3 stocks to buy now that have a chance to be crowned dividend kings by 2045 (or sooner)

Dividend Kings are elite companies that have paid and increased dividends for at least 50 years in a row. As of May 21, 2024, only 53 were eligible for the Kings dividend. However, this list could grow significantly by 2040 as companies that have consistently increased dividends since the 1980s and early 1990s look to continue their hot streak.

Caterpillar (NYSE: CAT), Chevron (NYSE: CVX)AND ExxonMobil (NYSE:XOM) are three industry-leading giants that reward their shareholders with a mix of dividends, buybacks and earnings growth. Here’s why you should buy all three dividend stocks now.

Image source: Getty Images.

Caterpillar’s earnings will fluctuate, but the dividend looks set to continue to grow

Lee Samaha (Caterpillar): This construction, mining and transportation equipment company has a track record of paying dividends to investors since 1933, and has increased its dividend for the last 30 years. Moreover, much evidence suggests that this may continue for many years. For example, during its 2022 Investor Day presentation, management set a free cash flow (FCF) target of $4 billion to $8 billion over the cycle, rising to $5 billion to $10 billion in early 2024.

Caterpillar management provides these ranges in recognition of its cyclical operations. Its primary end markets, such as construction and transportation, fluctuate across the economy, and the end market for mining machinery depends on capital spending conditions in the mining sector, which in turn are influenced by commodity prices.

While Caterpillar’s revenues, earnings and cash flow are volatile, it’s important to note that the low end of the FCF range of $5 billion easily covers its current dividend payout of approximately $2.6 billion.

Additionally, Caterpillar continues to grow its revenues from lower-cyclical, higher-margin services – it is on track to grow from $14 billion in 2016 to $28 billion in 2026. This is one reason why its margins are increasing , and the company also does a great job of delivering high-value products that have a price advantage, even in weaker end markets.

Dividend coverage and service development are two things. Still, Caterpillar has long-term growth prospects based on its machines’ role in supporting infrastructure development and mining key metals for the energy transition, including copper and lithium. Therefore, it seems likely that Caterpillar will join the elite group of Dividend Kings over time.

Set your calendars for Chevron’s 2037 coronation

Scott Levine (Chevron): Due to falling energy prices – a common phenomenon for oil and gas stocks – Chevron shares have not performed well in 2024. While the price of common crude oil benchmark West Texas Intermediate fell 1.1% in 2024, Chevron shares changed almost identically, falling by 1.2%.

While this may seem alarming, maintaining the decline in stock prices that comes with falling energy prices is a major challenge when it comes to viewing yourself as an energy investor. With the stock currently trading at 7.3 times operating cash flow, which is a discount to its five-year average cash flow multiple of 8.3, now is a great time for patient investors to increase their interest in the stock Chevron and their high-yielding dividend of 4.4%.

Chevron stock has raised its dividend for 37 straight years, illustrating just one reason why it’s one of the best energy stocks for those looking to secure massive passive income. The company’s dividend increases are far from nominal. Over the last 10 years, Chevron has increased its dividend at a compound annual growth rate of 4.1%.

And it is not as if the management imposed a huge financial burden on the company to appease shareholders. Over the past decade, Chevron has generated sufficient operating cash flow to fund its dividend payments.

CVX dividend per share (annual) data by YCharts.

Operating solid assets across the energy value chain, Chevron is well positioned to continue to generate strong free cash flow in the coming years – especially following the acquisition Hess is completed.

In light of Chevron’s five-year average operating cash flow ratio of 8.3, the fact that it is currently changing hands at 7.3 times operating cash flow makes the oil giant’s stock look particularly attractive.

ExxonMobil’s plan to support future dividend increases

Daniel Foelber (ExxonMobil): After raising its dividend in late 2023, ExxonMobil is on track for a 42nd consecutive year of higher dividends by the end of 2024. If this happens, ExxonMobil will become the dividend king by 2032 – an impressive achievement given the volatility oil and gas prices.

From 2013 to 2023, ExxonMobil increased its dividend by only 36.3% compared to an increase of 132.1% from 2003 to 2013, so the pace of increases has slowed noticeably. However, ExxonMobil is taking steps to ensure that its business continues to thrive even in a low-carbon future.

Under its corporate plan, the company aims to increase annual earnings and cash flow by $14 billion from the end of 2023 to 2027 through structural cost savings, reinvestment in core businesses and low-carbon efforts. Higher cash flow favors dividend growth. However, the look and nature of these cash flows are changing as ExxonMobil expects its low carbon solutions business to generate a 15% return on its portfolio of projects including lithium, hydrogen, biofuels and carbon capture and storage.

On the oil and gas portfolio, ExxonMobil continues to have high hopes for the Permian Basin in western Texas and eastern New Mexico. The acquisition of Pioneer Natural Resources, completed in May, increased production in the shale field. ExxonMobil’s upstream production was 3.78 million barrels per day (bpd) in the first quarter of 2024, which the acquisition increased to 4.36 million bpd by the second quarter of 2024. However, the corporate plan calls for production of only 4 .2 million barrels per day by 2027.

Investors should watch how ExxonMobil manages its production and whether it decides to sell less attractive assets to make room for further development offshore in Guyana and the Permian. Ideally, ExxonMobil would be able to increase free cash flow from its diverse oil and gas and low-carbon assets. Further innovations in carbon capture and storage can help justify production growth and offset emissions, ensuring ExxonMobil remains on track to meet its sustainability goals.

ExxonMobil’s payout ratio is just 45.7%, which means it can easily afford a dividend based on its final earnings. Profits could fall if oil prices continue to fall. Overall, ExxonMobil stands out as a sustainable energy provider that can fuel a passive income portfolio with a yield of 3.3%.

Is it worth investing $1,000 in Caterpillar now?

Before you buy Caterpillar stock, consider the following:

The Motley Fool Stock Advisor a team of analysts have just identified what they think it is Top 10 stocks for investors who could buy now… and Caterpillar wasn’t one of them. 10 stocks that made a cut could deliver monster returns in the coming years.

Consider when Nvidia created this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $744,197!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio-building tips, regular updates from analysts, and a selection of two new stocks each month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See 10 stocks »

*Stock Advisor returns from September 30, 2024

Daniel Foelber holds positions at Caterpillar. Lee Samaha has no position in any of the companies mentioned. Scott Levine has no position in any of the companies mentioned. The Motley Fool covers and recommends Chevron. The Motley Fool has a disclosure policy.