3 Under-the-Radar Dividend Kings to Buy

When looking for the best dividend stocks, investors can start with the Dividend Kings, a group of just 53 stocks that have all increased their dividends for at least 50 consecutive years. That level of dividend longevity makes these stocks highly appealing for dividend growth investors.

The Dividend Kings are also appealing for retirees because of their ability to withstand recessions. Only companies that can continue to raise their dividends through even the worst recessions make it to become Dividend Kings.

Here we will discuss three Dividend Kings that often fly under the radar, as they are smaller companies that do not get a lot of analyst coverage. However, these stocks have yields above 2% and can raise dividends even in a recession.

Turn Over a New Leaf With This King

Universal Corp. UVV is the world’s largest leaf tobacco exporter and importer. The company is the wholesale purchaser and processor of tobacco that operates between farms and the companies that manufacture cigarettes, pipe tobacco, and cigars.

Universal reported its fiscal fourth-quarter earnings results at the end of May. The company generated revenues of $770 million during the quarter, which was 11% more than the revenues it generated during the previous year’s period. Revenues were positively impacted by product mix changes, and growth was weaker than during the previous quarter.

Universal’s gross margin was up compared to the previous year’s period. This tailwind helped the company in growing its profits meaningfully compared to the previous year’s period. Universal’s adjusted earnings per share totaled $1.79 during the quarter. The company has not provided guidance for the current fiscal year, but comments indicate that demand is healthy.

The domestic tobacco market is in decline, as consumers increasingly quit smoking. In response, the company is growing through acquisitions of fruit and vegetable suppliers. Universal acquired FruitSmart and Silva in 2020 and Shank’s Extracts in 2021.

The fruit and vegetable supply businesses are similar to the leaf tobacco business, but with better long-term prospects.

Universal is active in an industry that has seen its peak. This means that its growth outlook on a company wide basis is not positive. On the other hand, this means that there is no need for large investments, which results in relatively high free cash generation. The company does not have to worry about competition from new market entrants.

The company has increased its dividend for 54 years.

UVV currently yields 6.4%.

A 69-Year Dividend Streak

American States Water AWR is a utility company with two business units: Utilities (primarily water, some electricity) and Services (wastewater services on several U.S. military bases). The company is based in California, where it operates its utilities business. Its services unit spans several U.S. states.

AWR reported a decrease in basic and fully diluted earnings per share for the first quarter of 2024, with earnings of $0.62 compared to $0.93 for the same period in 2023. This decline of $0.31 per share was largely attributed to adjustments made to first-quarter 2023 earnings, which included impacts from the water general rate case and estimated revenues subject to refund.

Excluding these adjustments, adjusted diluted earnings for the first quarter of 2023 were $0.60 per share, compared to earnings of $0.62 per share for the first quarter of 2024, representing an adjusted increase of $0.02 per share.

Within the water segment, diluted EPS decreased from $0.74 in 2023 to $0.48 in 2024, but when adjusted for certain factors, there was actually a 17.1% increase. This increase was primarily driven by higher water operating revenues due to third-year rate increases and increased water supply costs, partially offset by higher operating expenses and interest expenses.

Additionally, AWR's contracted services subsidiary began operating water and wastewater utility systems at two new military bases in April 2024, further expanding its operations and expected contribution to earnings for the full 2024 year.

AWR's utility business will most likely continue to grow at a decent pace, as regulators will allow the company to increase its rates over time in order to encourage spending on growth and maintenance projects. The company is building out its services business by getting contracts for wastewater services on additional U.S. military bases. The contracts for wastewater services on U.S. military bases span a 50-year period each, so getting one such contract provides for a decades-long and very safe revenue stream.

AWR has increased its dividend for 69 years, giving it one of the longest streaks in the entire stock market.

AWR shares currently yield 2.2%.

Bank on This Dividend King

United Bankshares UBSI was formed in 1982 and since that time, has acquired more than 30 separate banking institutions. This focus on acquisitions, in addition to organic growth, has allowed United to expand into a regional powerhouse in the Mid-Atlantic with about $30 billion in total assets, and annual revenue of about a billion dollars.

United posted first-quarter results on April 25, and they were weaker than expected on both the top and bottom lines. The company saw earnings come to 64 cents per share, missing estimates by a penny. Revenue was off 4.7% year over year to $256 million, and missed estimates by about $2 million.

Average cost of funds rose 104 basis points while the average yield on earning assets rose just 60 basis points, meaning net interest margin deteriorated from the prior year period, which harms profits. Provisions for credit losses came to $5.7 million, which was down from $6.9 million a year ago. Noninterest income was down about 2% year over year so it was not a meaningful item in terms of earnings changes.

Earnings per share have been flat for a few years now, as the company has struggled with translating asset and loan growth into profits. We now see 1% annual earnings growth going forward, which is a modest level of growth, but should be enough to continue increasing the dividend. We note the relatively high base in earnings for 2024 as making future growth more challenging. United has always grown through acquisition, and we do not believe that will change.

United’s dividend payout ratio is now 57% of earnings, and we expect it will move higher. We see United’s dividend as safe and able to weather an economic downturn, as it did during the Great Recession.

UBSI has raised its payout for 50 years and the stock currently yields 4.0%.

More Dividends:

At the time of publication, Ciura had no positions in any securities mentioned.