For investors looking for reliable dividend growth stocks through all sorts of economic environments, the Dividend Aristocrats are a great place to look.
That is because Dividend Aristocrats have grown their dividends for at least 25 years in a row, including through the economic recessions and other black swan events (such as the Covid-19 outbreak) that have taken place over that period. These three Dividend Aristocrats offer some of the most attractive current dividend yields and total return potential for 2023.
With the economy seemingly on the verge of a downturn, it is increasingly important to invest in resilient business models. With Dividend Aristocrat stocks like the three discussed in this article, investors can gain exposure to proven dividend growth machines. These picks have continued to grow their dividends through thick and thin for at least a quarter of a century.
Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance (NASDAQ:WBA) is rapidly closing in on Dividend King (a 50+ year dividend per share growth streak) status with 46 years of consecutive dividend per share growth.
It has sustained this tremendous level of consistency thanks to its defensive pharmacy business model. It has built a very strong brand, economies of scale and a strategically located empire of neighborhood pharmacies that also serve as convenience stores and general healthcare centers.
Walgreens is the United States’ and Europe’s largest retail pharmacy. Today, it has over 315,000 employees in its more than 13,000 stores across three continents.
While fears have risen due to the rise of e-commerce, including Amazon’s (NASDAQ:AMZN) entrance into the pharmacy industry, WBA continues to generate very strong results with earnings per share (EPS) exceeding analyst consensus estimates for 10 quarters in a row. Over the past 10 years, WBA has grown its EPS at a 6.8% compound annual growth rate (CAGR) alongside paying out a substantial dividend.
Moving forward, we expect 4% annualized EPS growth through 2028 due to a combination of growth initiatives (such as new store construction and acquisitions), margin expansion efforts (cutting costs and complementing digital offerings by adding additional health and wellness offerings to the retail pharmacy experience to obtain greater leverage from the existing portfolio), and share repurchases. The company is also expected to grow its current 5.3% yielding dividend at a 4% CAGR over the next half-decade.
WBA generated very stable EPS during the last recession. And we expect it to generate a similar performance in the event that we experience a recession in the coming years. This is because convenience stores and community pharmacies generally provide essential products and services. They remain in high demand regardless of people’s financial circumstances.
V.F. Corporation (VFC)
V.F. Corporation (NYSE:VFC) is a leading global apparel, footwear and accessories company that owns a wide variety of brands. It has increased its dividend for 50 consecutive years, making it a Dividend King as well as a Dividend Aristocrat.
While the business is suffering at the moment due to a bad combination of inflation increasing its input costs and oversupply at its retailers putting pressure on its pricing power, the company continues to churn out annual dividend growth and its balance sheet remains in solid shape.
In fiscal 2022, VFC generated very impressive results. The company reported $3.18 in EPS, covering its $1.97 per-share dividend by 1.6 times. However, in fiscal 2023, the company is expected to see its EPS plummet to $2 per share due to industry headwinds. Nevertheless, even that weak result will still cover its 2022 dividend level. It even provides some wiggle room to raise it further to keep its dividend growth streak going. Furthermore, its forward dividend yield now stands at 6.8%. This means that it does not need to generate much dividend growth to provide an attractive total return profile.
Moreover, VFC’s long-term growth profile remains promising, with multiple avenues available to the company. These include acquisitions (which the company has developed a strong track record of executing and integrating), growing its core brands with renewed investments and e-commerce initiatives such as direct-to-consumer.
Essex Property Trust (ESS)
Essex Property Trust (NYSE:ESS) has grown its dividend for 28 consecutive years, making it a fairly recent entry to the Dividend Aristocrats club. That said, the real estate investment trust (REIT) appears well-positioned to grow its dividend per share every year for many years to come. It has grown its dividend per share every year since going public and continues to have attractive long-term growth prospects.
It invests primarily in West Coast multifamily residential apartment communities through the development, redevelopment, management, acquisition and sale of these properties. Its portfolio currently includes over 60,000 apartments in hundreds of communities. West Coast properties are competitively advantaged as they exist in supply-constrained geographies with strong economic fundamentals supported by the technology sector’s significant presence in those markets.
Moving forward, we expect ESS to continue generating high rates of FFO per share growth. This is due to continued strong job growth in the technology sector along with limited new supply. As a result, ESS should be able to sustain strong rental rate hikes for years to come. Furthermore, it has proven to be a very effective allocator of capital by developing and redeveloping properties and then leasing them out or selling them for very attractive rates of return.
Another reason to be bullish on ESS as a long-term dividend growth machine is the fact that it has proven to be quite resistant to recessions. Its FFO per share increased during the last recession, from $5.57 in 2007 to $6.14 in 2008 and then $6.74 in 2009. This is because it offers a basic necessity in markets where there is little to no excess supply of housing. As a result, its tenants will pay their rent even if it means giving up other consumer items.
With a 4% dividend yield, an expected 5.3% FFO per share CAGR and 5.4% dividend per share CAGR over the next half-decade, ESS is an attractive risk-adjusted dividend growth stock at this point in the economic cycle.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.