There is no substitute for dividend stocks when it comes to making money on Wall Street. Studies show dividend payers significantly outperform stocks that don’t reward shareholders and do so with less risk.
Dividends are also responsible for the lion’s share of the stock market’s long-term performance. Ned Davis Research found income-generating stocks represented 41% of the market’s total return between 1930 and 2022. Other research discovered there has never been a decade when they lost money.
Among those making a payout, though, Dividend Kings are the elite. These are companies that not only make regular dividend payments but have increased the payout year after year for 50 years or more.
There are good reasons these companies are royalty. They are typically profitable businesses with solid management teams that look to share their success with investors. These are admirable traits you want in any stock.
The three stocks below are the highest-yielding Dividend Kings, averaging 8.5% annually. That’s more than six times the S&P 500‘s average 1.4% yield. Are they sustainable? Let’s find out!
Altria (MO)
Tobacco giant Altria (NYSE:MO) is the owner of leading cigarette brand Marlboro, which has been the largest-selling cigarette brand in the U.S. for over 45 years. More recently, Altria has been focusing on reduced-risk products. It acquired electronic cigarette maker NJOY last year and is in the process of expanding its visibility nationwide.
The e-cig has certain competitive advantages that could help gain market share. For example, NJOY is the only e-vapor manufacturer to receive market authorizations from the FDA for a pod-based e-vapor product. Still, British American Tobacco‘s (NYSE:BTI) Vuse brand is the biggest e-cig on the market. NJOY is a very distant third behind Juul Labs.
Altria paid its first dividend in 1928 and began regularly increasing it in 1969, making for 55 straight years of hikes. The dividend currently yields 9.2%. Despite such a long track record, Altria has a 10-year compounded growth rate of 7% annually and has grown its free cash flow (FCF) at a similar rate. That’s a very healthy rate for such a mature business. And because companies pay their dividends out of FCF, MO stock’s payout is secure.
Universal (UVV)
Universal (NYSE: UVV) is the world’s largest tobacco leaf supplier, operating in 30 countries around the globe. Although cigarette smoking is in decline in the U.S., only 5% of all the cigarettes manufactured in the world are smoked in the U.S. That means there remains a substantial global market for Universal’s products.
The tobacco stock counts all the world’s biggest tobacco companies as its clients, including Altria, Philip Morris International (NYSE:PM), British American Tobacco, and China Tobacco International. However, Universal only provides tobacco leaf to these companies, it does not manufacture any tobacco product or device itself.
The company was founded in 1918 and its dividend yields 6.4% annually. It has raised the payout for 53 consecutive years. Universal began diversifying its business beyond tobacco several years ago and now has a thriving, though small, food ingredients business. UVV stock is on solid ground and the dividend is secure.
Leggett & Platt (LEG)
You might not know Leggett & Platt (NYSE:LEG) but there is a good chance you use its products daily. The company makes most of the innerspring coils for mattresses sold today. It also has a significant presence in the automotive, aerospace and flooring industries. Bedding, flooring and autos account for 80% of total revenue. Somewhere in your home, your car or the last plane you flew on, Leggett & Platt is there.
The company was founded 140 years ago and has been going strong since. It also holds the distinction of being the highest-yielding Dividend King at 9.8% annually. The yield shot up as LEG stock fell. Shares are down 29% in 2024 and 38% over the last 12 months. Inflation, high interest rates, an uncertain housing market and a lagging auto industry have weighed heavily on the stock.
While some might be concerned that will weaken Leggett & Platt’s resolve towards its dividend, the company generates plenty of free cash flow and its FCF payout ratio is only 62%. That means the dividend is not only secure but still has room for plenty more growth too.
On the date of publication, Rich Duprey held a LONG position in MO and LEG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.