3 Passive Income Powerhouses With 50-Plus Years of Dividend Raises | The Motley Fool (2024)

Fifty years ago, the first Apple computer hadn't even gone on sale, Walt Disney's Florida resort had been open for just a couple of years, and the oil embargo was wreaking havoc on the U.S. economy.

Since at least that long ago, Stanley Black & Decker (SWK 0.40%), American States Water (AWR 0.94%), and Walmart (WMT -0.40%) have paid and raised their dividends every single year. That's a track record that earns all three companies a place on the coveted list ofDividend Kings.

Aside from their history of dividend raises, all three companies have what it takes to keep growing earnings and cash flows, and can therefore support dividend raises for decades to come. Here's why these Motley Fool contributors think all three stocks are worth buying now.

Stanley Black & Decker is on the road to recovery

Lee Samaha (Stanley Black & Decker): Having raised its dividend annually for the last 56 years and currently offering a 3.5% yield, the toolmaker is worth a close look for its income alone.

The pandemic created plenty of opportunities for the toolmaker as lockdown measures caused DIY-related sales to soar. But it might have caused management to forestall a long-overdue restructuring of its supply chain and operations.

The need to restructure became apparent after the lockdowns eased, and the global economy was left trying to rebuild supply chains as cost inflation soared. At the same time, there was a natural correction in DIY-related demand as the economy opened up. In addition, rising rates have pressured interest-rate-sensitive sectors like housing and consumer discretionary spending.

This left Stanley with bloated inventory, declining sales, and collapsing earnings. The company has been restructuring since the fall of 2022, with the first priority being inventory reduction. Management plans to cut costs by $2 billion between 2023 and 2025 by reducing complexity in its supply chain (partly by reducing its product range), reducing its number of suppliers, consolidating facilities, and adopting lean manufacturing procedures.

The good news is the plan is currently on track. If you buy the stock, just remember that its sales continue to decline, and its inventory-to-sales ratio remains relatively high.

Furthermore, management clearly understands the need to invest in cordless power tools and win back market share. That might prove not so easy with formidable competitors like Techtronic (with its Milwaukee and Ryobi brands). The turnaround will take time, but at the least, Stanley Black & Decker is a stock worth monitoring closely.

Put this regal water utility to work and swim in a stream of passive income

Scott Levine (American States Water): There's no denying the allure of high-yield dividend stocks. Receiving sizable distributions for doing nothing? Most of us are ready to sign right up.

But there's also something to be said for tried-and-true dividend stocks like American States Water, a water utility stock that wears the crown of Dividend King since it has been hiking its payout consistently higher for almost 70 years. Exceeding the 1.6% yield of the S&P 500, American States' stock currently yields about 2.1%.

Although the company provides water and wastewater services for 11 U.S. military bases through one of its subsidiaries, the lion's share of its business comes from its regulated operations: Golden State Water Company and Bear Valley Electric Company. Combined, these two subsidiaries accounted for 77.4% and 80.1% of consolidated revenue and earnings per share, respectively, in 2022. These steady businesses provide management with good insight into future cash flows, helping the company to plan accordingly for capital expenditures, including infrastructure upgrades and dividends.

Demonstrating its commitment to rewarding investors, American States Water has hiked its dividend at a compound annual growth rate (CAGR) of 9.2% over the past decade. In the coming years, management expects the dividend to flow higher, targeting a 7% CAGR for the foreseeable future.

Those looking to fortify their portfolios with a conservative dividend stock will certainly want to consider dipping their toes in an American States Water investment.

Not your typical Dividend King

Daniel Foelber (Walmart): Walmart has raised its payout every year since first declaring a dividend in March 1974. But the home-improvement chain isn't like other Dividend Kings.

The stock only yields 1.5%. And although Walmart does stock buybacks, they aren't very consistent and can vary dramatically in size. It also continuously invests in growth through higher capital expenditures, which again isn't something you see all the time from a stodgy Dividend King. At least not on the scale or pace of Walmart's increased spending.

WMT stock buybacks (TTM); data by YCharts. TTM = trailing 12 months.

The above chart might look reckless on the surface. But Walmart dominates its industry, and its investments have a proven track record of paying off. Many Dividend Kings have limited growth opportunities, and therefore choose instead to use excess capital to simply buy back stock.

Walmart's strategy is simple yet effective. Its operating margin usually hovers between 3% and 4%, meaning it is making just $0.03 or $0.04 in operating income for every dollar in sales. The company relies on its massive scale and sales volume for profits.

Every successful new store opening or expansion adds to its might. Its highly efficient supply chain and pricing power allow it to undercut the competition, which is a powerful tool in an inflationary environment where consumers are actively looking for the best deal.

Walmart is one of the few companies where it makes sense to aggressively invest in growth even during a downturn. That position isn't likely to change anytime soon. Investors willing to take a lower dividend yield might want to take a closer look at Walmart stock.