10 Dividend Zombies with Positive Free Cash Flows
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Last week I shared about York Water, a dividend stock that has been paying dividends for the past 205 years, I got curious about other persistent dividend stocks or “dividend zombies”. 🧟♂️
Dividend Zombies are dividend stocks that have been paying dividends for at least 100 years.
Now, the big question is: are these dividend zombies actually worth investing in? Or are they just sticking to the dividend game because they're afraid of losing investor trust, even if there might be some hidden problems?
In the previous post, we shared a list of 18 dividend stocks that had paid dividends for over 100 years.
But…
Here, we’ll take a closer look and narrow down the list to just 10 dividend zombies, by removing those with negative free cash flows.
🔬Metrics to consider
Just so that we are on the same page, here’re the metrics we’ll be looking at:
Free cash flow: This tells you if the company has sufficient cash on hand to repay creditors and shareholders if it were to go bust. Ideally, a company should have enough free cash flow to pay off its bills.
Dividend Payout Ratio: This tells you the percentage of net income being paid out as dividends. To keep the business running and growing, the management should retain a portion of its profits.
Dividend coverage ratio: This gives us an idea of how many more times the management can keep giving dividends with its current cash pile. A dividend coverage ratio of 2 means that that management can afford to payout 2x the current dividends before running out of cash.
Before we proceed, remember, this is just for fun and educational purposes. Do your own research before investing your hard-earned cash in any stock!
Here’re the 10 🧟♂️ that we’ve narrowed down to:
1) ExxonMobil (NYSE:XOM) 🛢️
ExxonMobil needs no introduction, XOM is an oil and gas company that also happens to be one of the largest refiner of petroleum products.
Years of consecutive dividend payouts: 140
Dividend Payout Ratio: 24.2%
Dividend coverage ratio: 5.3x
Free cash flow: $58.4B
5 year Revenue CAGR: 11.1%
Is ExxonMobile a sustainable dividend stock?
First off, it's pretty impressive that ExxonMobile has been paying dividends for over 140 years.
That's definitely a good sign, right? But here's something to keep in mind: ExxonMobile operates in a cyclical industry, meaning it's subject to ups and downs.
So, when the oil and gas industries are going through a down cycle, you should be prepared for lower dividend growth rates or even a temporary dip in dividend payout. It's just the nature of the business.
Make sure you're comfortable with these potential fluctuations before considering ExxonMobile as a long-term dividend investment.
2) Eli Lilly And Co (NYSE:LLY) 💉
Eli Lilly And Co is a leading pharmaceutical company that focuses on areas of cancer, cardiovascular, diabetes, endocrine, immunology, neurodegeneration and pain.
Years of consecutive dividend payouts: 137
Dividend Payout Ratio: 64.5%
Dividend coverage ratio: 1.7x
Free cash flow: $4.14B
5 year Revenue CAGR: 7.4%
Is Eli Lilly And Co a sustainable dividend stock?
Eli Lilly and Co has a pretty solid business with a portfolio of medicines that have a constant demand. This means their overall business tends to be consistent, which is a positive sign.
However, during the pandemic, they also ventured into the sales of COVID-19 antibodies. Now that the world is recovering from the impact of COVID, the demand for these antibodies has declined. As a result, Eli Lilly and Co experienced an 11% drop in year-on-year revenue during its 1Q23 earnings.
But here's the interesting part: despite the decline, Eli Lilly and Co has actually raised its full-year guidance. That shows some confidence in their ability to bounce back.
Now, let's talk dividends. Eli Lilly and Co has been steadily increasing its dividend payout over the past decade. That's definitely something worth noting.
Considering their strong free cash flow and a consistent customer base, it seems likely that Eli Lilly and Co will be able to sustain its dividend payout in the coming years.
3) Procter & Gamble (NYSE:PG) 🧼
Procter & Gamble (P&G) is a consumer goods company that specializes in personal care and hygiene products. You may even be using some of their brands in your day-to-day routine:
Years of consecutive dividend payouts: 132
Dividend Payout Ratio: 62.6%
Dividend coverage ratio: 1.7x
Free cash flow: $12.2B
5 year Revenue CAGR: 4.3%
Is Procter & Gamble a sustainable dividend stock?
P&G has a fantastic portfolio of daily use products that many of us are familiar with. The good news is that they have been steadily growing their net sales over the past five years. That's definitely a positive trend!
What's even more impressive is that P&G is part of an elite group called the Dividend Aristocrats. This means they have consistently rewarded their shareholders by increasing their dividend payouts for an incredible 39 years! Yes, that includes even the challenging times we faced during the pandemic.
This track record of sustained dividend growth is definitely something to take note of. It shows that P&G is committed to providing value to its shareholders, even through tough times.
So, based on their strong sales growth and their long history of increasing dividends, it's safe to say that P&G is a solid contender as a sustainable dividend stock.
4) Johnson Controls (NYSE:JCI) 👷♂️👷♀️
Johnson Controls is a conglomerate that provides building technology and services. They offer HVAC equipment, fire suppression, fire detection, industrial refrigeration,distributed energy storage, smart home security and many other building related solutions.
Years of consecutive dividend payouts: 135
Dividend Payout Ratio: 69.5%
Dividend coverage ratio: 1.7x
Free cash flow: $1.1B
5 year Revenue CAGR: 2.1%
Is Johnson Controls a sustainable dividend stock?
First off, JCI has been on a revenue growth streak for the past three years, which is definitely a positive sign. Not only that, but in its latest earnings report, JCI actually exceeded its revenue and EPS targets.
JCI has been paying dividends for a staggering 135 years. That's quite a long track record of consistent dividend payouts, which also suggests that they're likely to continue.
However, it's worth noting that the market seems to be quite enthusiastic about JCI at the moment. In fact, its Relative Strength Index (RSI) indicates that the stock is currently trading at overbought levels. This might suggest that it's a good idea to wait for pullbacks or dips before considering jumping into this "dividend zombie."
Additionally, it's always a good idea to take a closer look at JCI's balance sheet. Understanding the company's financial health is crucial. One important aspect to consider is its free cash flow, which currently stands at $1.1B. It's worth investigating whether this level of free cash flow is sufficient to sustain their dividend payouts.
5) Coca-Cola (NYSE:KO) 🥤
Coca-Cola doesn’t need an introduction. But beyond its flagship carbonated soft drink, the Coca-Cola company has a wide range of brands in its portfolio that covers beverages like bottled water, sports drinks, coffee & tea, juices and even dairy.
Years of consecutive dividend payouts: 129
Dividend Payout Ratio:58.9%
Dividend coverage ratio: 1.8x
Free cash flow:$9.01B
5 year Revenue CAGR: 3.5%
Is Coca-Cola a sustainable dividend stock?
Coca-Cola has an impressive track record, having raised its dividends for a remarkable 52 years in a row. That's definitely a sign of stability and long-term commitment to rewarding shareholders.
Now, when it comes to sustainability, it's crucial to look at the payout ratio and free cash flow levels. Good news! Based on its current payout ratio and free cash flow levels, Coca-Cola appears to be in a solid position to sustain its dividend payouts in the future.
This means that Coca-Cola's ability to generate enough cash to cover its dividends and maintain its financial health looks promising.
6) General Mills (NYSE:GIS) 🍝
General Mills is a consumer food company. Even if you’re unfamiliar with General Mills, you may have consumed one of their brands such as Cheerios or Nature Valley.
Years of consecutive dividend payouts: 124
Dividend Payout Ratio: 49.7%
Dividend coverage ratio: 2.2x
Free cash flow: $2.09B
5 year Revenue CAGR: 5%
Is General Mills a sustainable dividend stock?
Take note that General Mills did experience a drop in revenue growth rate in 2020 due to the pandemic. However, the good news is that they have quickly recovered and have been increasing their revenue since then, even in the face of inflation and rising costs. That's definitely a positive sign!
On the dividends front, General Mills has been consistently paying dividends for an impressive 124 years. Not only that, but they have also increased their dividend payouts over the past three years. This shows a strong commitment to rewarding their shareholders.
Now, it's worth noting that rising costs could temporarily impact General Mills. However, considering their resilience and ability to recover post-pandemic, they should be able to continue with their dividend payout too.
7) Union Pacific (NYSE:UNP) 🚂
Union Pacific operates the railroads in North America, covering 23 states, offering freight hauling services that supports many supply chains in the region.
Years of consecutive dividend payouts: 124
Dividend Payout Ratio: 45.9%
Dividend coverage ratio: 2.8X
Free cash flow: $5.42B
5 year Revenue CAGR: 3.2%
Is Union Pacific a sustainable dividend stock?
You might have the impression that railroads are a thing of the past, but Union Pacific is here to prove otherwise. In fact, they have been able to achieve impressive revenue growth of 14.1% in FY22. This shows that their business is thriving, and they have their sights set on serving even more customers in the coming decades.
When it comes to dividends, Union Pacific has been raising them for a solid 16 consecutive years.
Furthermore, it's worth noting that Union Pacific continues to report good gross profit margins. This indicates that they are effectively managing their costs and generating healthy profits.
Railroads may not be the most glamorous industry, but Union Pacific's strong revenue growth, consistent dividend increases, and healthy profit margins suggest that it could be a sustainable dividend stock to consider for our investment portfolios.
8) PPG Industries (NYSE:PPG) 🎨
Another ‘boring’ stock, PPG Industries manufactures paints, coatings and specialty materials which it distributes across the globe.
Years of consecutive dividend payouts: 123
Dividend Payout Ratio: 45.4%
Dividend coverage ratio: 2.3x
Free cash flow: $908M
5 year Revenue CAGR: 3.7%
Is PPG Industries a sustainable dividend stock?
First off, PPG Industries has an impressive track record of raising dividends for 52 consecutive years. This achievement places it among the infamous Dividend Aristocrats.
As of now, PPG Industries boasts a relatively safe dividend payout ratio and dividend coverage ratio. This means that they have a solid balance between their dividend payments and their earnings, which is an important factor when assessing dividend sustainability.
It's worth noting that PPG Industries holds the title of being the largest manufacturer of coatings worldwide. They cater to various industries, including marine, automotive, and more. This diversified customer base adds to their stability and potential for continued growth.
Considering PPG Industries' long history of dividend increases, along with their industry leadership and sound financial indicators, it suggests that they could be a sustainable dividend stock to explore for our investment portfolios.
9) Church & Dwight Co. (NYSE:CHD) 🪥
Church & Dwight sells household and personal care products. Some of its brands include:
Years of consecutive dividend payouts: 121
Dividend Payout Ratio: 62.4%
Dividend coverage ratio: 3.9x
Free cash flow: $817M
5 year Revenue CAGR: 7.3%
Is Church & Dwight a sustainable dividend stock?
Church & Dwight sells everyday essentials that many of us use regularly. While that sounds boring, here’s the exciting aspect: they have a solid track record of raising dividends for the past 18 years. This means that year after year, they have been increasing their dividend payments to shareholders, which is definitely a positive sign.
What's more, Church & Dwight boasts the third highest dividend coverage ratio among the stocks on this list. This ratio indicates the company's ability to comfortably cover its dividend payments with its earnings. It's a key measure to consider when assessing the sustainability of dividends.
With their focus on household and personal care products and their impressive dividend track record, Church & Dwight appears to be a potential candidate for those seeking sustainable dividend stocks.
10) Chubb (NYSE:CB) 📝
Chubb is an insurance company that provides property, personal accident, health and life insurance to consumers and businesses around the world.
Years of consecutive dividend payouts: 120
Dividend Payout Ratio: 26.3%
Dividend coverage ratio: 8.0x
Free cash flow: $11B
5 year Revenue CAGR: 5.7%
Is Chubb a sustainable dividend stock?
Chubb has shown consistent growth in its gross premiums over the past three years, which is definitely a positive trend. However, it's important to note that its net income experienced a significant dip of 37.8% in FY22. This indicates a potential financial challenge that needs further exploration.
In the short term, Chubb's current ratio has dropped to 0.4x. This means that its current assets are currently insufficient to cover its current liabilities. It's a crucial factor to consider when assessing the financial health of the company. Before making any investments, I would recommend delving deeper into Chubb's financial situation to gain a better understanding.
On the dividend front, Chubb has been increasing its dividend payouts since 2015. This demonstrates a commitment to rewarding shareholders.
Additionally, their dividend coverage ratio still appears healthy at the moment, which suggests they have sufficient earnings to cover their dividend payments.
However, it's important to consider the overall financial health of the company, especially in light of the recent dip in net income and current ratio. Take the time to conduct thorough research and assess if Chubb aligns with your investment goals and risk tolerance.
Space for some Zombies in your portfolio? 🧟♂️
Dividend Zombies present an intriguing opportunity for young millennial investors who are aspiring to build a diversified investment portfolio with sustainable dividend stocks. These stocks, known for their long history of consistent dividend payments, can offer both stability and potential income generation.
However, before you invest in any of these stocks, do remember to look into their current business model and work out if the business remains sustainable.
You want a zombie that keeps walking and not one that collapses and never to rise again.