Who Will Take the Dividend King Crown in 2021?

As we enter 2021 the robust performance we saw in the December quarter for dividend-paying stocks should continue. The demand for incremental income will remain as will the desire for rising stock prices for companies that continue to increase their annual payments to shareholders. During the last several quarters, we've discussed the Dividend Aristocrats and the more elite Dividend Kings. Now, we're going to identify which companies are on the cusp of entering those two groups and that means looking closely at both the Dividend Aristocrats and the Dividend Contenders. Here, we'll focus on the soon-to-be Kings. Before we get started, a quick reminder that the Dividend Aristocrats are companies that have consistently increased their annual dividend for at least 25 years. There's another group of companies, the Dividend Champions, that has also increased its dividends for 25 years or more. While the Champions and Aristocrats overlap some, the key difference is Aristocrats must be a constituent of the S&P 500. The Dividend Kings have increased their dividend for at least 50 years and, like the Champions, need not be a member of the S&P 500. Lastly, we have the Dividend Contenders, which have increased their dividend consecutively between the last 10 to 24 years. Potential Dividend Kings in 2021 Over the coming year, there are six companies that are eligible for Dividend King status, which means each one has already increased its dividend for 49 consecutive years: Black Hills Corp. Universal Corp. MSA Safety W.W. Grainger PPG Industries Computer Services One of the rules of thumb that we've employed when hunting for dividend prospects is to focus on those with dividend yields in excess of the 1.8% yield attached to the S&P 500 over the last six months. The above list of prospects have forward dividend yields between 1.15%-6.3%, and we apply the dividend yield hurdle it reduces the potential lot to just Universal Corp. and Black Hills Corp. and their respective yields of 6.3% and 3.6%. While shares of tobacco leaf supplier Universal offer the higher yield, it's dividend payout ratio is a whopping 135%. That's usually a red flag, and complicating matters, there are no consensus expectations for the quarter for either 2020 or 2021. While some may look to revenue and earnings per share forecasts for the likes of Altria Group , Grandview Research sees the global tobacco market growing at 3.1% per annum over the 2020-2027 period. Key customers for Universal include British American Tobacco and Philip Morris International , which likely means Universal's revenues and earnings should continue to trend higher in the coming years. That said, we're not exactly sure by how much. By comparison, the dividend payout associated with the shares of integrated energy company Black Hills Corp. is a tamer 62%. Meanwhile consensus expectations call for the company's earnings per share to rise to $3.88 in 2021, up from $3.66 this year and $3.53 in 2019. While there is always some concern overgrowth prospects for tobacco consumption, especially as new alternative technologies and nicotine delivery systems come to market, there is little question people will continue to consumer gas and electric power. While both Universal Corp. and Black Hills Corp. could very well become Kings in 2021, between the two, the one readers should look to anoint are shares of Black Hills. In the second part of this series, we'll tackle the potential Dividend Aristocrats in 2021 and select which one is optimal for investors that only have room for one in their portfolio.

Who Will Take the Dividend King Crown in 2021?

In this first part of a two part series of dividend stocks, we'll explore companies on track to become Dividend Kings in the new year.

Columnist Conversation

A Recent Director Buy in Children's Place (PLCE)

A $525,000 Vote of Confidence on Macerich (MAC)

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.