Consistent dividend paying companies, known as Dividend Aristocrats, are relatively uncommon and typically have stable businesses.
They often produce recession-proof goods, enabling them to continue making profits and paying dividends even when other companies struggle. They’ve proven themselves to pay dividend irrespective of market conditions, even during bearish markets.
In the S&P500, investors have the choice of about 65 Dividend Aristocrats.
In this article, we have compiled the five best dividend aristocrats that should be on an investor’s checklist.
What are Dividend Aristocrats?
Dividend Aristocrats are firms with a track record of increasing shareholder payouts for at least 25 consecutive years. They should be distinguished from Dividend Kings which have a 50 year track record.
Most Aristocrats are large-cap blue-chip companies with long histories of profitability and growth, consistent earnings, and strong balance sheets. As a result, they can:
- Pay secure, generally well-covered dividends.
- Raise their payouts consistently.
- Offer an opportunity for significant price gains than bonds deliver typically.
Top 5 Dividend Aristocrats
Dividend Aristocrats are among the most well-liked stocks on the market for a reason.
Only the most resilient, profitable companies can continue such a trend.
However, some Dividend Aristocrats have more advantages than that exceptional threshold. Here are five this year that stand to gain a lot from current and prospective trends.
1) McDonald’s (NYSE: MCD)
The traditional American burger establishment has effectively managed to weather the pandemic and the global movement toward healthier dining options.
The company has maintained exceptional growth on both the top and bottom lines, demonstrating what an innovative and effective operator it is.
McDonald’s introduced several healthier menu items years ago to beat competition from health-food vendors. Today, many of the options are well-liked by customers.
Due to its robust technology, McDonald’s was better able to withstand the pandemic’s challenges than most food companies.
Owing to intermittent closures due to the global pandemic, its drive-thru facilities have been improved, making it a convenient option for customers who don’t want to or can’t eat inside restaurants.
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As in-restaurant dining becomes the norm again, technologies like the self-ordering kiosks inside its restaurants should make the McDonald’s experience even faster and more effective.
The drive-thru should also remain a popular destination for motorists looking for a fast dinner, lunch, or coffee pickup.
McDonald’s appears to be on track to have an excellent 2022 full of growth, as it has in many previous years.
The S&P 500’s yield is 1.3%, while the company’s quarterly dividend of $1.13 per share is slightly under 2.1%. It’s not an exceptional yield but McDonald’s has been included in this list of Dividend Aristocrats because of the strength of its business model and hugely recognizable brand.
2) AT&T (NYSE: T)
Another recognizable name on our list of Dividend Aristocrats is AT&T. The last few months has seen the stock undervalued but it’s well-positioned to make a comeback.
AT&T is evolving into a leaner, more focused company while the 5G upgrade cycle is picking up.
This technology should enable AT&T to sell more premium plans and devices compatible with the technology and increase customers’ time viewing videos and browsing the Internet.
The company is currently trying to dispose of its entertainment content business for many years but has never entirely integrated with its primary telecom operations.
AT&T will use a significant portion of the money received from the sale to reduce its debt, which stood at over $177 billion as of September 2021.
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The profit and loss statement’s interest expenses will decrease when those borrowings reduce, resulting in increased profitability.
The strategy means the stock is one of the Dividend Aristocrats that might receive renewed interest from many investors who have been holding back.
The current AT&T quarterly dividend is $0.52. AT&T has declared that it will cut its dividend following the spinoff to allocate more money to debt servicing.
If the cut takes place, the stock will no longer be an artistocrat but we’ve included the name here because investors can expect the company to at least keep the payout competitive; AT&T is well aware of how vital a sizable payout is to the attraction of its shares.
According to some estimates, the dividend will be reduced to about $0.29, yielding close to 4.6%.
3) Realty Income (NYSE: O)
Realty Income is one of the more attractive Dividend Aristocrats; Unusually, it pays dividends monthly instead of the once-per-quarter scheme.
It makes millions of dollars annually, allowing it to share its profits often with investors.
Realty Income, a leading retail REIT, manages a sizable portfolio of retail locations across the United States and, increasingly, abroad.
Hence, it receives a flood of rent payments 12 times annually.
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And because a typical Realty Income lease is lengthy and requires small but regular annual increases, the revenues only grow stronger.
Additionally, this well-run business regularly increases its reach with new leasable spaces.
All of these factors have allowed Realty Income’s revenue and cash flow, or “funds from operations,” to continue increasing despite the hurdles posed by the pandemic, which severely impacted the retail industry.
The monthly payout is less than $0.25 per share, offering a reasonable yield of over 4.2%. Realty Income announced five dividend increases for 2021.
4) Johnson and Johnson (NYSE: JNJ)
As always, do your own research but one of the less risky equities is Johnson & Johnson.
The business is well-diversified across three sectors, and none of them—pharma, medical technology, and consumer staples—perform particularly poorly under any given set of circumstances.
Additionally, Johnson & Johnson is one of only two businesses worldwide with a triple-A rating, indicating that the financial risks are extremely low.
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Quality typically comes at a cost, so the fact that Johnson & Johnson has, on average, trading at a 22x earnings multiple over the past ten years is not all that surprising.
However, with the current stock market downturn, investors can purchase J&J for a 17x earnings multiple; so the shares sell at a significant discount to their historical average.
The dividend yield has increased to 2.6% due to the company’s recent dividend increase.
That’s not incredibly high, but significantly more than one may obtain from the general market while also assuming substantially less risk.
5) Chevron (NYSE: CVX)
Chevron is one of the worldwide supermajors in the oil and gas sector. It owns substantial upstream, downstream, refining, and marketing assets.
Due to its significant exposure to the production and selling of liquified natural gas, the company gains a lot from high natural gas prices in various international markets, including Europe and some regions of Asia.
Although shares have increased this year, they pulled back meaningfully from their recent highs of around $182.40.
Earnings will be exponential this year, as high oil prices, natural gas prices, and sizable refining margins make for a proper mix to boost profits at Chevron and its peer group.
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Over the past year, shares have become less costly, trading at an enterprise value to EBITDA ratio of under 5.
Additionally, it is 30% below the longer-term median, indicating that the current share price already accounts for a significant profit decrease.
However, if Goldman Sachs and other experts are correct, we are only at the beginning of a supercycle in commodities.
Earnings may increase more in 2023 and beyond. In that scenario, Chevron could keep generating significant returns through buybacks, earnings growth, and a dividend yield of 3.9%.
Final Word: Dividend Aristocrats
Due to their propensity to beat the general market in difficult times, Dividend Aristocrats can be a great addition to a portfolio.
That appears to have some use in the upcoming months, given the challenging macroeconomic climate created by inflation, a probable recession, interest rate concerns, and supply chain disruptions.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas holds no positions in the stocks, ETFs, mutual funds, forex, or commodities mentioned.
This post was produced and syndicated by Tim Thomas / Timothy Thomas Limited.
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