This Stock Is on Track to Become the Next Dividend King

Key Points

• Pentair is only one year away from potentially becoming a Dividend King.

• The stock's performance has beaten the S&P 500 hands down over the last five years.

• Pentair could be appealing to investors looking for reliable and growing dividends and solid growth.

• 10 stocks we like better than Pentair ›

What's the hardest club for a dividend stock to join? The Dividend Kings. To become a member, a stock must have increased its dividend for 50 consecutive years. That's a tall task.

Of the thousands of dividend stocks on the market, only 56 qualify as Dividend Kings right now. However, one stock is knocking on the door.

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Getting close

Pentair (NYSE: PNR) isn't a Dividend King yet. But it's getting close. The water solutions company has increased its dividend for 49 consecutive years. Unless that impressive streak is broken next year, Pentair is on track to become the next Dividend King.

What are the chances that Pentair will be able to raise its dividend again in 2026? Very good. The company's management obviously has a huge incentive to deliver another dividend hike. It would be shocking if Pentair's board decided against a dividend increase that would land the company on the list of Dividend Kings.

Just as important, though, Pentair is in a great financial position to extend its dividend streak. Its dividend payout ratio is a super-low 26.2%. The company should have no problem whatsoever increasing its dividend with that much financial flexibility.

There's also another reason to be confident about the stock's impending Dividend King club membership. Pentair's earnings are growing. The company expects adjusted earnings per share to jump 10% to 12% in full-year 2025. Analysts project 10% earnings growth next year, too.

More than a dividend

Is the strong dividend track record the only thing going for Pentair? Nope. This stock boasts impressive growth, too.

Over the last five years, Pentair's shares have soared more than 140%. That's a better performance than the technology-heavy S&P 500 (SNPINDEX: ^GSPC), which roughly doubled during the same period.

The company benefits from several major trends. Concerns are growing about access to clean and safe water supplies. The water system infrastructures in many cities are aging and need significant upgrades. Large organizations are also focusing more on the sustainability of water resources. Pentair offers products and services that help address all of these issues.

The expansion of the Internet of Things (IoT) also presents a big growth opportunity for Pentair. The company already has around 500,000 connected devices deployed. It's targeting to more than double that number next year. Pentair is using machine learning as well to improve its data analytics.

Is Pentair stock a buy?

Despite Pentair's long history of dividend increases, many income investors might turn up their noses at this stock. Why? Its forward dividend yield is only 0.91%. Income investors can easily find many stocks with much more attractive yields.

Value investors might not be overly excited about Pentair, either. Its shares trade at around 20.5 times forward earnings. That's not terribly expensive, but the multiple doesn't make the stock a bargain, either.

Growth investors could find Pentair somewhat appealing. As we've already seen, the stock has beaten the S&P 500 in recent years. Pentair continues to deliver solid revenue and earnings growth. The company is also expanding through acquisitions. As a case in point, Pentair announced earlier this month that it completed the acquisition of Hydra-Stop from Madison Industries for around $280 million. Hydra-Stop makes specialty insertion valves and other equipment for water utilities in the U.S.

Still, Pentair probably won't generate the sizzling returns that some tech stocks likely will. I'm not sure if it would be a top choice for most growth investors. But this stock could be a great pick for investors seeking a combination of reliable and growing dividends, a not-too-scary valuation, and respectable growth.

Should you invest $1,000 in Pentair right now?

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.