These Two Companies Should Soon Be Crowned as Dividend Kings

Before too long we'll begin the time-tested march through the December holiday season toward the new year. Between now and then, odds are we will continue to get announcements of new dividend hikes. The most exclusive group of companies we'll watch are the Dividend Kings: They are the companies that have continually increased annual dividends for at least 50 consecutive years. But every so often we come across Dividend Champions -- companies that have increased their annual dividend for at least 25 consecutive years -- that are poised to become the next set of Kings. There are four of those companies that have the potential to become Kings. Here, we'll look the first two of these businesses. Both are what I call sleepy companies with relatively inelastic business models that tend to spit out cash. Both are also in fragmented industries that are ripe for consolidation, which adds another layer of merger and acquisition growth to the equation. A Fountain of Opportunity: Connecticut Water Service The first is Connecticut Water Service , which is a holding company that derives the vast majority of its net income from its water utility businesses that include Connecticut Water, Heritage Water Village Water Company, Avon Water and The Maine Water Company. Across that water network, the data point that is most telling about the company's business is this: 91% of its water-related revenue is derived from customers under contract. This is important because 86% of its total revenue is from water-related revenue. Those customers under contract include residents, other consumers, industrial and public authorities and fire protection agencies. Residential is the largest group, accounting for 56% of total contracted revenue -- or 51% of total revenue. This is something people cannot live without. Water is a consumable that we use every day, to eat, drink, bathe and clean. The nature of that business combined with Connecticut Water's contract has allowed it to pass price increases from time to time that have helped drive revenue, earnings and cash flow higher. While we wait for the company's September quarter report to be filed, we know that for the first half of 2019 the company generated $16 million in operating cash flow, which more than covered the $7.7 million in paid dividends. I would say there is a good chance Connecticut Water will become a new King in the coming 12 months. Nearly FUL: H.B. Fuller Is Approaching King Status The second company is H.B. Fuller , which like Connecticut Water, has increased its dividend over the last 49 consecutive years and is positioned to do so yet again over the coming year. Fuller is a manufacturer of adhesives, sealants and other specialty chemical products that are sold in more than 30 countries. Uses of the company's products include food and beverage containers, disposable diapers, windows, doors, flooring, roofing, appliances, sportswear, footwear, multi-wall bags, water filtration products, insulation, textiles, automobiles, recreational vehicles, buses, trucks and trailers, marine products, solar energy systems, electronics and products for the aerospace and defense industries. Given that mix, industrial production is a rough proxy for the company's overall business. We've seen that indicator start to contract in recent months on a year-over-year basis, and even though Fuller has seen its revenue and earnings fall year over year for the first nine months of 2019, its operating cash flow grew nearly 50% higher year over year during that nine months. To put some perspective around that, operating cash flow for the first nine month hit $160 million -- multiples ahead of the $24.2 million paid out in dividends over the same period. In my next column, we'll look at the other two potential Kings.

These Two Companies Should Soon Be Crowned as Dividend Kings

We've spotted four Dividend Champions that, if all goes well, will become Kings; here are the first two of them.

Columnist Conversation

LIVE EVENT: Bruce Kamich and Todd Campbell Share Their Stock Market Insights

Sarge Guilfoyle Breaks Down the Jobs Report, Fed Policy and Stocks!

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.