Three Dividend Kings: Assessing the Moats Behind 10%+ Payout Growth

The title "Dividend King" is not a badge of honor for the merely persistent. It is a rarefied distinction, reserved for companies that have raised their payouts for at least fifty consecutive years. As of late 2025, this elite club numbered just 56 stocks globally, a fraction of the roughly 54,000 traded worldwide. That scarcity alone speaks volumes about the durability required. But the true test for an investor is not just the past history, but the future sustainability of that growth.

The analysis must shift from celebrating a long streak to scrutinizing the competitive moat that allows it to continue. A company can meet the technical definition while still eroding shareholder value. Consider this: if a firm raises its dividend by a rate that lags inflation, it is, in effect, cutting the real purchasing power of that payout over time. This is the critical distinction. The best Dividend Kings don't just keep pace with inflation; they leave it in the dust. The focus must be on those that demonstrate the financial strength and market dominance to do so consistently.

The Dividend Kings spreadsheet, a key resource for disciplined analysis, includes metrics like payout ratio and price-to-earnings ratio for each stock. These are not mere numbers; they are evidence of capital allocation discipline. A sustainable dividend growth story requires a business that generates ample cash flow relative to its payout, and one that trades at a reasonable valuation relative to its earnings. The spreadsheet framework forces an examination of these fundamentals, moving beyond the headline dividend increase to the underlying health of the enterprise. For a value investor, the moat is the source of the compounding, and the financial metrics are the tools to measure its width.

Company-Specific Moats and Growth Sustainability

The recent dividend increases from these three giants are not random acts of generosity. They are the direct output of powerful, durable competitive advantages that generate the cash flow to fund them. For a value investor, the key is to understand the source of that cash.

ADP's 51st consecutive annual dividend increase, including a 10% hike last November, is backed by a moat built on dominance and stickiness. The company is a global leader in human capital management software, with over 1.1 million clients relying on its integrated platforms. This isn't a commodity product; it's a deeply embedded service where switching costs are high and the operational value is immense. The company's focus on AI-driven insights and solving core business challenges for clients creates a recurring revenue stream that is both predictable and profitable. That financial strength, evidenced by the board's confidence in raising the payout by double digits, is the bedrock of its dividend policy.

Walmart's 52nd straight increase, a 13% hike last February, is the logical result of its immense scale and low-cost leadership. The company's vast network and operational discipline allow it to generate enormous cash flow, often in excess of its reinvestment needs. This creates a classic scenario for disciplined capital allocation: returning surplus capital to shareholders via dividends and share buybacks. The 13% increase is a signal that management sees no better use for that cash in the near term than rewarding patient investors, a hallmark of a business with a wide moat that consistently produces excess returns.

Lowe's presents a slightly different dynamic. Its 4% quarterly dividend increase is part of a longer streak, but the strategic context is clear. The company is making significant investments to grow its addressable market, most notably through the $8.8 billion acquisition of Foundation Building Materials. This move is a direct attempt to deepen its moat by becoming a more comprehensive solutions provider for professional contractors. The dividend increase, while modest, signals management's confidence that the core business remains robust enough to fund both this strategic expansion and shareholder returns. It's a balanced approach, using the cash flow from its established retail moat to finance the build-out of a larger, more profitable future.

The bottom line is that each company's dividend growth story is rooted in its unique economic engine. ADP's is technological stickiness, Walmart's is scale and efficiency, and Lowe's is strategic expansion. For the long-term investor, the sustainability of the payout depends entirely on the durability of that underlying engine.

Valuation and the Margin of Safety

For a value investor, the long-term compounding potential of a Dividend King is only half the story. The other half is whether the current price offers a sufficient margin of safety. This is where the Dividend Kings spreadsheet becomes an indispensable tool. It provides the essential metrics-payout ratio, dividend yield, and price-to-earnings ratio-that allow an investor to move beyond the headline dividend increase and assess the underlying valuation.

The critical point is that nominal percentage increases can be misleading. As the analysis has shown, a company can technically meet the Dividend King criteria while its real purchasing power erodes. The focus must be on dividend hikes that leave inflation in the dust. A 10% increase in a year of 3% inflation is a real gain of 7%. But if inflation spikes, that same 10% hike may only deliver a 2% real gain, which is less compelling. The spreadsheet helps identify companies where the dividend yield is not just attractive, but also supported by a reasonable P/E ratio, indicating the market isn't pricing in perfection.

The primary risk to the margin of safety is not today's dividend, but tomorrow's. It is the narrowing of a competitive moat or a deceleration in earnings growth that makes future dividend increases less certain. A company with a wide, durable moat can compound its earnings and its dividend for decades. But if that moat erodes, the cash flow engine that funds the payout weakens. This is why the margin of safety is not a static number, but a dynamic assessment of business quality versus price.

In practice, this means looking for stocks where the dividend yield is above the market average, the payout ratio is sustainable, and the P/E ratio is not stretched. It means buying not just for the 50-year streak, but for the next 50 years. The spreadsheet framework forces this disciplined look at valuation, ensuring that the investor is not simply paying for history, but acquiring a stake in a business that is likely to continue compounding for a long time to come.

Catalysts and Watchpoints for the Thesis

For a value investor, the thesis on a Dividend King is a long-term bet on the durability of its economic engine. The past is a guide, but the future is what matters. The specific catalysts and watchpoints for each company are the milestones that will confirm or challenge the sustainability of their dividend growth story.

For all three companies, the most fundamental check is quarterly earnings. Consistent growth in earnings per share is the bedrock of any dividend increase. Investors must watch for a stable or improving payout ratio alongside this EPS growth. A rising payout ratio, especially if earnings growth slows, would signal that the dividend is consuming a larger portion of profits, potentially threatening future raises. The streak itself is a powerful signal of management discipline, but it is not a guarantee. Any deviation from the 50+ year increase streak would be a major red flag, indicating a fundamental deterioration in financial strength or a shift in capital allocation priorities.

Lowe's presents a more complex watchpoint due to its strategic acquisition. The company's $8.8 billion acquisition of Foundation Building Materials is a significant capital deployment aimed at deepening its moat. The key catalyst here is the integration progress and the financial performance of the combined entity. Investors need to see that the acquisition is creating value, not destroying it. This means monitoring for the expected acceleration of Lowe's Total Home strategy, particularly in enhancing its offering and cross-selling to professional customers. The integration must be smooth, and the pro forma financials should demonstrate that the combined company's earnings power is expanding as projected. If the acquisition proves costly or dilutive, it could pressure Lowe's ability to fund both its strategic growth and its dividend increases.

ADP and Walmart, with their more mature and dominant positions, have different catalysts. For ADP, the focus is on the continued execution of its AI-driven innovation and the stickiness of its client base. The company's 51st consecutive annual dividend increase, including a 10% hike, reflects board confidence. The watchpoint is whether this confidence is justified by consistent top-line growth and margin expansion in its core HCM software business. For Walmart, the catalyst is the relentless execution of its low-cost leadership and scale advantages. Its 52nd straight increase of 13% last February was a clear signal of excess cash flow. The watchpoint is whether this cash generation remains robust through economic cycles and competitive pressures, ensuring that the dividend remains a priority even as the company makes its own strategic investments.

The bottom line is that the margin of safety is not static. It is maintained by monitoring these specific future events. For Lowe's, it's the acquisition's value creation; for all, it's the steady compounding of earnings and the unwavering commitment to the dividend streak.