Dividend aristocrats are companies in the S&P 500 Index that have increased their payouts for at least 25 consecutive years, and these are awfully special companies. Only about 10% of companies in the S&P 500 have accomplished this feat. (You can see the complete dividend aristocrats list here.)
But there’s a particularly noteworthy group of five stocks on this list that have grown their dividends for at least 25 consecutive years and, when combined, offer average dividend yields from 3%-plus to 5%.
In other words, you’re not just getting the stability of dividend aristocrats — but you’re also getting very competitive yields at current prices.
Heck, some of them are even in our Top 20 Dividend Stocks portfolio.
You don’t really have to sell the merits of owning these kinds of dividend stocks. But in addition to the attraction of big, dependable yields, you also know that companies that have managed to increase dividends for at least 25 straight years typically possess numerous competitive advantages and have demonstrated a strong commitment to shareholders.
And that means there’s a good chance that you’ll be collecting some
Let’s take a look at five of these high-yield dividend aristocrats, which range in yield from over 3% to 5%.
5 High-Yield Dividend Aristocrats to Buy Now: Archer Daniels Midland Company (ADM)
ADM Dividend Yield: 3.1%
Archer Daniels Midland (ADM) is a high-yield dividend aristocrat that operates in the agriculture market. ADM converts crops such as corn and wheat into vegetable oil, starch, ethanol, and other products used in food, beverage, chemical and energy markets.
Archer Daniels has a major competitive advantage in the simple fact that replicating the company’s capital-intensive network of storage facilities, processing plants and crop supply agreements would be extremely costly.
This is not a startup-friendly business.
Management most recently hiked the company’s dividend by 7% earlier this year (PDF), and the company’s dividend has compounded at a 13.3% annualized rate over the last five years. The dividend payment looks safe given Archer Daniel Midland’s 38% earnings payout ratio over the last 12 months and its healthy balance sheet, which has more cash than debt.
Weak crop and oil prices have caused ADM’s stock to fall more than 20% over the past year, knocking its forward price-to-earnings ratio below 15, and helping push the yield up above the 3% mark — which is significantly higher than its five-year average yield of 2.2%.
For investors willing to wait out the slump in commodities, ADM stock could be a compelling opportunity for income.
5 High-Yield Dividend Aristocrats to Buy Now: Emerson Electric Co. (EMR)
EMR Dividend Yield: 3.5%
Emerson Electric (EMR) has raised its dividend for nearly 60 consecutive years, qualifying it for membership on the dividend kings list. Fewer than 20 companies have accomplished such a remarkable dividend growth streak, and Emerson has managed to continue increasing its dividend at a strong 8.5% annualized rate over the last 10 years.
And with a payout ratio near 50%, we expect solid dividend growth to continue for many years to come.
Emerson Electric manufactures a broad assortment of industrial equipment and components such as valves and sensors that are used in many different end markets around the world. By focusing on mission-critical product applications and building up a reputation for quality and reliability over its 125-plus years in business, Emerson has become an essential partner for many of its customers.
The collapse in oil prices has weakened demand for some of the company’s products, but after slumping throughout 2015, EMR is back on the rise with nearly 30% gains since late January. Still, with shares well off all-time highs around $70, this still could be a buying opportunity for long-term investors.
EMR stock trades for about 16 times forward earnings and has a dividend yield of 3.5%, which is meaningfully higher than its five-year average dividend yield of 3.3%.
Once oil prices normalize and industrial growth picks up, income investors holding this blue-chip dividend stock are likely to be rewarded.
5 High-Yield Dividend Aristocrats to Buy Now: AbbVie Inc (ABBV)
ABBV Dividend Yield: 4.1%
The branded drug industry has high barriers to entry in the form of major research and development expenditures and strict regulations.
A little more than 60% of the company’s revenue is derived from sales of its arthritis drug Humira. But while some investors worry about the looming patent expiration of AbbVie’s Humira drug in the U.S. and in Europe in 2016 and 2018, respectively, management is more optimistic. The company issued 2020 guidance last fall that included a projected 60% increase in revenue compared to 2015 and steady margin expansion. A strong drug pipeline and new product launches are expected to drive the strength.
Despite its double-digit earnings growth potential over the next few years, ABBV’s stock has a 4%-plus dividend yield and trades for just 11 times forward earnings.
5 High-Yield Dividend Aristocrats to Buy Now: AT&T Inc. (T)
T Dividend Yield: 5%
AT&T (T) leads the pack of high-yield dividend aristocrats with a yield of 5%.
AT&T is the largest provider of wireless, wireline and pay-TV services in the U.S. The company’s $49 billion acquisition of DirecTV closed last year and will help AT&T cross-sell its services across its customer base.
Few companies have the scale to compete with AT&T, and the company also benefits from spreading its operating costs over its massive subscriber base.
While AT&T’s dividend growth rate has been relatively low at just 3.8% per year over the last decade, its reliability is solid with a healthy free cash flow payout ratio of 64%. Telecom is also one of the best stock sectors for dividend income because customers continue using data, phones and TV throughout the economy’s ups and downs. Which means they continue to pay for that service.
T’s stock trades at 13 times forward earnings and offers the highest yield of the bunch. For investors seeking safe high-yield dividend stocks, AT&T is about as reliable as they come.
5 High-Yield Dividend Aristocrats to Buy Now: Consolidated Edison, Inc. (ED)
ED Dividend Yield: 3.6%
Consolidated Edison (ED) is an electric utility company that’s mostly known for servicing New York City, though it also has customers in other parts of New York, as well as New Jersey and Pennsylvania.
Utility companies are typically reliable dividend payers because they benefit from high barriers to entry, and they’re heavily regulated. This does cap the upside to these stocks, as a utility company can’t just double rates overnight, but it does ensure a slow, steady build in income over time. Utility companies also maintain extensive and costly transmission networks to deliver electricity and gas from power plants. In markets where Consolidated Edison is already established, there is generally no room for another company to profitably compete, resulting in few alternatives for customers to consider.
Consolidated Edison’s dividend growth has been under 2% per year over the last decade, but its earnings payout ratio is a safe and healthy 65%. The company’s cash flow is very reliable because consumers and businesses still need power during economic downturns — Consolidated Edison’s revenue fell by just 4% in 2009.
ED’s stock offers a high yield of 3.6% and trades at about 18 times forward earnings. This is a good business to own for volatile markets as its cash flow and performance has proven to be recession-resistant over time. We own the company in our Conservative Retirees dividend portfolio.
As of this writing, Simply Safe Dividends was long ABT, ED and EMR.