverage maker Coca-Cola (NYSE: KO). Aside from being a longtime holding of Warren Buffett, Cola-Cola makes a strong case to be owned by patient long-term investors.
Much like Johnson & Johnson, Coca-Cola has geographic diversity and inelasticity on its side. Coca-Cola products are sold in all but one country worldwide, allowing Coca-Cola the opportunity to take advantage of global growth opportunities in developed and emerging markets. It also has more than 3,500 beverage brands sold throughout the world, meaning it has the chance to appeal to multiple types of palates and generations of people. And remember, Coca-Cola has branched out from more than just soda, meaning it can capitalize on juice and fruit drinks, energy drinks, and even bottled water.
This leads to the next key point: Coca-Cola's long-term opportunity beyond soda. Coca-Cola can approach growing its business two ways. First, it can aim to improve the production efficiency of its legacy soda products, ensuring that its margins remain robust despite stagnant growth in developed markets. Secondly, it can make disciplined investments in higher growth segments, such as energy drinks.
With a current dividend yield of 3.4%, Coca-Cola offers the most robust yield of these four Dividend Aristocrats likely to "turn 55" in 2017.
Image source: Lowe's.
Though its 2% dividend yield might seem a bit pedestrian, there's absolutely nothing pedestrian about Lowe's (NYSE: LOW) current streak of raising its dividend for 54 (and likely to be 55) consecutive years.
Unlike J&J and Coca-Cola, Lowe's is a cyclical company that relies on a growing U.S. economy to thrive. In particular, it benefits from the construction of new homes and the decision of existing homeowners to remodel their residence. During the Great Recession, Lowe's turned to residential customers when commercial construction slowed dramatically and catered to their remodeling needs. This flexibility of being able to hit both sides of the aisle is one reason Lowe's has thrived for so long.
Prudent cost management and investments in innovation are another reason why Lowe's has performed so well and managed to increase its payout for well over five decades. The company announced earlier this month that it would be reducing its headcount by about 1%, or 3,000 jobs, in an effort to reduce its costs and streamline its existing operations. By reconfiguring how employees perform their duties, Lowe's came to the conclusion that it could be just as efficient with fewer employees and expenses. Though not an easy decision for any company to make, Lowe's is once again demonstrating that it can be financially nimble when need be.
Lowe's is also succeeding by reaching out to a new generation of consumers via digital means. In addition to investing in e-commerce, Lowe's has been pushing the importance of social media, including FacebookLive, in an effort to engage with more consumers and grow impressions. Barring a full-fledged economic depression, Lowe's is set up for continued success.
Image source: Getty Images.
Lancaster Colony Corp.
Finally, Lancaster Colony (NASDAQ: LANC), which is far from a household name unlike the other three giant companies mentioned here, appears poised to lift its payout for a 55th straight year. Lancaster Colony makes a variety of salad dressings and other specialty food products for the retail consumer and foodservice channel.
According to Lancaster Colony's fiscal first quarter earnings report, released three months prior, it's dealing with a lot of competition in the refrigerated dressing space, and deflationary pricing in its foodservice channel has been adversely impacting its revenue figures. Nonetheless, the company came through with 21% adjusted earnings-per-share growth on account of improved margins. While deflationary prices have hurt its top-line a bit, they've also improved its margins by lowering its expenses. Further, by maintaining its leading market share in the refrigerated salad dressing category, Lancaster Colony has solidified somewhat strong pricing power relative to its peers.
Having some level of inelasticity helps, as well. Food, in general, isn't a high-growth segment, but it's also somewhat resistant to recession. Lancaster Colony leans on the brand loyalty of consumers during tough times, which is probably why the company's gross margin improved substantially during and after the Great Recession from the years preceding it.
Finally, acquisitions have also helped move the needle. Over the past two years it's acquired Flatout Holdings, a maker of various flatbread wraps, and Angelic Bakehouse, a baker of sprouted-grain products that are commonly sold across the Midwest. M&A gives Lancaster the ability to boost its product line and geographic reach, and it's made easier by the company's debt-free balance sheet. Lancaster Colony is certainly food for thought for income-seeking investors
10 stocks we like better than Coca-Cola When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Coca-Cola wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of January 4, 2017
Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. It also recommends Coca-Cola and Johnson and Johnson. The Motley Fool has a disclosure policy.