The Nasdaq Index carries companies that are known for moving fast and breaking things. This is not always the case, and Dividend King stocks like Johnson & Johnson (NYSE:JNJ | JNJ Price Prediction), Parker-Hannifin (NYSE:PH), and Gorman-Rupp (NYSE:GRC) outperforming the index in the past year prove it.
Of course, you cannot expect Dividend Kings to outrun the Nasdaq forever if the AI boom continues. What you can expect is that these Dividend King stocks will fare a lot better if the AI narrative slows down or if there’s a significant market correction in the next couple of years. Even if the Nasdaq catches up and overtakes these stocks again, there’s no guarantee you aren’t going to see a 30-40% correction in the Nasdaq once more.
This is exactly why people sacrifice some short-term gains and invest in Dividend Kings, because they’re not going to fall as much and continue compounding through it. If you have a long investing horizon and keep reinvesting, these Dividend King stocks can end up outperforming the Nasdaq even in the long run. Let’s take a look.
Johnson & Johnson (JNJ)
JNJ stock has been the most surprising story in the past couple of months. It is up a stellar 45% in the past year, which is a hair above the Nasdaq’s performance of ~44%. The stock was up even more, but has corrected slightly from its highs of nearly $250.
This company was one of the unsexiest names in the entire stock market. You had a stock that traded flat for over a decade and paid you a small dividend yield to compensate for it. Today, you’re getting an innovative business that keeps beating expectations and hands you a 2.31% dividend yield with a 3-year share buyback ratio of 2.7%.
JNJ surged over the past year because investors stopped treating it like a sleepy defensive stock and started rewarding faster earnings growth across the business, expanding margins, blockbuster drug momentum such as Darzalex and Tremfya, pipeline and FDA wins, and easing talc-litigation fears.
To top it all off, it’s a Dividend King. JNJ has 63 years of dividend growth, and the payout ratio of 50% gives it room for more.
Parker-Hannifin (PH)
This is one of the lesser-known names, and some would even forget this is a Dividend King stock due to how aggressively this business has grown. Parker-Hannifin sells everything from aerospace engines to construction machinery and industrial automation equipment. Its products are designed to work together, so you have a high rate of cross-selling and repeat purchases from industrial clients who are locked into its ecosystem.
PH stock has surged 63% in the past year and could surge even more due to how stellar the income statements have been. Sales have grown at a clip of nearly 8% in the past 3 years, accompanied by a 3-year EBITDA growth rate of 30.5% annually. Future sales growth is expected to slow down slightly, but you’re still looking at a trusty long-term compounder.
The dividend yield of just 0.73% might disappoint you, but you should keep in mind that management is more focused on growth. The dividend payout ratio is just 0.24%. Dividends are getting higher quickly, with a 3-year dividend growth rate of nearly 15% annually. The problem is that the stock has been rising faster and faster, so the yield looks low even though dividends are growing very fast.
Regardless, the company does buybacks, so the actual shareholder yield is over 3%.
It has 69 consecutive years of dividend growth.
Gorman-Rupp (GRC)
GRC is likely a Dividend King stock you’ve never heard of unless you dabble in it for a living. It has increased its dividends for 53 consecutive years and is slowly coming into the limelight.
Gorman-Rupp’s market capitalization sits at exactly $2 billion as of this writing. Its dividend yield is amodest 1%, but what makes it special is that the stock has surged by 114% in the past year due to a boom in the industries it serves.
The company makes pumps for industrial, construction, and utilities. Everything from data centers to towns being built up helps this company, and we’re seeing plenty of activity on both of those fronts. There’s no lack of demand, and backlog grew 13.8% year-over-year to $247.9 million at the end of March.
The 3-year EPS growth rate is at 67.5% annually. You’re still paying a basic Dividend King valuation of just 34 times earnings. Given the growth and the undiscovered data center angle, I’m willing to bet GRC stock surges much higher in the coming years. If you look at price-to-FCF, GRC trades at just 22x FCF now.
Top Gaining Stocks
Top Losing Stocks