When scanning the market for a top-notch dividend stock, investors tend to consider a company's track record for raising dividends and the quality of the business overall. That's not a bad strategy, but it may fall short in some instances. Deeming a stock worthy of owning for a lifetime takes the standards for inclusion on the list up a notch.
Air Products and Chemicals (APD -0.77%), Johnson Controls (JCI -1.27%), and Clorox (CLX -0.59%) are among a rare breed of companies that feature established market positions, histories of dividend raises, and the kind of business model that should do well for decades to come. Three Motley Fool contributors were asked to provide further detail on what makes each of these unstoppable dividend stocks worth buying now. Here is what they had to say about these passive income producers.
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Have a gas receiving dividends from Air Products
Scott Levine (Air Products and Chemicals): While it may be impossible to predict the future, sometimes we can get a good sense of what lies ahead by examining what has come before. And with the industrial stalwart Air Products, there's a long history to consider. This company has been in business for more than 80 years, and it's consistently raised its dividend for 40 consecutive years. That makes the stock and its forward-yielding dividend of 2.4% particularly appealing for patient investors looking to procure a lifetime of passive income.
From automotive to oil and gas to pharmaceuticals -- just to name a few -- Air Products provides various gases that are critical to the operations of a wide swath of industries. This diversity in its customer base is extremely advantageous, as it mitigates the risk of a downturn in a single industry wreaking havoc on the company's financials. What's also encouraging about the future of Air Products is its focus on the burgeoning hydrogen industry. Air Products has inked several significant agreements, in Saudi Arabia and the U.K. for example, that position it to emerge as a global leader in this growing niche of the renewable energy industry.
It's not only the company's long-term dedication to paying a dividend that deserves recognition, it's management's attention to consistently raising the payout that's noteworthy. For the eight-year period from 2014 to 2022, Air Products has hiked the dividend higher at a compound annual growth rate of 10%. While this is no guarantee that the company will maintain the same rate moving forward, the company's 40-year history of consecutive dividend raises suggests that steadfast dedication to shareholders is deeply embedded in the company's culture.
Net-zero commitments will drive spending on Johnson Controls solutions
Lee Samaha (Johnson Controls): The significant drop in Johnson Controls' share price in August is due to management lowering its fourth-quarter guidance while speaking on its third-quarter earnings call. Investors were left unimpressed by management reducing its full-year organic sales growth guidance to high-single-digit growth from a prior estimate of 10%.
According to management, the downgrade comes down to dealers resetting inventories as Johnson Controls improves its lead times. In plain English, dealers no longer need to hold so much inventory now that Johnson Controls can deliver products in a more normal timeframe -- lead times were previously elevated due to the supply chain crisis.
It's never good news for investors when a company lowers its guidance, and management also lowered guidance in 2022. Still, Johnson Controls is not alone in reporting this phenomenon. For example, Rockwell Automation lowered its expectations for full-year orders to $8.5 billion to $9 billion from $9 billion as distributors clear their inventory.
Rockwell expects orders to pick up in due course, and Johnson Controls's management expects conditions to normalize in its December and March quarters. As such, now could be a great time to pick up some Johnson Controls stock and enjoy a 2.6% dividend yield in a company with long-term growth prospects from its building controls and heating, ventilation, and air conditioning systems, helping building owners reduce emissions and improve building efficiency.
Clorox has a strong portfolio of brands as it manages in an uncertain economy
Daniel Foelber (Clorox): Clorox is an underappreciated dividend stock for three key reasons.
The first is that Clorox has paid and raised its dividend every year since it began paying one in 1986.
The second is that Clorox has a 3.5% dividend yield, which is higher than the 2.6% yield of the largest consumer staples exchange-traded fund.
The third is that Clorox has an incredibly strong portfolio of brands. It may surprise you to learn that Clorox owns 48 brands in total, including Burt's Bees, Brita (water filtration), Glad (the company that makes trash bags, among other products), Kingsford (charcoal), Scoop Away (cat litter), Pine-Sol (surface cleaner), and Hidden Valley (salad dressings and dips). It's easy to overlook the value of some of these brands and think of Clorox as just a cleaning product company.
Despite all of the brands, Clorox has a market cap of just $16.4 billion, making it less than a 20th the size of Procter & Gamble.
Clorox's greatest challenge over the last few years has been combating inflationary pressures and higher costs. Clorox's margins have taken a massive hit while other similar consumer staples companies like Procter & Gamble, Kimberly-Clark, and Colgate-Palmolive have been able to more or less sustain their margins.
CLX Operating Margin (TTM) data by YCharts
Given that interest rates continue to rise and will likely remain higher for longer than initially expected, it's understandable that investors are souring on Clorox stock and questioning its ability to restore its operating margin to the high-teens level investors were used to.
Clorox has some work to do to regain investor trust. But the stock's sell-off, paired with its quality brands and track record of dividend raises, makes it a stock worth considering now.
