There is no one-size-fits-all strategy that has the potential to make investors wealthy over time, but there are few approaches that have a better track record of success than investing in dividend stocks.
Best Dividend Aristocrats To Buy Now
There is no one-size-fits-all strategy that has the potential to make investors wealthy over time, but there are few approaches that have a better track record of success than investing in dividend stocks.
Best Dividend Aristocrats To Buy Now
Companies that pay dividends are often successful, profitable businesses -- year in, year out -- which have generally proven over time that they can withstand market cycles and recessions. They also have a bright-line history of outperforming their peers that don't pay a dividend.
The asset managers at Hartford Financial Services looked at the performance of the benchmark S&P 500 going all the way back to 1930 and found there was not a single decade in which dividend stocks in the index didn't generate positive returns, even when the broader market was losing money for investors.
From 1973 on, the study also found stocks that grew their dividend or initiated one far outperformed every other category of stock, especially those that didn't pay one, and even worse, those that cut or eliminated their payout. Dividend growers returned 10.7% annually, on average, versus 4.8% for non-payers (and negative 0.5% for those that cut or eliminated the dividend). The S&P 500 itself returned 8.2% annually.
It's one reason why Dividend Aristocrats are such potent stocks. They are S&P 500 stocks that have raised their dividend every year for at least 25 years, and they tend to have higher yields than the average index stock (2.5% vs. 1.5%), offer lower risk, and -- especially pertinent to today's investment climate -- outperform the index 70% of the time in months when the S&P 500 declines.
AbbVie (ABBV 0.92%) is not your typical Dividend Aristocrat because Standard & Poor's allows spinoffs to absorb the dividend history of their former parent company. Since the pharmaceutical stock was spun off from Abbott Laboratories (another Dividend Aristocrat) in 2013, AbbVie enjoys the double-dipping afforded by the rules and is credited with some 50 years of dividend payments.
While the drug developer has been paying dividends independently for only a relatively short time, AbbVie has rewarded shareholders by increasing the payout every year so that it has hiked its value from the original quarterly dividend of $0.40 per share to its current level of $1.48 per share, a near fourfold increase in nine years. The dividend yields 3.7% annually.
Amcor recently lowered its guidance for its fiscal year due to the U.S. dollar's strength, but it expects to produce between $1 billion and $1.1 billion in free cash flow. The packaging specialist's dividend of $0.49 per share currently yields 4.1% annually, which should provide investors with plenty of income to offset any short-term impact on the stock price.
Regulated electric utility Consolidated Edison (ED 1.00%), also known as ConEd, has increased its dividend for 48 consecutive years, the longest streak for any utility in the S&P 500 index. It means it is poised to become a Dividend King in short order, or a stock that has raised its payout for 50 or more years (S&P 500 membership not required).
The electric, gas, and steam delivery utility recently announced it would be selling its clean energy business and using the proceeds to pay down debt. Its annual dividend of $3.16 per share yields 3.3%.
One of the biggest and best-run oil and gas giants, Chevron (CVX 0.47%) is reporting record earnings on elevated pricing, limited supply, and continuing global uncertainty about Russia's invasion of Ukraine and the resulting sanctions that were imposed on Russian oil.
Having perfected the drive-thru concept, McDonald's is leaning hard into its mobile and delivery strategies, which has been paying off with its stock. The shares trade near all-time highs, which might have investors worried about buying at the top, but that can be alleviated by waiting for a dip if one so chooses. A dollar-cost averaging approach could also be a benefit while investors enjoy its $6.08-per-share dividend, which yields 2.2% annually.
Yet with a business history extending back nearly 150 years, Stanley has been through such business cycles before and has weathered them without issue. In the process, it has grown and now owns some of the biggest and best brands in the industry, including Craftsman, DeWalt, Bostitch, and Porter-Cable, not to mention Stanley and Black & Decker.
Stanley trades at less than 18 times next year's earnings estimates and just a fraction of its sales, while paying a dividend as it has every year for the past 146 years. And it's increased that payout for 55 straight years. The dividend currently yields an attractive 3.9% annually.
Its stock had been down 20% year to date just two months ago, but has marched back strongly as expected, and now Sysco is riding 10% above where it started the year. Even so, it goes for 18 times earnings estimates and a fraction of its sales, which when coupled with its history of dividend payments makes it a good long-term buy.
For now, though, they'll be sticking with the store that gives them across-the-board good value, and that means -- especially in a recession -- Walmart will be a leader. With a dividend yielding 1.5% that it's paid and increased for almost 50 years, this discount king should soon be a Dividend King as well.
The Dividend Aristocrats are a group of 65 S&P 500 dividend stocks that have increased their cash distributions for at least 25 years in a row. And when equity markets are in turmoil, investors tend to shift towards more defensive strategies in an effort to help preserve wealth. One of the best safe havens for investors can be found with the Dividend Aristocrat stocks, which are noteworthy for their resilience and steady income.
Of course, not all Dividend Aristocrats are created equal. During every bear market, there will be a handful of these stocks that underperform the broad market. These Dividend Aristocrats, many of which are trading at deep discounts to their historic valuations, offer a rare opportunity for investors to capture the compounding power of steadily rising dividends at a lower share price.
This company has raised dividends 29 years in a row, with the most recent increase of 6% occurring in October. With payout at a meager 8% and the current dividend yield a fraction of West Pharmaceutical's fellow healthcare stocks, many investors anticipate bigger dividend hikes in the future.
Sherwin-Williams has increased dividends 43 years in a row, including a 9% hike in February. The five-year annual dividend growth rate is even better, at 15%. Plus, payout is less than 30%, which suggests no difficulty maintaining the higher dividend even if EPS softens in 2022.
Reflecting the benefits of its diversified business mix, Dover has delivered 4% annual organic revenue growth, 16% annual adjusted EPS gains and 13% yearly rises in free cash flow growth over four years. Even more impressive is DOV's dividend track record showing 66 consecutive years of payout increases, which makes it one of the best Dividend Aristocrats out there.
Analysts are upbeat toward the industrial stock, too. In April, Goldman Sachs recommended DOV on its list of companies having the best pricing power. According to David Kostin, chief U.S. equity strategist, pricing power becomes critical in times of inflation by enabling companies to maintain strong margins.
Pentair is an impressive generator of free cash flow, too, which typically matches or exceeds net income. The company aims to return 50% of free cash flow to investors each year via dividends and share repurchases.
Baird analyst Michael Halloran noted in late January that water sector stocks were being pummeled in 2022. He made AOS his top pick in the water group while recognizing it as one of his best ideas across his coverage list.
What's more, PPG has generated 50 years of rising dividends, including 8% annual dividend increases over the past five years. And a modest 37% payout should keep this dividend safe, even if EPS growth proves challenging this year.
Signaling the strength of its cash flows, Lowe's hiked its cash payout by 31% in May, marking the 48th consecutive year of dividend growth. The retailer's low 26% payout ratio provides great flexibility for share repurchases, dividend hikes and investments to drive business growth.
Stanley Black & Decker typically allocates half of its free cash flow for acquisitions and returns the other half to investors via dividends and share repurchases. So far in 2022, the company has spent $2.3 billion on stock buybacks that have reduced the number of shares outstanding by nearly 8%. The company is as steady as Dividend Aristocrats go, having grown dividends 54 years in a row while maintaining a low 30% payout.
Despite current headwinds, TGT offers a solid long-term performance showing 20% annual EPS growth over five years and nearly 11% growth over 10 years. Like several of the Dividend Aristocrats featured here, the company is also a Dividend King. And in June, it rewarded investors with its 51st consecutive year of hiking dividends, increasing its cash payout by 20%.
While BofA Global Research analyst Robert Ohmes recently downgraded shares to Neutral (Hold) due to recession fears, Barclays analyst Karen Short maintained an Overweight (Buy) rating, calling TGT a best-in-class retailer.
Over the past five years, 68% of T. Rowe Price funds have outperformed competitor funds and 79% have outperformed over a 10-year time frame. This led to TROW being named the best overall large U.S. fund manager by Refinitiv Lipper in 2022.
As far as Dividend Aristocrats go, the long-term financial performance of this one has been stellar, with EPS rising an average of 19% annually over five years and 15% over 10 years. And this has been accompanied by 36 consecutive years of rising dividends. Dividend growth has averaged more than 15% annually over five years, and the firm's low 36% payout provides a safety margin if earnings decline in 2022.
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