3 Dividend Kings Trading for Bargain Prices

• ABM Industries (ABM): Though relatively small in size, ABM Industries is one of top names in its industry.
• Becton, Dickinson & Co. (BDX) has grown from humble beginnings to be one of the largest names in the medical device industry.
• Dover  (DOV) is a global manufacturer with a highly diversified business model.

The recent sharp declines in markets have sent prices lower almost across the board for stocks. Investors appear willing to accept any price in an effort to protect the gains they have seen over the past few years.

While this may sooth investors’ nerves in the short-term, long-term it could be a mistake.

Given the volatility, we believe that investors should focus on owning shares of high-quality companies that have business models that work under most market conditions.

The Dividend Kings, which are those stocks with at least 50 years of dividend growth, is an excellent place to find high quality names. There are less than 40 stocks within this index as a company must have a very strong business model to raise dividends for five decades. These are the companies we suggest investors turn to when markets sell off.

Dividend Kings: ABM Industries (ABM)

Our first Dividend King for consideration is ABM Industries (NYSE:ABM), a leading provider of facility solutions. The $3 billion company has annual revenue of more than $6 billion.

Though relatively small in size, ABM Industries is one of top names in its industry. The company provides a wide range of services, including janitorial, electrical and lighting, energy solutions, facilities engineering HVAC, mechanical, and parking. This wide range of services appeals to a variety of clients, including airports, schools, universities, hospitals, and manufacturing plants.

The company has been in business for more than a century and has established a very positive reputation in facility solutions. This attracts new customers as well as helps to maintain existing partnerships. It is a major reason why ABM Industries often targets, and is successful at, winning large national accounts in order to acquire substantial business.

In addition, ABM Industries uses acquisitions to gain entrance into new markets. For example, the company made two sperate purchases in 2014 and 2015 that helped ABM Industries enter the United Kingdom. While still primarily focused on the U.S. market, these acquisitions have helped propel ABM Industries’ international business. In 2021, ABM Industries acquired Able Services, which was the largest family-owned facility services company in the U.S., helping to further expand the company’s reach and offerings.

Because of these tailwinds, we project that ABM Industries can grow earnings-per-share by 5% annually through 2027, which is in-line with the long-term growth rate.

ABM Industries long track record of success has led to 54 consecutive years of dividend growth. The stock yields 1.7%. We forecast that ABM Industries’ payout ratio will be just 22% for the year.

Shares of the company are currently trading at 12.7 times our expected earnings-per-share of $3.60. We believe fair value lies at 17.5 times earnings, which is the stock’s average valuation since 2012. Multiple expansion could add 6.5% to annual returns over the next half-decade.

Therefore, we estimate that ABM Industries can return 13.2% per year through 2027, stemming from a 5% earnings growth rate, a starting yield of 1.7%, and a mid-single-digit tailwind from multiple expansion.

Becton, Dickinson & Company (BDX)

Our next pick is Becton, Dickinson & Co. (NYSE:BDX), or BD, which is a leading medical device company. BD is valued at just under $71 billion and generated $20 billion in fiscal year 2021.

BD traces its history back more than 120 years. The company has grown from humble beginnings to be one of the largest names in the medical device industry. BD has achieved its leadership position because it has a wide variety of products that are needed in the healthcare sector.

The company consists of three segments, including medical, life sciences, and intervention. BD’s core product categories include diagnostic, infection prevention and surgical equipment. The company is highly innovative dating back to its beginning. That tradition of bringing new products to market continues today, as BD expects to launch more than 100 new products through fiscal year 2025. These products will provide additional tailwinds to results as the company expects nearly $2 billion in incremental revenue during this time.

BD also uses acquisitions to augment its core portfolio, the most important of which was the company’s 2017 purchase of C.R. Bard for $24 billion. The largest acquisition in BD’s history added the one of the top medical supply companies to the portfolio and helped establish the Intervention segment. With Bard in the fold, BD’s total addressable market increased by $20 billion. At the same time, BD spun off its diabetes care business, which had been lagging for some time, into a standalone company on April 1st of this year.

BD’s has been successful for a very long time, with earnings-per-share growing at a rate of more than 10% annually over the last decade. We believe the company can see this level of growth going forward as well.

The healthcare sector is often recession-resistant due to the importance of products and services offered. Combined with a strong business model, BD has been able to grow its dividend for five decades. The company’s dividend should grow for years to come as the payout ratio is projected to be just 27% this fiscal year. The stock yields 1.4% at the moment.

Shares of the company are trading with a price-to-earnings ratio of 19.2 using our earnings estimate of $12.93 per share for fiscal year 2022. With a five-year target valuation of 18.6 times earnings, this implies a small annual headwind to total returns from multiple compression.

In total, BD is projected to return 10.4% per year for the next five years, due to a 10% earnings growth rate and starting yield of 1.4% that are only partially offset by a modest multiple compression.

Dividend Kings: Dover (DOV)

Our final top Dividend Kings pick is Dover (NYSE:DOV), a global industrial manufacturer. The company has annual revenues of more than $6 billion and is valued at $18.6 billion.

Dover operates a highly diversified business model. The company’s reporting segments include engineered systems, clean energy and fueling, pumps and process solutions, image and identification, and climate and sustainability technologies.

Dover is also diversified along sources of revenue, with the U.S. accounting for just over half of annual sales. International markets contribute the remainder.

The company operates in a niche market, but specializes in highly engineered products. Having the ability to create what customers need helps to raise switching costs as a competitor might not be able to match Dover’s technical prowess. This makes it less likely that customers will change who they do business with, one of the main reasons why Dover’s backlog grew 54% year-over-year to $3.4 billion in the most recent quarter.

Dover has also taken action to improve its portfolio, spending more than $800 million on acquisitions to improve the company’s standing or to enter new markets. This has brought new businesses to every segment within the company.

Earnings-per-share increased by 6% over the last decade, but we expect 8% growth going forward as the company’s history of organic growth supported by acquisitions should continue.

Despite operating in a highly cyclical industry, Dover has increased its dividend for 66 consecutive years, one of the longest track records in the market place. This growth streak is likely to continue as we have a projected payout ratio of just 23% for the year. Dover yields 1.5%.

Using earnings-per-share estimates of $8.55 for 2022, shares trade with a price-to-earnings ratio of 15.2. This is below our 2027 target valuation of 17 times earnings, implying a 2.3% annual contribution from multiple expansion over this period.

In total, Dover is expected to provide annual returns of 11.8% over the next five years, due to a combination of 8% earnings growth, a dividend yield of 1.5%, and a low single-digit contribution from multiple expansion.

Final Thoughts

Turbulent markets can frustrate the average investor, but we stress that those with a long-term perspective target companies that are leaders in their sectors. These companies often have the ability to pay safe and secure dividends because of the strength of their business models.

The recent market wide pullback has resulted in even high-quality names, such as ABM Industries, Becton, Dickinson & Co. and Dover, to see their share prices fall. As a result, all three names now offer the potential annual returns in excess of 10% over the next five years.

All three companies are also members of the exclusive Dividend Kings index. Just as important, the dividend growth streaks are likely to continue as each company has a very low payout ratio.

This suggests that ABM Industries, Becton, Dickinson & Company, and Dover could be good options for investors looking for high levels of total returns and secure income.

On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.