After a year like 2022, a new year is a great opportunity to look for safe stocks to buy and hold. The definition of a safe stock is broad, so this article will focus on a select group of stocks known as dividend kings.
Dividends are a portion of a company’s profits (i.e. earnings) paid as cash on a regular schedule, frequently quarterly. Investors should look for companies that not only continue to issue dividends on a year-over-year (YOY) basis, but continue to increase their dividends every year.
The best of the best are the dividend kings. These companies have increased their dividend for at least 50 consecutive years. That’s longer than many investors reading this article have been alive.
They may not offer the highest dividend yield. But the reliability of the company’s dividend points to mature, stable business models that allow the company to generate sufficient profit to reward their shareholders while continuing to invest in their businesses.
In bull markets, these companies won’t be the highest flyers. But when the market is struggling, these stocks can help you mitigate your risk. Here are seven dividend kings that should be on your list of safe stocks to buy and hold forever.
Safe Stocks to Buy and Hold: PPG Industries (PPG)
PPG Industries (NYSE:PPG) is a more recent addition to the dividend kings list. The company is a global manufacturer and distributor of paints, coatings and specialty materials. In addition to being the parent company of consumer brands like Glidden paint, PPG offers removable coatings for a range of commercial applications in sectors including automotive, industrial and aerospace.
Like many companies, PPG will post a YOY drop in earnings. However, it’s expected to post earnings in 2023 that will outpace 2021 numbers.
Dividend kings are frequently seen as low-growth companies. However, PPG continues to pursue a strategy of growth through acquisition. At the company’s 2022 Investor Day it reported that over the last 10 years, the company is has committed 37% of its cash to acquisitions.
That hasn’t prevented the company from allocating approximately 55% of its cash for dividends, with three-year dividend growth coming in at around 7% annually. PPG has a dividend yield of 1.98% and a payout of $2.48 per share on an annual basis.
Many investors may not be familiar with Stepan (NYSE:SCL). The company produces and distributes specialty chemicals used in a variety of applications such as soap and cosmetics. Because of the specialty nature of the company’s chemicals, it doesn’t have competitors that precisely match its business.
In 2022, SCL stock dropped 14%. That was better than the broader market, but still somewhat curious since the company grew revenue and earnings on a YOY basis. That pattern is expected to continue over the next five years.
That growth helps support the company’s price-to-earnings (P/E) ratio, which is below the market average at around 16 times earnings. And that will be more than enough to support the company’s dividend payout ratio, which is around 20% as of this writing.
Stepan isn’t heavily covered by the analyst community. But it does have a price target of $137, which is a 30% increase from the current stock price.
Safe Stocks to Buy and Hold: Emerson Electric (EMR)
Prior to October 2022, Emerson Electric (NYSE:EMR) stock was down more than 20% for the year. But it’s made a charge in the last quarter and is now trading flat over the last 12 months.
This may mean investors who are looking for safety are putting the company’s dividend over its declining earnings due to a restructuring. Emerson Electric is attempting to become a pure-play automation company. This would allow it to compete with Rockwell Automation (NYSE:ROK). However, the cost of this restructuring affected earnings in 2022 and may continue to be a slight drag in 2023.
The company has a net margin of 16.5% which is more than double the sector average. And with a 65-year history of increasing its dividend, Emerson Electric is one of the longest standing of the dividend kings. The current dividend yield is 2.17% and it has an average annual payout of $2.08.
Dover Corporation (DOV)
Dover Corporation (NYSE:DOV) is the next dividend king on this list of safe stocks to buy and hold. The company operates in the industrial sector. This helps the company provide a steady stream of consistent revenue and earnings. Dover has a global presence. However, just over 50% of the company’s revenues come from the United States.
Due to the realization of the Infrastructure Investment and Jobs Act passed by Congress in 2021, the industrial sector is expected to be one of the leading sectors in 2023. But the company’s growth is expected to continue in the next five years and will be assisted by a profit margin which is well above the sector average.
The company’s adjusted earnings per share () are expected to be about $8.44 in 2022. That would be a 24% gain from the prior year. And in 2023, the company projects EPS of $8.92.
Safe Stocks to Buy and Hold: American States Water (AWR)
When it comes to safe stocks to buy and hold, the utility sector is a logical choice, and American States Water (NYSE:AWR) is a leader among water companies. The utility giant has a service territory that spans nine states and one million customers.
Historical performance shows American States Water is a strong performer. One benefit of owning dividend kings is the total return you can get over time. AWR stock was down 19% in 2022. That’s better than the broader market. However, over the last five years, the company has generated stock price growth of 74%. That combines with a dividend that has grown at a 10% average annual rate over the last three years.
Investors who are considering American States Water as a long-term investment can point to its net margin. At 16.6%, it’s more than double the sector average of 7.9%. That helps provide some context to a stock that has a forward P/E ratio around 34 times earnings.
Late last year, I put both Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) on a list of consumer stocks that could soar in 2023. One of the reasons is both companies are defensive stocks. This means they have products that are in demand no matter what is happening in the broader economy.
PepsiCo offers a portfolio that includes both beverages and snack foods. With brand names such as Doritos and Quaker Foods, the company straddles the line between “junk foods” and healthy options. Pepsi’s products can be considered both discretionary purchases and staples in consumer pantries.
The company delivers strong fundamentals, including a profit margin that is slightly above the sector average. Plus, PEP is a low-beta stock, which means it tends to be less volatile than the broader market. Pepsi is a more recent entry into the dividend king club and currently has a dividend yield of 2.6%.
Safe Stocks to Buy and Hold: Kimberly Clark (KMB)
Last on this list of safe stocks to buy and hold is Kimberly Clark (NYSE:KMB). When you think about defensive stocks, you think about a stock like KMB. The company has a portfolio of products that are the definition of consumer staples. And with trusted name brands, consumers will continue to buy the company’s products.
Revenue growth hasn’t been spectacular. But at a time when companies are having trouble passing along higher prices, Kimberly Clark appears to have pricing power.
Over the past five years, the stock has grown about 16%. That averages out to around 3% per year. For the four years prior to 2022, that wouldn’t be seen as impressive growth. But last year, the stock’s loss of 5% was well below the market average. And when you factor in a dividend yield of 3.4%, you can see how defensive stocks can be a great fit for a portfolio in any economy.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.