Seasoned dividend investors know that there are big differences between stocks that pay dividends and companies that legitimately have “dividend stocks.” Companies in the latter category have, in many cases, displayed lengthy commitments to not only paying dividends but growing payouts as well.
Many investors label companies with long dividend track records as “dividend aristocrats.” That is not just a catchy term. There are indices devoted to dividend aristocrats, including the S&P 500 Dividend Aristocrats Index. The Dividend Aristocrats Index, which serves as the benchmark for a well-known exchange-traded fund (ETF), holds companies with dividend increase streaks of at least 25 years.
The index gauges the “performance of S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company,” according to S&P Dow Jones Indices.
While many dividend aristocrat stocks are trailing the broader market this year, historical data suggest dividend growers usually outpace broader benchmarks over the long haul. Here are some dividend aristocrats to consider buying now.
Dividend Aristocrats: Exxon Mobil Corp. (XOM)
Exxon Mobil Corporation (NYSE:XOM), a member of the Dow Jones Industrial Average and the largest U.S. oil company, has a dividend increase streak that dates back to the 1970s. In fact, the Texas-based company, albeit modestly, was able to maintain its payout increase during the most recent oil bear market. Exxon is well-positioned to benefit from surging international energy demand.
“Demand for oil and natural gas is expected to be strong for decades, as the world’s middle class swells by 2030, to an estimated five billion people, from three billion now,” reports Barron’s (paywall website) in a recent cover article on Exxon. “To capitalize on this growth, Exxon has an ambitious plan to increase its energy output by 25% and more than double its earnings by 2025. And the famously insular company is beginning to engage more with investors to explain its push.”
Shares of Exxon yield almost 4%, which is toward the high-end of the stock’s historical dividend yield range.
Dividend Aristocrats: Procter & Gamble Co. (PG)
Another Dow component, Procter & Gamble Co. (NYSE:PG) is the world’s largest maker of household products. The company’s dividend increase streak is one of the longest in corporate America as it spans over six decades.
Consumer staples, P&G’s home sector, is the worst-performing group in the S&P 500 this year and this dividend aristocrat stock is the largest U.S. staples firm. As the biggest stock in the worst-performing sector, it is not surprising that P&G is getting slammed this year. The stock is down a staggering 19.40%, a mighty decline in less than five months for a supposedly low beta name.
The company faces an array of headwinds, but the shares are attractively valued relative to the broader market.
Dividend Aristocrats: Aflac Inc. (AFL)
Aflac Inc. (NYSE:AFL) is much more than the company behind the commercials with that wacky duck. This dividend aristocrat provides voluntary supplemental health and life insurance products.
Aflac’s status as an insurance is good news for investors in a rising rate environment because insurance companies are often positively correlated to hawkish Fed moves. Ohio-based Aflac proves as much as its shares are up nearly 24% over the past 12 months and reside near 52-week highs.
Over the past year, Aflac has outperformed the S&P Insurance Select Industry Index by a better than 2-to-1 margin. This dividend aristocrat stock yields 2.27%.
Dividend Aristocrats: Medtronic Plc (MDT)
Medical device manufacturers have been a source a strength for the healthcare sector for over two years and Medtronic Plc (NYSE:MDT) is one of the largest members of that group. As of the end of January, Medtronic had $14.44 billion in cash on hand and the stock currently yields less than 2.20%. Both factors imply room for consistent dividend growth going forward.
“Long-term investors in Medtronic would like to see ongoing improvements in free cash flow, dividend growth, continued execution across the business lines, and deleveraging over any temptation with respect to aggressive share buybacks or further deal-making,” said Valuentum.
Dividend Aristocrats: Coca-Cola Co. (KO)
One of Warren Buffett’s favorite holdings, Coca-Cola Co. (NYSE:KO) has paid a dividend every year since 1893 and is on a payout increase streak that is fast approaching six decades. Like P&G, Coca-Cola has been drubbed in the consumer staples sell-off as the stock is off 7.56% this year. However, Coca-Cola could be the faster turnaround play.
Atlanta-based Coca-Cola “expects to notch organic revenue growth this year of 4% and boost comparable earnings by 8% to 10%. Coke posted 5% organic revenue growth in the first quarter, in which it earned 47 cents a share, a penny better than it did a year earlier. Analysts expect Coke to earn $2.10 a share this year, about a 10% increase,” reports Barron’s.
Last month, Goldman Sachs upgraded Coca-Cola to Neutral from Sell. The average analyst price target on the stock is almost $50, implying significant upside from current levels around $42.
Dividend Aristocrats: S&P Global Inc. (SPGI)
Investors looking for a single stock play on the index fund and ETF boom may want to consider S&P Global Inc. (NYSE:SPGI). A dividend aristocrat in its own right, the index provider is the company behind the S&P 500 and a slew of other widely followed indexes. More than a third of the 100 largest US-listed ETFs track S&P benchmarks.
In the first quarter, S&P Dow Jones Indices reported “revenues surged 25% to $214 million mainly driven by a 59% rise in revenues related to exchange-traded derivatives activity. Also, revenues from asset-linked fees improved 21%,” according to Zacks.
With more and more new ETFs coming to market and more ETF issuers understanding that index brand matters among investors, S&P Global has some potentially significant growth opportunities in front of it.
Dividend Aristocrats: Clorox Co. (CLX)
Like the other staples names highlighted here, Clorox Co. (NYSE: CLX) has had its problems this year. Down about 20% year-to-date, Clorox is in a bear market with higher commodities prices playing a part in this dividend aristocrat’s woes. Higher oil prices mean higher input costs for Glad trash bags and the plastic bottles Clorox needs for its bleaches and disinfectants.
The near-term path of least resistance for oil prices appears to be higher, which is likely why Clorox recently trimmed its full-year outlook. That indicates this dividend aristocrat stock is a contrarian bet for those bold enough to be bullish here. That said, Clorox valuation multiples reside at multi-year lows.
This dividend aristocrat stocks has a payout increase streak of 40 years.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.