Investors hear about dividend aristocrats all the time. It’s a fantastic thing if a company raises its dividend every year for 25 years running or longer. And so retirement investors flock to these sorts of stocks.
Yet it’s easy to overlook the very reason why these are such attractive investments. If a company is paying dividends, it is generating enough cash flow to do so. If it is generating an increasing dividend every single year, the business is doing so well as far as cash flow, that the company is positioned very well for the long-term.
Let’s take a look at three dividend aristocrats that don’t get a lot of attention.
There’s a reason why Warren Buffett likes consumer companies. He likes companies with strong retail brands, but I hate retail. Instead, I prefer middleman companies, businesses that move stuff.
Dividend Aristocrats to Buy: Archer Daniels Midland Co (ADM)
Archer Daniels Midland Co (NYSE:ADM) is a 120-year-old dividend aristocrat that procures, processes and moves agricultural products. It’s Corn Processing unit makes all the stuff that makes food sweet — all the syrups and dextrose and glucose, as well as just about anything that involves food and corn.
Oilseed processing is a big part of the business. That’s all about salad dressings, margarine, shortening, peanuts and even stuff like cellulose pulp for chemical and paper markets. It also has a flavoring unit.
All that being said, operating and net income for this dividend aristocrat has been declining in recent years. It seems set to increase again in the near-term, but analysts are showing net income decreases over the next few years. I don’t believe the dividend is in danger of not being increased again, but there are a few issues that ADM needs to figure out.
The current dividend yield is at 3.15%.
Dividend Aristocrats to Buy: T. Rowe Price Group Inc (TROW)
T. Rowe Price Group Inc (NASDAQ:TROW) is a dividend aristocrat that has been raising dividends every year for more than 30 years. Not only does T. Rowe Price have an exceptional and deserved reputation for its mutual fund management, it has a strong diversified business that includes services to individuals, institutions, retirement plans and other intermediaries.
When investors think of consistency and reliability, T. Rowe Price comes to mind. In an era where these sorts of financial services are in high demand and there’s a tremendous amount of competition, the company’s brand goes a very long way. Total revenues have been increasing over the past few years, operating income has been increasing and so has net income. The company also has no long-term debt.
TROW currently yields 2.59%.
Dividend Aristocrats to Buy: Air Products & Chemicals, Inc. (APD)
Have you ever heard of Air Products & Chemicals, Inc. (NYSE:APD)? It wouldn’t surprise me if you have not. It’s exactly the kind of boring and unsexy dividend aristocrat that Peter Lynch would love and which has been raising dividends every year for more than 30 years.
APD literally provides gases all over the world. It might be oxygen, nitrogen, argon, hydrogen, helium or any number of other gases used in all the varying industries from glass, chemicals, electronics, energy production, food processing and general manufacturing.
This is exactly the sort of boring “infrastructure” company that I love because somebody has to do this kind of work. It’s work that is constantly in demand because gases like this are always in demand, across many different kinds of industry.
The current dividend yield is 2.74%; the payout ratio is only 50%. APD stock has quietly doubled over the past five years.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].