Two Exceptional Dividend Aristocrats Dropping by 19% and 32% for Potential Purchases in 2025
In the realm of dividend investing, today's Dividend Kings stand as a testament to success. These 50+ year-old powerhouses have annually increased their dividend payments, earning a reputation as the cream of the crop in the dividend growth stock world.
Typically, the majority of a Dividend King's net income is distributed to shareholders by way of dividends, often pushing payout ratios above 50%. This benefits existing shareholders, but leaves less room for future growth in dividends for newcomers.
However, bucking this trend are two Dividend Kings: Tennant Co. and MSA Safety. With payout ratios of 20% and 28% respectively, these companies offer a more appealing passive income opportunity, capable of tripling their dividends without exhausting their available funding.
Despite slipping 19% and 32% from their all-time highs, these resilient companies are worth a second glance, especially when considering their attractive dividend yields and potential for future growth.
Tennant Co.: Pioneering the Future of Cleaning
Holding a 14% share of the mechanized cleaning equipment market, Tennant Co. doesn't shy away from innovation. The company's offerings include scrubbers, sweepers, pressure washers, vacuums, and aftermarket parts and services.
While their traditional products have paved the way to Dividend King status, Tennant is betting on the success of autonomous mobile robots (AMRs) to drive future growth. These robots are designed to multiply labor productivity and could potentially propel the company's stock to new heights.
Between 2018 and 2023, Tennant sold about 6,500 AMRs. However, in the first nine months of 2024, they surpassed that number with the launch of the X4 ROVR. Today, AMR sales make up about 5% of Tennant's overall sales.
Not only is this growth impressive, but it also offers investors potential for higher margins due to the software subscription included with the AMR. Since Tennant's first AMR launch, the company's profitability and margins have significantly improved.
Although the increase in AMR sales may cannibalize Tennant's less tech-focused cleaning equipment sales, the software subscriptions and higher margins should continue to push profits upward.
Coupled with a 1.4% dividend yield and Tennant's predicted sales growth of 4%, the company's strong market position, innovation, and dividend potential make it a solid pick as a Dividend King for 2025.
MSA Safety: Safeguarding Shareholder Returns
In the world of safety equipment, MSA Safety holds a dominant position as the No. 1 or No. 2 market leader across several niches. Since 2000, MSA's dividend increases and stock performance have achieved 40-fold returns.
MSA sells various essential safety products across three segments:
- Fire service (39%) – gear for firefighters
- Detection (36%) – fixed gas and flame safety devices
- Industrial personal protective equipment (25%) – safety helmets, boots, respirators, etc.
The company's equipment offers investors a level of security, knowing that these products are non-discretionary, meaning they are not susceptible to economic downturns.
Leaning into connectivity-focused solutions like its FireGrid cloud platform and ALTAIR portable gas detection system, MSA's operating margins have started to mirror that of software companies.
As safety standards continue to tighten worldwide and the Internet of Things (IoT) evolves, MSA finds itself at the heart of two essential trends.
Trading at only 20 times next year's earnings, the company's budgeting for a modest 4% annualized organic growth through 2028 presents investors with an opportunity for potential passive income, especially considering its leading market position in its essential product offerings.
In the context of investing, Tennant Co. and MSA Safety stand out among Dividend Kings due to their lower payout ratios, offering a more appealing passive income opportunity for new investors. With Tennant Co.'s 20% payout ratio, there's potential to triplicate dividends without depleting funds, despite their stock slipping from all-time highs. On the other hand, MSA Safety, with a payout ratio of 28%, boasts a 40-fold return on dividends and stock performance since 2000, making it an attractive choice for investors seeking both safety and potential growth in the finance sector.
