For well over a century, Wall Street has been a wealth-building machine. Despite its ups and downs, the average annual return from stocks over the very long-term handily outpaces other asset classes, including gold, oil, housing, and Treasury bonds.
While there is no shortage of strategies that can make investors richer on Wall Street, buying and holding dividend stocks tends to be head-and-shoulders above the pack.
Last year, the researchers at Hartford Funds published an all-encompassing report ("The Power of Dividends: Past, Present, and Future") that examined the varying outperformance of income stocks over extended periods.
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In particular, a collaboration with Ned Davis Research yielded just how powerful dividend stocks can be to wealth creation. Whereas non-payers have averaged a 3.95% annual return over a half-century (1973-2022), dividend stocks have more than doubled up the non-payers with an average annual return of 9.18%. Companies that regularly share a percentage of their earnings with investors and provide transparent long-term growth outlooks should be expected to outperform over long periods.
However, not all dividend stocks are cut from the same cloth. There are only around two dozen publicly traded companies that have been paying a continuous dividend for at least 100 years -- and quite a few of these companies are some of the strongest and most well-known businesses on Wall Street.
Coca-Cola, ExxonMobil, and Eli Lilly have been doling out uninterrupted dividends for more than a century
Among the roughly two dozen publicly traded companies that have been dishing out an uninterrupted payout to their shareholders for more than a century are beverage giant Coca-Cola (KO -0.19%), energy titan ExxonMobil (XOM -0.01%), and pharmaceutical maven Eli Lilly (LLY -1.38%).
Earlier this year, Coca-Cola raised its payout for a 62nd consecutive year. But looking back even further, it's been paying a continuous dividend since 1920. Since it provides a basic necessity product (beverages), Coca-Cola's operating cash flow tends to be highly predictable in any economic climate.
Coca-Cola has also taken advantage of its virtually unsurpassed geographic diversity. In addition to being the most-chosen brand from retail shelves for a decade running (as of 2022), according to Kantar's annual "Brand Footprint" report, it has operations in all but three countries (North Korea, Cuba, and Russia). This geographic breadth allows Coca-Cola to generate predictable cash flow in developed markets, while moving the organic growth needle in faster-growing emerging markets.
Oil and gas stock ExxonMobil has been paying a continuous dividend for decades longer than Coca-Cola. Records show it began sharing the wealth with its shareholders in 1882, and it's continued to do so in each of the following 142 years.
What's really helped ExxonMobil thrive -- aside from the fact that demand for energy commodities like oil continues to increase -- is its integrated operating model. Although it generates its best margins from its oil and gas drilling segment, ExxonMobil also operates refineries and chemical plants, which are able to take advantage of a decline in the spot price of crude oil. Having this hedge in place ensures steady cash flow and a robust dividend for the company's shareholders.
Although its dividend doesn't necessarily increase every year, drug developer Eli Lilly has been parsing out dividends without interruption since 1885. Since we can't control when we become ill or what ailment(s) we develop, demand for prescription medicines tends to be consistent regardless of how well or poorly the U.S. economy and stock market are performing.
What's made Eli Lilly an especially hot investment of late is the Food and Drug Administration approval of Zepbound. This once-weekly injection is a glucagon-like peptide 1 (GLP-1) agonist that's designed to help clinically obese patients lose weight.
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This virtually unknown company has been paying a continuous dividend for over 200 years
But what if I told you that Coca-Cola, ExxonMobil, and Eli Lilly, don't come remotely close to surpassing the continuous dividend streak that one virtually unknown small-cap stock has amassed over the course of more than two centuries?
Ladies, gentlemen, and income seekers of all ages and risk tolerances, say hello to water utility York Water (YORW -1.14%).
Whereas Coke, ExxonMobil, and Eli Lilly have global appeal and megacap valuations, York Water provides water and wastewater services in just 56 municipalities spanning four counties in South-Central Pennsylvania. It sports a market cap of only $508 million and typically sees about 58,500 of its shares exchange hands daily.
But one thing that's absolutely unique about this completely under-the-radar water utility is its dividend history. It's paid a consecutive dividend every year since its founding in 1816. Put another way, York has been sharing a percentage of its earnings with its shareholders since James Madison was president 208 years ago. That's 66 years longer than ExxonMobil has been paying a continuous dividend, 69 years more than Eli Lilly, and it exactly doubles up the length of time Coca-Cola has been doling out a consecutive dividend (104 years).
York Water's not-so-subtle "secrets" to success are twofold. Firstly, it's providing a basic necessity service. If you own or rent a home, it's a practical certainty you'll need water and wastewater services. The company's customers don't change their consumption habits much from one year to the next, leading to transparent, predictable cash flow.
I'll also add to the above that water utilities almost always operate as monopolies or duopolies in the areas they service. This means York doesn't have to worry about a competitor swooping in and stealing its customers.
The other reason York Water has been such a dividend stud for more than two centuries is because it's a regulated utility. This means it can't raise rates on its customers without the approval of the state's public utility commission (in this instance, the Pennsylvania Public Utility Commission, or PPUC).
On the surface, being regulated might sound like a constraint for utilities; but it's quite the opposite. Regulated utilities avoid potentially volatile wholesale pricing, which is what ensures they generate predictable cash flow each year. Being able to accurately forecast cash flow is what allows management the confidence to outlay capital for infrastructure projects and bolt-on acquisitions without adversely impacting the dividend or per-share profits.
The final thing I'll point out is that York Water's 2.4% yield isn't as modest as it looks. Shares of the company have jumped 525% since the century began (that's a better return than the S&P 500), or 1,100% including dividends paid. The company's outperforming stock has kept what would be a robust yield rather modest.
No publicly traded dividend stock in the U.S. can hold a candle to little-known York Water.
