What are Dividend Kings?

By Ee Hsin Kok. Edited by Arjun Chandrasekar.


A great way for investors to earn passive income off of their portfolios is through collecting dividends from their shares. In recent decades, the rise of technology stocks has led to a decline in the dividend yield of the S&p 500 as a whole, but there are still 39 companies in the S&P 500 today who qualify as ‘Dividend Kings’. In this article, we go over what the term means, and whether you should consider investing in these companies.

Requirements Of the Crown

For a stock to be crowned as a dividend king, it has to have increased its dividend for at least 50 consecutive years. Currently, American States Water (AWR), is the longest-standing dividend king in the market, having increased its dividends for the last 67 consecutive years. 

Some other notable dividend kings in the market today are listed in the following table:

CompanyTickerConsecutive Years Of Dividend IncreaseDividend Yield (As of 26th March 2022)
Procter & GamblePG652.28%
Coca ColaKO602.73%
Colgate-Palmolive CompanyCL60 2.41%
Johnson & Johnson JNJ59 2.40%
Lowe’s LOW59 1.50%
Target TGT50 1.65%
Abbott Labs ABT50 1.58%

Reasons to Invest in Dividend Kings

The main reason to invest in a dividend king is the stability of its payout. As a shareholder of a dividend king, you will be able to generate income regardless of the condition of the market. 

This stability leads to two main benefits. The first benefit is that with dividend kings, you can live off the passive income they generate without having to liquidate any stocks in your portfolio. This can be incredibly useful in some scenarios. For example, if you have a 67-year-old retired grandfather who lives off $3000 a month, and he has saved up around $1.5 million dollars, a portfolio of dividend kings should easily generate a 2.4% dividend yield, giving him $36,000 a year to cover all his expenses. He can live off the dividends without ever touching the principal. Additionally, because dividend kings increase their payout every year, that will mean your grandpa can spend more and more every year too. 

The second benefit is that since dividends are paid out regardless of market condition, your portfolio will still be generating cash in a market crash. You can then use this cash to enter positions in strong undervalued companies, boosting your returns once stocks eventually rebound.

Cons of Dividend Kings

While dividend kings sound great, there are some major cons to them. The first is their dividend yield. While receiving a dividend sounds great, as you saw in the table above, the majority of them only yields between 1.5-3%. Relative to the high mid-single-digit inflation rates we’re seeing in the market today, this is not great. Additionally, many dividend kings underperform the market in terms of price appreciation. Take 3M for example, although it currently yields a 3.93% dividend yield, it has severely underperformed the S&P 500 over the past 5 years:

The Important Takeaway

Dividend kings can be an extremely useful way for people to generate passive income. In certain financial situations, such as that of a retiree, they make a lot of sense. However, the dividend yields in the market today are still relatively low. Therefore, one should only invest in dividend kings that are great companies first, and dividend kings second.

In other words, don’t invest in dividend kings purely for dividends. The fact that they have been able to pay out and increase their dividends for 50+ years should not be the sole reason you are investing in them. Ensure the company you are investing in is a strong undervalued one first, and that any dividends paid out are just the cherry on top.

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