Income stocks don't come steadier than this trio.
One of the greatest aspects of the stock market is there are numerous investing strategies that can pay off. Whether you prefer to buy value stocks or high-octane growth stocks, history shows that both strategies can make you money over the long run.
But if there's one investing strategy that's stood the test of time better than others, it's purchasing dividend stocks.
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Dividend stocks offer a rich history of outperformance
Nine years ago, J.P. Morgan Asset Management, a division of JPMorgan Chase, issued a report that compared the performance of dividend-paying companies to non-dividend-paying stocks over a four-decade stretch (1972-2012). The results showed that dividend stocks averaged an annual gain of 9.5% over this 40-year period. By comparison, the average annual return for the non-dividend companies was a mere 1.6%. Put in another context, dividend investors would have doubled their money every 7.6 years, while the non-dividend investors wouldn't have doubled their money once in 40 years.
While the gap in performance between dividend and non-dividend stocks might be surprising, the outcome isn't in the least. Companies that pay a dividend are usually profitable on a recurring basis, have transparent long-term growth outlooks, and are time-tested. They're just the sort of businesses we'd expect to increase in value over long periods.
But as investors, we also know that no two dividend stocks are created equally. The three dividend stocks I'm about to discuss are pretty much in a class of their own. Although they don't have the highest yield, they do offer something special: The longest consecutive dividend payouts on Wall Street. Each of these companies has paid a dividend to their shareholders for at least 140 consecutive years, if not longer.
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ExxonMobil: 140 years of consecutive payouts
The first rock-solid income stock is a company most people are probably familiar with: integrated oil and gas giant ExxonMobil (XOM -0.22%). ExxonMobil has been parsing out payments to its shareholders since 1882, meaning its streak of consecutive dividends stands at 140 years.
The reason ExxonMobil has been such a premier dividend stock for so long is its integrated structure. Whereas drillers were absolutely clobbered when crude oil demand fell off a cliff during the initial stages of the pandemic, ExxonMobil's downstream operations were able to somewhat hedge this weakness. By "downstream," I'm referring to the company's refining and petrochemical operations.
Although higher crude and natural gas prices are preferable -- drilling produces the juiciest margins -- falling crude prices result in lower input costs for the company's refining and chemical operations. When crude oil prices fall, it's not uncommon for consumer and enterprise demand to pick up. Having this hedge in place has been key to sustaining ExxonMobil's payout for 140 years.
ExxonMobil's management team has also done a good job pulling the expense lever, when necessary. For instance, capital expenditures totaled only $16.6 billion in 2021, which is nearly half of the $31.1 billion spent on CapEx in 2019. Despite paring back spending, a number of key overseas projects, including its deepwater developments in Guyana, remain on track.
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Stanley Black & Decker: 146 years of consecutive payouts
A second dividend stock with a lengthy streak of consecutive payouts is tools, storage, and industrial products provider Stanley Black & Decker (SWK). Among publicly traded industrial stocks, none has a longer streak of paying consecutive dividends, with Stanley Black & Decker doling out payouts to investors since 1876.
Stanley Black & Decker's not-so-subtle secret to success (aside from its well-known brands) is its cyclical ties. Growing sales of brand-name hand-held tools, outdoor equipment, storage products, and a plethora of industrial equipment, typically requires the U.S. and global economy to expand. Although recessions are an inevitable part of the economic cycle, periods of expansion tend to last significantly longer than contractions. The company's management team simply monitors its spending during periods of weaker economic growth and waits for long-winded periods of expansion to shine.
Another reason Stanley Black & Decker's dividend has stood the test of time is the company's history of making smart acquisitions. A perfect example being the purchase of the Craftsman brand for $900 million in 2017 from struggling retail chain Sears. At the time of the purchase, Stanley Black & Decker was expecting the deal to add $100 million annually to sales over the coming decade. Also in 2017, the company closed a $1.95 billion-deal to acquire Newell Brands' tool business, which housed well-known brands like Irwin and Lenox.
Unless the global economy undergoes a long-lasting recession or depression, Stanley Black & Decker's consecutive payout streak should continue to climb.
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York Water: 206 years of consecutive payouts
But the greatest dividend stock of all time (at least as I've dubbed it) is water utility stock York Water (YORW 0.94%). This small-cap, Pennsylvania-based, no-name utility stock has been paying a consecutive dividend since James Madison was president in 1816. For those of you keeping score at home, we're talking about 206 consecutive years of payouts without interruption.
The great thing about utility stocks is their predictability. For example, if you own a home or rent, you almost certainly need water and/or wastewater services. Demand for water doesn't change a whole lot from one year to the next, which allows York's management team to pretty accurately predict the company's cash flow from one year to the next. This outlook transparency is critical since it's what helps determine how much the company will spend on infrastructure projects and/or acquisitions.
To build on this point, most water utilities operate as monopolies or duopolies. As a homeowner or renter, your choice is often limited or nonexistent when it comes to your water and wastewater services provider. In turn, the rate York Water charges customers for water and wastewater service usage is regulated by the Pennsylvania Public Utility Commission. In other words, this adds even more transparency to the company's expected cash flow.
Though this might sound like a boring operating model, it's paid off handsomely for long-term investors. Since the start of the 21st century, York Water's better than 1,300% total return (including dividends) has nearly quadrupled the total return of the S&P 500.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Sean Williams owns ExxonMobil. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
