My 11 Best Dividend Kings For August 2022

Dividend Kings

The Dividend Kings are an elite group of companies that have all paid and increased dividends for at least 50 consecutive years. There are multiple lists of dividend kings on the internet, some that include more than 45 companies. I have chosen to use the list provided by Suredividend.com that was updated on August 3, 2022 and includes one new dividend king this month.

The 45 companies on the dividend king list span 9 unique sectors, offer an average dividend yield of 2.48% and have an average 5-year dividend growth history of 6.79%. Even though all 45 of these companies share the status of an elite dividend stock, not all will offer great returns going forward. So how can an investor identify the dividend kings that have a higher chance of offering better returns?

In my prior article, I shared a method for selecting the dividend kings that present the best opportunity for better than average future returns. The method leverages a long-term pattern of correlation between share price appreciation and long-term earnings growth. The pattern is more evident when applied to a group of stocks and measured over a longer time period. While this method may not work for all stocks, it can help identify a group of stocks that collectively can outperform a universe of stocks.

First, let me explain in more detail how and why this strategy may work and then I’ll share the real results.

EPS Growth Combined With Valuation

Forecasted EPS growth rates are a useful indicator of future returns, but this factor can be strengthened when combined with the current valuation of a given stock. My preferred method of valuation for dividend stocks is the dividend yield theory. The premise is simple, if the current dividend yield exceeds the trailing dividend yield, a stock is considered to be potentially undervalued and vice versa.

I have decided to test this theory on the dividend king universe of stocks going forward. Each month, I will select roughly the top quarter of dividend kings that present the best-forecasted EPS growth rate combined with current valuation. I will be using analyst forecasted 5-year EPS growth rates from FinViz.com. Current valuation will be computed using current and trailing dividend yields obtained from Seeking Alpha. I will assume that a given stock can return to fair valuation within a 5-year period that aligns with the forecasted EPS growth rate. Potentially undervalued stocks will be awarded a boost to their forecasted EPS growth rate equivalent to the annualized rate of return necessary to bring the share price back to fair value within the 5-year period. Overvalued stocks will be penalized using the same principle in reverse.

The best way to apply and measure the success of this strategy is through a buy-and-hold portfolio. I have been tracking how such a portfolio is working out and I will share those results later on in the article.

Past Performance

The table below shows the returns for the chosen dividend kings using this methodology for the time period of July 2021 through July 2022.

Ticker	Jul 21	Aug 21	Sep 21	Oct 21	Nov 21	Dec 21	Jan 22	Feb 22	Mar 22	Apr 22	May 22	Jun 22	Jul 22
ABM	4.83%	6.52%	-9.11%	-1.82%	2.25%	-9.22%	2.52%	7.53%	2.70%	-0.78%		-10.20%
ABT								-5.37%	-1.87%				0.62%
BDX						6.42%	1.06%
CWT	12.86%	1.75%									3.98%	3.50%
FUL	1.86%	4.57%	-4.45%	9.50%	3.76%	10.72%	-11.40%		-3.36%	1.22%	6.57%		6.97%
HRL		-1.81%	-9.97%	3.81%	-2.17%	17.90%
LOW	-0.25%	5.81%	-0.51%	15.68%	4.61%	5.68%	-7.87%	-6.86%		-1.82%		-10.56%	10.26%
MMM								-9.57%	0.15%	-3.13%
MO					-3.33%								5.00%
MSA											6.04%	-5.04%	6.00%
NDSN			-0.19%	6.74%		0.63%	-8.90%	-2.39%	0.26%	-5.02%		-7.09%
NWN				-0.91%	-4.37%	13.13%
PH	1.60%	-4.60%									1.01%	-9.60%	17.49%
PPG							-9.42%	-14.23%	-1.78%	-2.35%	-0.71%	-9.61%	13.08%
SJW	8.89%
SWK		-1.92%	-8.92%	2.52%	-2.33%		-7.41%	-6.84%	-13.64%	-14.05%	-1.22%	-11.07%	-7.18%
SYY	-3.98%	7.35%	-0.85%	-2.04%	-8.92%	12.15%	0.08%	11.45%	-5.72%	4.69%	-1.52%	1.21%	0.22%
TGT												-12.76%	15.68%
TNC											-3.24%	-4.80%	13.13%
TR	1.42%		-3.85%
Return	3.40%	2.21%	-4.73%	4.19%	-1.31%	7.18%	-5.17%	-3.28%	-2.91%	-2.66%	1.36%	-6.91%	7.39%
Benchmark	1.71%	0.83%	-5.33%	4.05%	-1.68%	8.79%	-3.88%	-2.25%	0.97%	-2.41%	-0.10%	-5.39%	5.52%
Alpha	1.70%	1.37%	0.60%	0.13%	0.36%	-1.61%	-1.29%	-1.04%	-3.88%	-0.25%	1.46%	-1.52%	1.87%

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6 out of the 11 chosen dividend kings for July finished last month with a return better than the average dividend king universe return. The returns from these 6 better performing kings were strong enough for the July list to beat the average dividend king universe return. The selected kings for July finished the month with a gain of 7.39%, beating the average dividend king universe return by 1.87%. The main drivers of outperformance were: Parker-Hannifin (PH) +17.49%, Target (TGT) +15.68%, Tennant Company (TNC) +13.13%, PPG Industries (PPG) +13.08% and Lowe’s (LOW) +10.26%. Not all of the selected kings performed so well with Stanley Black and Decker (SWK) being the weakest selection, the stock lost 7.18% last month. Having a winning month is nice but for me the winning trend must extend for a prolonged period of time. A better measure for this strategy is with a buy-and-hold approach that is discussed later in this article.

11 Best Dividend Kings For August

Since this method relies on two factors that are constantly changing, it is likely that we will experience a high turnover rate with this strategy. I have updated the analysts’ expected future earnings growth rates for all the dividend kings and applied the necessary valuation adjustments. Here are the 11 dividend kings with the best expected future growth rates for August.

There are two changes in the chosen stock between July and August. Abbott Labs (ABT) and Parker-Hannifin drop off and are replaced by ABM Industries (ABM) and Cincinnati Financial (CINF). ABM Industries has appeared in the best 11 list in the past, however, Cincinnati Financial is appearing this month for the very first time. This means the buy-and-hold portfolio discussed later in this article will expand from its current 20 holdings to 21. ABM Industries posted a nice gain of 6.66% in July and is up 7.78% this year. Cincinnati Financial lost 18.19% in July and is down 13.6% this year. The stock shed about 25% off its share price over the last two months and appears to be about 11.5% undervalued right now. It seems like a more opportune time to initiate a position.

Please note that this stock selection strategy focuses solely on quantitative data. Further due diligence is necessary to ensure there are no major negative catalysts for each dividend king.

Buy And Hold Strategy

In addition to tracking the returns for the best dividend kings each month, I also track how a buy-and-hold portfolio has performed for this stock selection method.

	EPS + Value	Benchmark	Alpha
Jul 21	3.40%	1.71%	1.70%
Aug 21	1.99%	0.83%	1.16%
Sep 21	-5.05%	-5.33%	0.28%
Oct 21	4.54%	4.05%	0.48%
Nov 21	-0.07%	-1.68%	1.60%
Dec 21	7.75%	8.79%	-1.03%
Jan 22	-4.89%	-3.88%	-1.02%
Feb 22	-0.26%	-2.25%	1.99%
Mar 22	-2.14%	0.97%	-3.11%
Apr 22	-2.20%	-2.41%	0.21%
May 22	0.79%	-0.10%	0.89%
Jun 22	-7.12%	-5.39%	-1.73%
Jul 22	6.01%	5.52%	0.49%
Total	1.56%	-0.21%	1.78%
2021	12.72%	8.06%	4.66%
2022	-9.90%	-7.66%	-2.24%

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The buy-and-hold portfolio for this strategy finished July with a gain of 6.01%. It outperformed both the average dividend king universe return but not the July watchlist. As a result, the alpha generated by this strategy increased from 1.24% to 1.78% since July 2021. This portfolio performed very well in 2021 but is slightly underperforming this year, the 0.49% of alpha in July did improve the year-to-date loss margin.

The outperformance was in part driven by the strong selection for July, however, some of the previously selected kings did not fare as well last month. Becton Dickinson (BDX) and Tootsie Roll (TR) both finished July with negative returns, their impact on the buy and hold portfolio was not significant as both positions make up less than 5% of the entire portfolio. The 5 largest positions in the portfolio make up slightly more than 50% of the total market value and collectively they gained 7.64% in July.

Here is the current allocation of the buy-and-hold portfolio as of July 31, 2022. I’ve also included the June 30, 2022, allocation to show you how it has shifted as a result of contributions and market activity.

TICKER	June	July
ABM	11.25%	10.37%
ABT	2.00%	2.46%
BDX	2.37%	2.03%
CWT	4.26%	3.98%
FUL	10.07%	10.08%
HRL	6.31%	5.72%
LOW	9.06%	9.43%
MMM	2.90%	2.78%
MO	1.14%	1.78%
MSA	1.93%	2.53%
NDSN	7.55%	7.45%
NWN	4.15%	3.66%
PH	3.62%	4.52%
PPG	5.34%	6.03%
SJW	1.14%	1.04%
SWK	7.27%	6.50%
SYY	14.53%	13.30%
TGT	0.72%	1.55%
TNC	1.83%	2.60%
TR	2.55%	2.19%

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A buy-and-hold approach is a much easier and more tax-friendly investing approach to adopt. Unless a portfolio is held in a tax-free or tax-deferred account, the impact of taxes as a result of moving in and out of positions each month would significantly impact total returns.

Performance For All Dividend Kings In 2022

All 45 dividend kings are down 6.81% year-to-date through month-end July. 23 dividend kings are outpacing the dividend king universe of stocks this year and are driving the return. The remaining 22 dividend kings are all trailing the dividend king universe return.

Best 5 Dividend Kings in 2022:

1. National Fuel Gas Company (NFG) +14.69%
2. Canadian Utilities Limited (OTCPK:CDUAF) +14.16%
3. Northwest Natural Holding Co. (NWN) +13.25%
4. Black Hills Corp. (BKH) +11.23%
5. Genuine Parts Company (GPC) +10.56%

Worst 5 Dividend Kings in 2022:

1. Stanley Black & Decker (SWK) -47.80%
2. Target (TGT) -28.82%
3. Computer Services (OTCQX:CSVI) -27.18%
4. Dover Corp. (DOV) -25.88%
5. Lowe’s (LOW) -24.95%

Best 5 Dividend Kings in July:

1. Grainger (GWW) +19.61%
2. Parker Hannifin (PH) +17.49%
3. Target (TGT) +15.68%
4. Genuine Parts Company (GPC) +14.94%
5. Leggett & Platt (LEG) +14.63%

Parker-Hannifin and Target, the 2nd and 3rd best dividend kings in July, were included in the top 11 list for July.

Summary

I believe that targeting the 11 best dividend kings with the highest forecasted growth rate based on EPS growth forecasts and reversion to fair value will offer excess returns over the dividend king universe of stocks. It may take time to fully see the results; an ideal evaluation period will be 5 years. For some investors, that is a long period of time and I encourage all of you to do further due diligence on any of the companies I mentioned prior to investing. So far, this simple strategy is working out well, but 13 months of data is a relatively short period of time. I look forward to seeing what this method has to offer in the future.