There’s nothing more thrilling than telling the tale of an incredible trade that dished out massive, short-term gains. Though most of these proverbial “whale hunts” don’t pan out as initially hoped, enough of them do to keep investors ever-searching for them.
The fact of the matter is, however, for many investors the bulk of their total investing profits reaped for the long haul will come from dividends… even dividends that are reinvested in the companies paying them. As the old adage goes, slow and steady wins the race.
With that as the backdrop, here’s a rundown of the market’s highest-quality dividend stocks … dividend payers that could be considered the aristocrats among the market’s income-oriented investments.
They may ebb and flow from one year to the next, and none of them make for splashy headlines. If you’re willing to sit back and let time do the work for you though, these are names you’ll eventually be glad you own.
[Editor’s Note: This article originally appeared on March 13, 2018. It has since been republished with updated information for a better reader experience.]
Dividend Aristocrats to Buy: Abbott Laboratories (ABT)
Dividend Yield: 1.7%
It’s one of those companies that’s easy to forget. Abbott Laboratories (NYSE:ABT) makes a little of everything, and the diagnostics and diabetes care landscape would look much different without Abbott. It also makes a variety of artificial heart valves, stents and catheters. The average investor can’t name one of its products, though.
But it doesn’t matter. Its mix of products is always in demand, keeping cash flowing nicely in almost any economic environment. That’s how the company was able to raise its quarterly dividend for the 46th year in a row … a decision announced late last year.
The yield of 1.7% isn’t red hot, but there’s a lot to be said for reliability.
Dividend Aristocrats to Buy: 3M (MMM)
Dividend Yield: 2.6%
Name any kind of industrial or consumer product you can think of, and 3M Co (NYSE:MMM) either makes it or supports the companies that make it. Stethoscopes, Post-Its, army helmets, electrician’s supplies and cleaning supplies are just some of the things it sells.
It can always find customers, in good times and bad, despite the fact that nothing it sells is particularly exciting. That’s how the company has managed to raise its annual dividend every year since 1977.
Better still, 3M can afford to dish out what it’s paying shareholders. Its payout ratio — the amount of earnings passed along to shareholders as dividend — for the past twelve months has been less than 60% of its profits, and that’s actually above the company’s typical payout.
That leaves plenty of room for the company to invest in its own growth.
Dividend Aristocrats to Buy: Kimberly Clark Corp (KMB)
Dividend Yield: 3.4%
Most everyone knows Kimberly Clark Corp (NYSE:KMB) is a paper company. Not everyone fully appreciates the depth of its product base though, nor all the brands under its umbrella. Depends diapers for adults, Kotex tampons, Kleenex and Scott paper towels are just a few of the labels owned by the company.
It’s this diversity that’s allowed the paper giant to smooth out some of the ebbs and flows other players in and out of its industry have suffered. The end result is a company that’s slowly but surely increased its dividend payout going all the way back to the early 70’s.
And, with a current yield of 3.4%, newcomers are getting in at a relatively cheap price.
Dividend Aristocrats to Buy: Visa (V)
Dividend Yield: 0.6%
Between the advent of Bitcoin and other cryptocurrencies along with the ongoing growth of online payment options like PayPal, it seems credit card middlemen like Visa (NYSE:V) are approaching obsolescence.
That’s not how it works though. Indeed, Visa provides the very connection framework between consumers and merchants that PayPal needs to become even more mainstream. And, though its initial relationship with cryptocurrency players has been a strained one, the fact that Visa is even bothering to experiment with them suggests it’s preparing for a future that’s very different than the present.
In other words, Visa’s going to be fine, and so is its dividend … a dividend that’s been paid, and increased, quite consistently going all the way back to 2008.
Dividend Aristocrats to Buy: Texas Instruments Incorporated (TXN)
Dividend Yield: 2.2%
That’s fine, but the volatility pendulum swings in both ways, particularly in the tech world. Income-oriented investors seeking safe, reliable exposure to the technology sector may want to consider Texas Instruments Incorporated (NASDAQ:TXN), tapping into its current dividend yield of 2.2%.
No, it doesn’t make the newest computer processors, nor is it waist-deep into artificial intelligence. It’s still the king of calculators and clocks (though they’re high-tech industrial and scientific clocks these days). That’s the point. The boring stuff always sells. That’s how Texas Instruments boasts a string of steady dividend payouts and increases going all the way back to 1971.
Dividend Aristocrats to Buy: Johnson & Johnson (JNJ)
Dividend Yield: 2.7%
Like Texas Instruments, Johnson & Johnson (NYSE:JNJ) may be one of the most boring health product companies an investor could think of. And like Texas Instruments, that’s the point.
For the record, though the average investor would struggle to name even just one of them, J&J does make and market prescription drugs. (Remicade, for a variety of gastrointestinal problems, is the big one, by the way, driving $6.3 billion worth of revenue last year. Past that, the sales contribution of its other pharmaceutical drops off in a hurry.)
Its mainstays, however, are the more familiar products like its baby shampoo, Band-Aids and Tylenol … the things people buy over and over again without a second thought. That’s how Johnson & Johnson has mustered nearly five straight decades’ worth of annual payout increases.
Dividend Aristocrats to Buy: Consolidated Edison (ED)
Dividend Yield: 3.5%
One would think a utility provider’s revenue history would be one of slow-and-steady increases. One would be wrong, though. Due to ever-changing rates and production costs, New York power provider Consolidated Edison (NYSE:ED) sports a surprisingly volatile top line.
Take a look at the bottom line though, and things not only stabilize, they show that slow and steady growth you’d expect to see from a company that effectively no household can refuse to buy from.
The company’s dividend growth has been just as consistent, up almost every year going back to the 90’s.
The kicker: If the economy takes off in 2018 and President Trump is able to restore the United States’ former manufacturing greatness, demand for electrify will ramp up, bolstering Consolidated Edison’s bottom line even without rate increases.
Dividend Aristocrats to Buy: Stanley Black & Decker (SWK)
Dividend Yield: 1.8%
One would think a toolmaker like Stanley Black & Decker (NYSE:SWK) would suffer too many cyclical ups and downs to be one of the market’s better dividend stocks. Indeed, one wouldn’t expect a toolmaker to be pegged as a dividend stock to begin with. One would be wrong on both counts, however.
Yes, Stanley Black & Decker saw a slight — and only a slight — revenue lull between 2000 and 2002 when it was still just Stanley, while other companies were in dire straits. The company took a slightly harder hit in 2009 following the fallout from the subprime mortgage meltdown. By the next year though, thanks to the merger of Stanley Works and Black & Decker, the combined company was on pace to record revenue. It never really looked back either, with last year’s $12.7 billion in sales being yet another record.
The end result is 50 straight years of rising dividends, with profits far in excess of its dividend in almost all of those quarters. Tools are a more resilient business than you might suspect.
Dividend Aristocrats to Buy: Walmart (WMT)
Dividend Yield: 2.1%
The world’s biggest retailer, Walmart (NYSE:WMT), has struggled with its sheer size in the past. Just a few years ago, lousy customer service and bare shelves were not only the norm, but a mere symptom of how out-of-touch management had become with what’s happening at the proverbial front.
Since then the company has fixed the vast majority of its woes, with last quarter’s same-store sales growth of 2.6% serving as the evidence. It would be naive, however, to think that Walmart won’t eventually fall into the same trap again at some point in the future.
So how does the retailer deserve a spot on a list of dividend stocks that are better than any others?
Because being the biggest is about 80% of the retail battle. As long as the company continues to learn from its mistake, its dividend growth is more than adequately shielded.
That dividend has grown every year for the past 29 years, by the way.
Dividend Aristocrats to Buy: Microsoft (MSFT)
Dividend Yield: 1.5%
Last but not least, add Microsoft (NASDAQ:MSFT) to any list of dividend stocks that’s become stunningly reliable. Yes, Microsoft, the former software giant that’s slowly but surely entrenching itself as a cloud play.
That’s not what makes Microsoft a budding dividend aristocrat though. It’s the nature of its new business model. Many of its new products like Office 365 and access to its Azure cloud-management platform are sold and billed as “software as a service,” or SaaS. These billing cycles are either monthly or quarterly, and are recurring with a high level of customer loyalty. Recurring revenue is what makes a dividend stock a reliable payer.
The current yield of 1.5% isn’t earth-shattering, but surprisingly enough, Microsoft boasts one of the most consistent dividend-growth trends not just among tech stocks, but among all industries.
That trend is only going to solidify as more recurring revenue products are launched.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.