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3 Dividend Kings for a Bear Market

Stocks have been a bit wobbly of late. Is a bear market around the corner? Maybe. If so, here are three dividend kings to get you through it.

This is a guest contribution by Bob Ciura of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth portfolios for the long run.

The stock market is still near record highs, but volatility has returned in recent weeks. On Monday, July 19 the Dow Jones Industrial Average fell over 700 points. The DJIA quickly bounced back by recovering over 500 points the next day, but the steep one-day decline was a reminder to investors that stocks can (and do) decline from time to time.

Because of this, income investors can position themselves for a bear market by buying quality dividend stocks such as the Dividend Kings. These are a group of just 32 stocks that have each raised their dividends for over 50 consecutive years. This is a very long period of time that is only possible with durable competitive advantages and long-term growth.

Procter & Gamble (PG), Altria Group (MO), and Black Hills Corp. (BKH) are 3 Dividend Kings that investors can buy for market-beating yields, and outperformance in a bear market.

Dividend King: Procter & Gamble (PG)

P&G is a consumer staples giant. It manufactures a number of leading brands such as Pampers, Luvs, Tide, Bounty, Charmin, Gillette, Old Spice, Crest, Oral-B, and many more. The company generates annual sales above $70 billion. Maintaining commanding leadership across multiple categories has allowed P&G to pay dividends to shareholders for over 100 years, and raise the dividend for over 60 years.

This is a period of renewal for P&G. The company recently finished a major restructuring of its brand portfolio, in which it divested multiple legacy brands such as Duracell and others, that were no longer considered a major part of the future growth plan. In all, it reduced its brands from about 170, to roughly 65. The end result has been an increase in efficiency and profit margins, with accelerated earnings growth.

For example, in the most recent quarter P&G delivered 5% sales growth and 12.5% earnings-per-share growth. A return to higher growth rates has also meant a higher level of dividend growth for P&G shareholders. In 2021, Procter & Gamble increased its dividend by 10.0%. For the full fiscal year, Procter & Gamble anticipates 5% to 6% sales growth and 8% to 10% core earnings-per-share growth from last year.

Growth will only be mildly affected in a recession, as P&G products such as paper towels, diapers, tissues, toothpaste, shampoo, etc. are used every day, regardless of the economic climate. This gives P&G a steady level of sales, even during recessions, which should support the stock in a bear market. P&G also has a solid 2.5% dividend yield with strong dividend increases each year to buoy investor sentiment in a bear market.

Dividend King: Altria Group (MO)

Altria is a diversified consumer products manufacturer. Its core brand is Marlboro, which commands over 40% retail market share in the United States. Altria has leading brands in a number of other tobacco product categories such as smokeless tobacco and cigars. In addition, the company has taken steps to diversify its business model by acquiring equity stakes in beer giant Anheuser-Busch InBev (BUD), cannabis producer Cronos (CRON) and e-vapor manufacturer Juul.

On 4/29/21, Altria reported first quarter FY21 results. Smokeable volumes declined by 11.6% year-over-year while cigarette volumes declined by 12% year-over-year. That said, cigar volumes increased by 11.1% and smokeless volumes increased by 0.6%, while wine volumes were up 1.7%. Management also continued investing in ancillary non-smokeable businesses by acquiring the remaining 20% of on! oral nicotine packages to give it full global ownership.

Altria’s adjusted EPS declined 2%, as the company faced difficult comparisons. Last year, consumers products companies got a big boost from consumer pantry-stockpiling during the coronavirus pandemic. Altria reaffirmed its full-year earnings-per-share guidance of $4.49-$4.62 for 2021, which sufficiently covers the dividend payout. Altria management maintains a target dividend payout ratio of 80% of the company’s annual adjusted earnings-per-share.

Altria stock could outperform in a bear market because of its extremely high (and safe) dividend of 7.3%, which provides an excellent buffer against falling share prices. And, Altria’s business model is built to last through recessions. Demand for tobacco products holds up very well during recessions. As a result, Altria has increased its dividend for over 50 years in a row.

Another major benefit of Altria’s business model is that the company generates huge free cash flow. In addition to its dividends, Altria has plenty of cash flow to buy back stock, which boosts earnings per share to help the stock outperform during bear markets.

Dividend King: Black Hills (BKH)

Black Hills Corporation is a lesser-known Dividend King, but the stock is a good mix of yield and growth. Black Hills is an electric utility that provides electricity and natural gas to customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Earlier this year, Black Hills raised its dividend by a healthy 6%, a strong raise for a utility stock which typically hike their dividends by token amounts each year.

2021 is the company’s 50th consecutive year of dividend growth. It has produced stronger growth than many utilities, which has fueled its impressive dividend history. In the most recent quarter, Black Hills generated revenues of $630 million, up 18% year-over-year. Earnings-per-share of $1.54 rose 2%, but excluding the Texas winter storm impact, earnings per share would have increased by 10% for the quarter.

The company forecasts earnings per share of $3.80 to $4.00 for the current fiscal year. This means 2021 will be another highly profitable year with steady growth, giving the company plenty of room to continue increasing its dividend. At a midpoint of $3.90, the dividend payout ratio for this year will come in at less than 60%, implying a high level of dividend safety. Shares of BKH currently yield 3.5%.

Black Hills stock should outperform in a bear market, because the company’s business model is highly resistant to recessions. Demand for electricity and gas is not very cyclical, meaning Black Hills should remain profitable under most circumstances. The fact that customers tend to stick with their provider means that Black Hills operates a relatively stable business model. This makes the stock appealing for investors in a bear market.

Sure Dividend helps self-directed investors and investment professionals find high quality dividend growth stocks for the long run. We specialize in long-term investing for rising passive income over time. Sure Dividend was founded in 2014 and is trusted by more than 100,000 investors who receive Sure Dividend’s free dividend information.