Over the last century, Wall Street has sat on a pedestal above all other asset classes. While Treasury bonds, housing, and commodities like gold, silver, and oil, have had their moments in the sun and, in many instances, made investors richer, no asset class has come close to matching the average annual return from stocks over the last century.
One of the best aspects of putting your money to work on Wall Street is there are thousands of publicly traded companies and exchange-traded funds (ETFs) to choose from. It's a near-certainty that there's a security or 10 that matches your risk tolerance and/or investment goals
But among the seemingly countless ways money can be made in the stock market, few strategies have been more consistently successful than buying and holding high-quality dividend stocks over an extended period.
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Last year, the investment advisors at Hartford Funds released a lengthy report extoling the virtues, and outperformance, of dividend stocks. In particular, The Power of Dividends: Past, Present, and Future compared the performance of dividend-paying stocks to non-payers over the previous half-century.
According to the report, dividend stocks averaged a 9.17% annual return between 1973 and 2023, and did so while being 6% less volatile than the benchmark S&P 500. Meanwhile, public companies that didn't offer a payout trudged their way to a less-impressive annualized return of 4.27% over the same 50-year stretch, and were, on average, 18% more volatile than the S&P 500.
Companies that regularly share a percentage of their profits with investors -- even if these payouts aren't necessarily growing on an annual basis -- tend to be recurringly profitable, time-tested, and are usually able to provide transparent long-term growth outlooks. In short, they're just the type of businesses we'd expect to increase in value over time.
Wall Street has no shortage of amazing dividend stocks to choose from
Although well over 1,000 stocks currently pay a dividend to their shareholders, no two income stocks are alike. When it comes to consistency and safety, some dividend stocks naturally rise to the top.
A good example is consumer staples colossus Coca-Cola (KO -0.19%). In February, it increased its quarterly dividend for the 62nd consecutive year. Furthermore, the company has paid a continuous dividend, without interruption, since 1920.
Coca-Cola's secret to success really isn't a secret at all. It provides a basic necessity (beverages) that'll be purchased in any economic climate, and is geographically diverse, with operations ongoing in all but three countries (North Korea, Cuba, and Russia).
Coca-Cola also possesses a powerful brand that resonates with shoppers. Kantar's annual "Brand Footprint" report has labeled Coca-Cola the most-chosen brand from retail shelves for 12 consecutive years.
Healthcare conglomerate Johnson & Johnson (JNJ -0.36%) is another prime example of a top-tier dividend stock that delivers safe, predictable income year after year. In April, J&J's board matched Coca-Cola by increasing its base annual payout for a 62nd consecutive year.
Regardless of what's happening with the U.S./global economy or stock market, people still develop ailments and require medical care. This means demand for novel therapeutics and medical devices are going to be consistent, which leads to transparent and predictable operating cash flow.
Johnson & Johnson is also one of only two publicly traded companies that still possesses the highly coveted AAA credit rating from Standard & Poor's (S&P), a division of S&P Global. This rating, which is one notch higher on the belt than that of the U.S. government, signifies S&P's utmost faith in J&J servicing and repaying its outstanding debts.
But at the end of the day, neither Coca-Cola, Johnson & Johnson, nor the 1,000-plus other dividend stocks out there can hold a candle, in terms of safety and consistency on the dividend front, to one off-the-radar small-cap stock that few investors know exists.
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Say hello to Wall Street's greatest (and most underappreciated) dividend stock
The mystery stock that can arguably be described as the safest and most-consistent dividend payer is York Water (YORW -1.14%), a $548 million market cap water and wastewater utility company that services 56 municipalities spanning four counties in South-Central Pennsylvania.
To say York flies under the radar would be an understatement. Over the last three months, its average daily trading volume is a paltry 58,329 shares. On a given day, a little over $2 million worth of the company's shares trade hands. But this inconspicuous water utility has quite the rich history of sharing a percentage of its profits with its investors.
Since York Water's founding in 1816, the company has paid a continuous dividend to its shareholders. Although the company doesn't increase its payout in consecutive years like Coca-Cola and Johnson & Johnson, its 208-year continuous streak of dividends precisely doubles Coke's 104-year streak. Based on the research I've done, York's continuous dividend streak is 60 years longer than the next-closest continuous payout streak from a public company in the U.S., Stanley Black & Decker.
The safety of York's payout can be traced to four factors.
To start with, water and wastewater service are basic necessities. Regardless of whether you own or rent, you're going to need these services. Further, demand for water and wastewater service doesn't change much from one year to next, leading to highly predictable operating cash flow.
Secondly, the barrier to entry among utilities is usually sky-high. Most utilities operate as monopolies or duopolies in the regions they service, meaning consumers rarely, if ever, have an opportunity to choose which company provides their service. With initial infrastructure costs often restrictive, York Water doesn't have to worry about competition for its customers. Once again, this leads to transparent and predictable cash flow.
The third important element to York's success is that it's a regulated water utility. "Regulated" utilities must first obtain approval from a state's public utility commission (in this instance, the Pennsylvania Public Utility Commission, or PPUC) to increase rates on customers. While this might sound inconvenient, it ensures that York doesn't have to contend with unpredictable wholesale pricing for its services.
In January 2023, the PPUC gave York the thumbs-up to increase rates on approximately 75,000 of its customers to offset $176 million in various system improvements and infrastructure replacements. York's annual revenue jumped 18% last year in the wake of this increase.
YORW Revenue (Annual) data by YCharts.
Lastly, York Water hasn't been shy about making acquisitions to expand its reach. A steady diet of earnings-accretive bolt-on acquisitions ensures that York can maintain its continuous dividend streak.
Though some investors are liable to be critical of York yielding "only" 2.2%, keep in mind that yield is a function of share price. Despite its quarterly payout growing by 164% since the century began, York's shares have risen by 573% during the same stretch. In other words, the only reason York's yield is a modest 2.2% is because its share price has significantly risen over time. That's not something for shareholders to complain about.
While you can find plenty of dividend stocks with higher yields than York Water, you're not going to find a company with a steadier or safer payout track record.
