The Dividend Aristocrats are a list of 65 stocks in the S&P 500 Index that have each raised their shareholder dividends for at least 25 consecutive years. Just 65 stocks qualify out of the more than 500 that comprise the S&P 500 Index, which indicates the relative difficulty in raising dividends each year for 25 years or more.
We believe high-quality dividend growth stocks are among the best investments to buy-and-hold over long periods of time.
There are many ways to evaluate dividend stocks. Investors can narrow down the search for the best dividend stocks by focusing on those with the longest histories of dividend increases.
With the stock market at historic highs, investors can also focus on dividend stocks with moderate valuations and high yields to drill down even further.
These are the reasons why these are our top 3 Dividend Aristocrats right now:
Dividend Aristocrats: Federal Realty Investment Trust (FRT)
Federal Realty Investment Trust is a Real Estate Investment Trust, or REIT, which are securities that allow for investment in real estate properties through the stock market.
There are many different kinds of REITs. Federal Realty’s specific business model is to own retail real estate properties. It ended 2020 with 101 total properties and approximately 2,800 tenants.
Federal Realty has a diversified tenant portfolio, as no individual tenant represents more than 2.7% of its total annualized base rent. Some of its biggest tenants include TJX Companies (NYSE:TJX), Kroger (NYSE:KR), Home Depot (NYSE:HD), CVS Pharmacy (NYSE:CVS) and Amazon’s (NASDAQ:AMZN) Whole Foods. These are generally high-quality retailers that see strong foot traffic and sales each year.
Last year was a difficult one for Federal Realty as the coronavirus pandemic resulted in lockdowns and store closures for an extended period. As a result, the company’s Funds From Operation declined 29% to $4.38 per share in 2020. But the company still covered its dividend, currently at $4.24 per share.
Federal Realty is a noteworthy dividend growth stock as it has raised its dividend for 53 years in a row. This places Federal Realty on the list of Dividend Aristocrats, as well as the list of Dividend Kings which is an even more exclusive list of stocks with 50+ consecutive years of dividend increases. Federal Realty has the longest record of consecutive annual dividend increases in the entire REIT industry.
The downturn for retail real estate in the past year has negatively impacted Federal Realty. As a result, the current dividend yield is 4.2%. We also expect the company to grow its FFO-per-share by nearly 6% per year over the next five years. The stock appears fairly valued right now, but total returns could still exceed 10% per year for this Dividend King.
AT&T Inc. (T)
AT&T is a diversified telecommunications giant. Its core operations include wireless, internet, cable TV and satellite TV. It has a current market cap of $204 billion.
AT&T has significantly expanded its business as a result of the $85 billion acquisition of Time Warner, which added exposure to media content. AT&T’s large WarnerMedia segment houses multiple major content brands including HBO, CNN and Warner Bros.
The deal also saddled AT&T with a large amount of debt that the company is working to pay down. AT&T ended 2020 with a net debt-to-EBITDA ratio of 2.70x and $147.5 billion in net debt.
Fortunately for AT&T, it generates strong free cash flow each year which will be used to pay down debt and perhaps position the company to raise the dividend. AT&T generated free cash flow of $27.5 billion in 2020. Management expects free cash flow near $26 billion in 2021.
AT&T’s future growth catalysts include 5G rollout and WarnerMedia. First, the nationwide rollout of 5G is a potential boost to AT&T’s core Communications segment. AT&T Mobility revenue increased 7.6% in the fourth quarter and expanded 5G availability could continue to allow for higher pricing.
WarnerMedia is also a growth catalyst, especially when it comes to HBO Max which hit 41 million to end 2020. HBO Max is a critical piece of the company’s future growth strategy. This is particularly important in the streaming age that is increasingly dominated by Netflix (NASADQ:NFLX), Disney’s (NYSE:DIS) Hulu and others that have compelled many consumers to “cut the cord” from traditional pay-TV providers.
AT&T has increased its dividend each year for over 30 consecutive years. The company remained profitable last year, which was a very difficult year for the U.S. economy. Assuming the economy continues to recover from the pandemic, AT&T should be able to pay down debt and increase the dividend.
With a current yield above 7%, AT&T is a strong choice for income investors looking for high yields. Even if future earnings growth slows to the low-single digits each year, we still expect total returns above 10% due in large part to the high dividend yield.
Exxon Mobil (XOM)
The last of our dividend aristocrats is Exxon Mobil. With a current market cap of $215 billion, it is the largest U.S. energy company.
Exxon Mobil is an integrated super-major. That is, the company has operations across the upstream, downstream, and chemicals sectors. The past several years were very challenging for Exxon and the broader energy sector as a whole due to the long-running decline in oil prices.
The combination of elevated supply and weak demand caused oil prices to fall all the way below $30 per barrel in the U.S., from peak levels above $100. Oil has recently neared $60 per barrel but remains well below the 10-year high.
Oil majors like Exxon have had trouble maintaining consistent profitability over the past few years, but to the company’s credit, it has so far maintained its dividend. The company incurred a net loss of $22.44 billion in 2020, due in large part to weak commodity prices as well as asset impairments. Revenue fell 46% for the year.
In response, Exxon is aggressively cutting costs and reducing capital expenditures to reduce its losses. Last year, Exxon cut cash operating expenses by $8 billion and expects to achieve an additional $3 billion in annual expense reductions by 2023.
Furthermore, capital expenditures of $21.4 billion in 2020 represented a 35% decline from the company’s initial $33 billion plan.
As a result of these actions, Exxon management believes the company can maintain capital expenditures requirements, pay the current dividend and keep its balance sheet strength intact at an average Brent price of $50 per barrel.
With Brent crude prices currently near $62 per barrel, Exxon Mobil is well above this threshold. If oil prices continue to trend upwards, there is a reasonable chance the company could raise its dividend.
We expect Exxon to grow its earnings-per-share by 8% per year over the next five years. The stock appears slightly overvalued, with a P/E of 15.5 compared with our fair value P/E of 13. But including the 6.9% dividend yield, total returns are estimated to reach double-digits per year.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.