Incorporating dividend-paying stocks into your investment portfolio can be a strategic way to generate passive income and enhance long-term wealth accumulation. The key consideration is identifying which dividend stocks offer the best potential for stability and growth. One compelling option is investing in Dividend Kings, which is a select group of companies that have consistently increased their dividend payouts for at least 50 consecutive years. For investors seeking reliable income streams and potential capital appreciation, Dividend Kings may serve as a cornerstone of a well-balanced, income-generating portfolio.

Work with a financial advisor to find additional ways of generating passive income.

Dividend Kings, Definition

Dividends represent a percentage of profits paid out to shareholders. Not all stocks pay dividends but among the ones that do, there’s a hierarchy. At one level, you have shares that pay dividends regularly, though this dividend may increase or decrease over time; they may even be suspended or discontinued at the board’s discretion. Then you have Dividend Aristocrats, which are companies belonging to the S&P 500 that have raised their dividend 25 years or more in a row.

That sounds good but at the top of the ladder, you have the Dividend Kings. These are also S&P 500 companies that have a track record of increasing their dividend payouts, only instead of 25 years, they’ve done it for 50 years or more consecutively. Only a handful of companies bear the Dividend King title, including Johnson & Johnson (JNJ), Coca-Cola (K) and Procter & Gamble (PG). New names are added to the list infrequently.

The Dividend Kings come from different sectors and include consumer cyclical shares, consumer defensive stocks, utility shares and industrial stocks. The common thread among these companies is that they’ve been around for decades and have a history of consistently paying out higher dividends to shareholders.

Why Invest in Dividend Kings

Adding dividends to your portfolio can create an additional stream of income. That in itself is a benefit if you’re interested in current income or you want to plan ahead for additional income in retirement. Depending on the stock, you may be able to set up a dividend reinvestment plan (DRIP) and use your dividend payouts to purchase additional shares. This can help with growing wealth in your portfolio over time.

So what’s good about Dividend Kings in particular? The answer is simple. They offer a solid combination of both reliability and dividend growth over time. In that sense, Dividend Aristocrats are remarkably similar to Dividend Kings.

Since these are established companies, the odds of them reducing dividends or eliminating them are slim. You should be aware that while it may not happen often, companies can choose to suspend dividends temporarily or permanently if they’re struggling financially or undergoing major restructuring.

While Dividend Kings are not necessarily less risky than other types of shares, in terms of how they may react to volatility or changing economic conditions, they can offer a measure of certainty to investors that dividends will be paid and at a continually higher rate. If you’re counting on dividends for current or future income that can be reassuring.

Dividend Kings vs. Growth Stocks

Since you’re dealing with companies that have been around for many years, they’ve likely done most of their more dramatic growing. So if you’re looking for shares that are going to see significant price appreciation that you can sell at a profit, the Dividend Kings may not be a good fit. You may be better off choosing growth stocks for your portfolio instead. The trade-off is that growth stocks typically don’t pay any dividends to investors. You might also consider small-capitalization stocks.

Instead, they reinvest profits into the continued growth of the company. That means your shares may likely be much more than what you purchased them for should you decide to sell. But you won’t have that added income stream that dividends can provide in the meantime.

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How to Invest in Dividend Kings

It’s possible to invest in Dividend Kings through your 401(k) or a similar workplace plan if they’re included as part of mutual fund offerings. If you’d like to invest in the Dividend Kings individually, then you can do that with an online brokerage account. Several brokerages now offer commission-free stock trades.

Choosing which Dividend Kings to invest in is similar to choosing any other shares, in that it’s important to evaluate things like the current dividend payout as well as how it’s trended historically. It’s also helpful to consider each share’s fundamentals, which include things like price to-earnings (P/E) ratio, earnings per share (EPS) and equity debt. Fundamentals can tell you how financially sound a company is, though they won’t necessarily tell you what future dividend payouts are likely to be.

Remember to keep past performance in perspective, as what a stock has done in previous years isn’t a set-in-stone guarantee of what it may do in the future. And of course, think about diversification. If you’re interested in Dividend Kings, then only buying consumer cyclicals or focusing just on utilities could backfire if changing economic conditions deliver a blow to those sectors.

It’s also important to keep an eye out for companies that may be on the verge of becoming Dividend Kings. Again, these are companies that already have several decades’ worth of increasing dividend history under their belts and are poised to continue boosting dividends to investors. Looking at fundamentals, as well as what market conditions might be conducive to a would-be Dividend King increasing dividends could help you find the next rising star.

Is There a Dividend King ETF?

Exchange-traded funds (ETFs) are appealing for owning a basket of securities in a cost- and tax-efficient way. These investments are similar to mutual funds but they can be traded on an exchange just like a stock. At time of writing, there was no single ETF that is dedicated to the Dividend Kings. However, some ETFs focus on Dividend Aristocrats. These funds could offer exposure to Dividend Kings as well as other shares that have raised dividends consistently, albeit over a shorter period. You can invest in ETFs through an online brokerage account and again, many brokerages now offer commission-free trades for ETFs as well.

Bottom Line

Investing in Dividend Kings signals confidence in financially stable companies with a proven track record of delivering consistent and growing dividends. These stocks can be a valuable addition to an income-focused portfolio, offering reliability and resilience through various market conditions. However, before making any investment decisions, it’s essential to evaluate how they align with your financial objectives, risk tolerance, and overall strategy.

Tips for Investing

Consider talking to a financial advisor about the best ways to make use of dividend income in your portfolio and what you may be able to do to minimize your tax liability. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If your investments pay off, you may owe the capital gains tax. Figure out how much you’ll pay when you sell your shares with our capital gains tax calculator.