Today's Dividend Kings are a who's who of the most successful dividend growth stocks of our time. The list consists of approximately 50 publicly traded companies that have increased their dividend payments every year for at least half a century.
Typically, most Dividend Kings have payout ratios above 50%, meaning they pay out the majority of their net income to shareholders through dividends. Although this is very suitable existing For shareholders, it doesn't leave enough room for dividend growth expected shareholders, as there is little wiggle room for any meaningful growth in the future.
However, two dividend kings are bucking the trend.
The dividend payout ratio is only 20% and 28%, tennant co. (NYSE: TNC) and MSA security (NYSE:MSA) Offering investors more passive income potential than its Dividend King peers. These low payout ratios mean that every company could theoretically triple its dividend and still have money left over.
The best thing for investors is that while these stable businesses are leaders in their fields, their stock prices are down 19% and 32% from their all-time highs.
After this decline, these dividend kings' resilient operations and passive income potential are very promising at today's prices. This is the investment thesis for each company.
Tennant holds a leading market share of 14% in the mechanized cleaning equipment industry. The company sells scrubbers, sweepers, pressure washers, vacuum cleaners, and aftermarket parts and services to keep customers' cleaning equipment running smoothly.
However, while these products have helped Tennant become a dividend king over the past 50-plus years, the company's investment thesis today hinges on the success of its latest wave of innovation: autonomous mobile robots (AMRs).
These AMRs can improve customers' labor productivity and can propel a company's stock to new heights.
Tennant sold approximately 6,500 early version AMRs between 2018 and 2023.
However, in the first nine months of 2024 alone, the company sold 2,200 AMRs, driven by the launch of its latest product, the X4 ROVR. As growth accelerates, AMR equipment now accounts for about 5% of Tennant's sales.
In addition to faster revenue growth, these new X4 ROVR sales offer investors the potential for higher profits thanks to the software subscription included with the AMR.
Since launching its first AMR product in 2018, Tennant's profitability has steadily (and significantly) improved.
While Tennant's new AMR sales will cannibalize some of its less technology-intensive cleaning equipment, these newer AMRs (and their software subscriptions) should help continue to push the company's margins to new heights.
Driven by rising profitability, Tennant uses just 20% of its net profits to fund its 1.4% dividend yield, and the potential for further dividend increases is clear.
As AI products become more prominent, management expects long-term sales growth of 4%. Currently trading at just 13 times next year's earnings, Tennant's leadership (in market share and innovation), improving margins, and dividend growth potential make it a Dividend King worth buying in 2025.
MSA Safety holds the No. 1 or No. 2 market share in several safety areas. With this leadership position, MSA Safety has returned 40x since 2000 and has increased its dividend every year.
To better understand what MSA does specifically, here are the products it sells in each business segment:
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Firefighting services (39% of sales): includes self-contained breathing apparatus, protective clothing, boots and helmets
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Detection (36% of sales): Products for detecting and identifying fixed gases and flames, portable gases and refrigerants
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Industrial personal protective equipment (25% of sales): includes air-purifying respirators, industrial head protection and fall protection equipment
For investors, the beauty of these products (aside from their real-world life-saving purpose) is that the products in each segment are completely non-discretionary. Fighting fires, detecting gas leaks and keeping industrial workers safe are three things that aren't going away anytime soon, if ever.
This nature of MSA Safety's equipment explains the company's incredible returns and elevates it to status as a Dividend King.
However, the company's best prospects may still lie ahead. By moving to more connectivity-centric solutions such as the FireGrid cloud platform and ALTAIR portable gas detection system, MSA's operating margins are starting to become more like "software."
Combined with security standards that will only become more stringent around the world over time and the continued growth of the Internet of Things, it's clear that MSA is at the center of two key trends.
If its profitability continues to expand, the company could offer investors plenty of passive income potential. This is especially true since MSA uses only 28% of its net income to fund its 1.2% dividend yield, despite growing its dividends every year for half a century.
MSA likely won't achieve high-end sales growth, with management guiding for 4% annualized organic growth through 2028. Yet it trades at just 20 times next year's earnings, and the company's budding profitability and leadership position in a range of important products make it another great dividend king that can hold for decades.
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*Stock Advisor returns as of January 13, 2025
Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool recommends Tennant. The Motley Fool has a disclosure policy.
2 Magnificent Dividend Kings Down 19% and 32% to Buy in 2025 Originally published by The Motley Fool