The Dividend Aristocrats Index contains high quality dividend growth stocks in the S&P 500 that have managed to boost their dividend payouts for at least 25 consecutive years.
Rising dividends are often the sign of a profitable and healthy firm. Only about 10% of S&P 500 member companies are dividend aristocrats and possess the attractive qualities needed to lift dividends for such a long period.
Not surprisingly, the Dividend Aristocrats Index has outperformed the S&P 500 by approximately 3% per year over the last decade.
The following are three stocks in the Dividend Aristocrats Index that are down at least 10% over the last year and potentially offer some value today.
Dividend Aristocrats to Buy Now: Target Corporation (TGT)
Dividend Yield: 3.5%
Target Corporation (TGT) opened its first discount store in 1962 and it has grown to have nearly 1,800 locations across the country.
The company’s stores sell a wide range of everyday essentials and fashionable merchandise at discounted prices. Wal-Mart Stores, Inc. (WMT) is the only general merchandise retailer that is larger than Target in America.
As one of biggest brick-and-mortar retailers in the world, Target has meaningful purchasing power over its suppliers, allowing it to offer higher quality merchandise at lower prices than its smaller rivals.
Most of its products are in non-discretionary categories, making the company a relatively strong performer during recessions — Target’s sales grew each year during the financial crisis.
Target has increased its dividend for nearly 50 consecutive years and is set to join the Dividend Kings list within the next two years.
The company recently increased its dividend by 7% and has grown its dividend by approximately 20% per year over its last 10 fiscal years.
With a dividend payout ratio near 40%, the company’s dividend should have plenty of room for continued growth.
While the retail environment has been challenging for most brick-and-mortar players this year, Target’s stores should continue generating excellent free cash flow for many years to come.
Shares of Target trade at a forward price-to-earnings ratio of 12.25 and offer a dividend yield of 3.5%, which is meaningfully higher than its five-year average dividend yield of 2.5%.
Dividend Aristocrats to Buy Now: Archer Daniels Midland Company (ADM)
Dividend Yield: 2.8%
Archer Daniels Midland Company (ADM) is a major player in the agricultural services industry.
The company primarily processes crops such as corn and oilseeds and turns them into products used in food, animal feed, chemical and energy markets.
Archer Daniels Midland’s stock has been hit by weakness in crop and oil prices over the last year, but the company continues to enjoy high barriers to entry.
The company’s core operations are very capital intensive, as procuring, storing, processing and selling agricultural commodities requires a massive supply chain.
Furthermore, Archer Daniels Midland has the biggest grain terminal and shipping network in America and it maintains hundreds of processing plants and storage facilities located around the globe.
New entrants and smaller competitors simply cannot afford to replicate the company’s logistical network and know-how. It’s no wonder why Archer Daniels Midland has been in business for more than 100 years.
The company’s most important financial ratios are also in good shape, which has made its dividend payment extremely reliable. Archer Daniels Midland has raised its dividend for more than 40 consecutive years, while recording 13% compound annual growth in its dividend over the last decade. This is certainly a blue-chip dividend stock.
Despite the macro headwinds weighing on the company, Archer Daniels Midland’s payout ratio sits near 45% over the trailing 12-months. This is a very healthy payout ratio that provides a good margin of safety and room for continued dividend growth.
Shares of Archer Daniels Midland trade at a forward price-to-earnings ratio of 13.9 and offer a dividend yield of 2.8%, which is higher than their five-year average dividend yield of 2.1%.
Dividend Aristocrats to Buy Now: Abbott Laboratories (ABT)
Dividend Yield: 2.7%
Abbott Laboratories‘ (ABT) roots can be traced back more than 125 years ago. The company decided to spin off its pharmaceuticals business Abbvie Inc (ABBV) in early 2013, leaving it with four diversified healthcare segments — nutritionals, generic drugs, medical devices and diagnostics.
Approximately half of Abbott’s sales are direct to consumers and patients, and the business sells a large portfolio of more than 10,000 products. Abbott’s geographical reach is also impressive with about 50% of sales generated in emerging markets.
The stock has been weak because of foreign currency headwinds and news in April that the company planned to acquire St. Jude Medical, Inc. (STJ) in a $25 billion deal. Many growth investors likely sold out of Abbott on news of the acquisition, which will give Abbott control over more of a turnaround type of situation.
Regardless, the company’s competitive advantages remain intact, in my view.
With more than a century of operating history, Abbott has acquired leading market share positions for many of its products and has a number of well-known brands.
Many of the company’s markets are also highly regulated, protected by patents, require substantial research and development spending and demand global distribution networks. All of these factors have resulted in reliable dividend payments.
Abbott has paid uninterrupted dividends since 1924 and increased its dividend for more than 40 consecutive years.
Following its spinoff of AbbVie in 2013, Abbott paid a quarterly dividend of 14 cents per share. Management raised the dividend by 57% in 2014 and boosted the company’s payout by another 9% in 2015.
With a payout ratio near 40% and numerous opportunities for long-term earnings growth, Abbott seems likely to continue raising its dividend at a high-single digit rate going forward.
Shares of Abbott trade at a forward price-to-earnings ratio of 15.4 and offer a dividend yield of 2.7%, which is somewhat higher than their five-year average dividend yield of 2.4%.
As of this writing, Simply Safe Dividends was long ABT in its Long-term Dividend Growth portfolio.