3 Dividend Kings You’ve Never Heard Of

Income investors looking for safe dividends should consider the Dividend Kings, a group of just 54 stocks that have increased their dividends for at least 50 consecutive years. 

Many of the Dividend Kings have massive, global reach and market caps above $200 billion. However, there are just as many quality Dividend Kings that have much smaller businesses.

The following 3 Dividend Kings are attractive dividend growth stocks with recession-proof dividends.

California Water Service Group (CWT)

California Water Service is a water stock and is the third-largest publicly-owned water utility in the United States.

It was founded in 1926 and has six subsidiaries that provide water to approximately 2 million people in 100 communities, primarily in California but also in Washington, New Mexico and Hawaii.

California Water Service reported its third quarter earnings results on October 31st. Operating revenues totaled $300 million during the quarter, which was 18% higher than the same quarter last year. This represents a stronger performance compared to what the analyst community had forecasted.

The operating revenue increase was driven by rate increases over the last year as well as by higher accrued unbilled revenue compared to the previous year’s quarter.

California Water Service generated earnings-per-share of $1.03 during the third quarter, which was slightly worse than what was expected by the analyst community. California Water Services is generally most profitable during the summer quarter, when water demand is way higher than during the winter quarters.

As a result, healthy profits during the period are in line with historic patterns. Profits during 2024 should hit a new record high per current estimates.

Between 2014 and 2022, California Water Service grew its earnings-per-share at an average annual rate of 5%, which is a decent pace of earnings growth for a utility. It is also a recession-resistant company. During the Great Recession, California Water Service’s earnings-per-share did not decline meaningfully, as earnings-per share dropped by just 4% between 2008 and 2010. 

This is not surprising, as consumption behavior and demand for fresh water is more reliant upon the weather than on the strength of the overall economy. 

We believe that California Water Service’s earnings-per-share will continue to grow at a mid-single-digits rate going forward, as it did in the past. Earnings growth in the long run should be achievable thanks to the rate hikes that are regularly approved by regulators.

CWT has increased its dividend for 56 consecutive years and currently yields over 2%.

Farmers & Merchants Bancorp (FMCB)

Farmers & Merchants Bancorp is a locally owned and operated community bank with 32 locations in California. Due to its small market cap and its low liquidity, it passes under the radar of most investors.

F&M Bank has paid uninterrupted dividends for 88 consecutive years and has raised its dividend for 59 consecutive years.

In mid-October, F&M Bank reported (10/17/24) financial results for the third quarter of fiscal 2024. The bank grew its adjusted earnings-per-share 2.5% over the prior year’s quarter, from $29.23 to $29.96.

It posted 4% growth of loans and flat deposits. Net interest income dipped -3% due to a contraction of net interest margin from 4.17% to 4.07% amid higher deposit costs.

The Fed has just begun reducing interest rates and thus it will probably help F&M Bank expand its net interest margin thanks to lower deposit costs. We expect 5.0% annual earnings-per-share growth over the next five years. A contributor to growth will be the relatively new branch in Oakland, which opened in the fourth quarter of 2021.

F&M Bank is a prudently managed bank, which has always targeted a conservative capital ratio. The bank currently has a total capital ratio of 14.95%, which results in the highest regulatory classification of “well capitalized.”

Moreover, its credit quality remains exceptionally strong, as there are extremely few non-performing loans and leases in its portfolio.

Gorman-Rupp (GRC)

Gorman-Rupp began manufacturing pumps and pumping systems back in 1933. Since that time, it has grown into an industry leader with annual sales of nearly $700 million and a market capitalization of ~$1 billion. 

Today, Gorman-Rupp is a focused, niche manufacturer of critical systems that many industrial clients rely upon for their own success. Gorman Rupp generates about one-third of its total revenue from outside of the U.S. 

The company also has one of the most impressive dividend increase streaks in the market, which currently stands at 52 years. That makes Gorman-Rupp a member of the prestigious Dividend Kings. 

Gorman-Rupp posted third quarter earnings on October 25th, 2024, and results were weaker than expected on both the top and bottom lines. Adjusted earnings-per-share came to 49 cents, but that was six cents light of estimates. 

Revenue was essentially flat year-over-year at $168 million, but missed expectations by over $4 million. The gain in the top line was due to pricing increases that were put in place to help offset a decline in volumes.

The company’s competitive advantage is in its many decades of experience in providing innovative solutions for niche, but critical, engineering problems facing its customers.