5 Dividend Aristocrats to Buy Now
By: Ned Piplovic,
In the search for steadily rising dividend income payouts, as well as overall total returns, many investors can meet their needs by investing in Dividend Aristocrats.
Dividend Aristocrats are S&P 500 companies with particularly long streaks of consecutive annual dividend hikes. In addition to being included as a component of the S&P 500 index, equities must have a current streak of at least 25 consecutive hears of rising annual dividend payouts. Additionally, the companies must meet a few other liquidity and trading frequency requirements.
Measured over the three-month period that precedes the S&P 500 quarterly rebalancing date, an equity must have a daily trading value average of at least $5 million to meet eligibility requirements for inclusion among the Dividend Aristocrats. Furthermore, the Dividend Aristocrats group must include at least 40 components. Moreover, to avoid exposure to market volatility and offer diversification, cumulative market capitalization of all companies in any single of the 11 Global Industry Classification Standard (GICS) sectors must not exceed 30% of the group’s cumulative market capitalization.
Why invest in Dividend Aristocrats over other equities? Active investors can certainly try to achieve higher total returns by identifying short-term trends and trading accordingly. However, the time commitment, resource requirements and potentially high trading fees can erase any advantages of the seemingly higher total returns generated by frequent trading of other equities. Instead, retail and part-time investors could select few of the Dividend Aristocrats and allow the effects of long-term compounding to grow their investment portfolio.
Some investment professionals could devise a strategy that would in the short term outperform the long-term approach of holding Dividend Aristocrats. However, back-tested data indicate that Dividend Aristocrats have outperformed the overall market over the long term. The graph below compares total returns of the Dividend Aristocrats group against the entire S&P 500 Index over the past decade. Since late 1999, Dividend Aristocrats outperformed the overall S&P 500 index by nearly 11%.
This performance over the long term is just a reflection of the companies that carry the Dividend Aristocrats label. The ability to raise annual dividend payouts consistently for several decades indicates that the company manages its capital efficiently, as well as generates sufficient earnings and ample cash flow to cover the rising dividend distributions.
Furthermore, rising dividends over extended periods highlight the company’s ability to navigate changing market conditions and adjust accordingly. Any company will likely encounter several bull and bear markets during a period of 25 years or more. A company that can navigate those changing conditions successfully, must be well managed or have some kind of product advantage to support long-term growth.
Interested investors can access Dividend Aristocrats through specifically targeted investment vehicle, such as exchange traded funds (ETFs) that invest in Dividend Aristocrats, or pick individual Aristocrats that best fit the investor’s portfolio strategy.
The Dividend Aristocrats list is an easy method for identifying equities that have delivered rising dividends for extended periods. However, as with all investment decisions, investors should complete their own analysis and consider additional indicators, such as share-price trends, price-to-earnings (P/E) ratios, moving averages, etc. before making any investment decision.
Sorted in ascending order by their current dividend yield, below is the list of 5 dividend aristocrats to buy now.
5 Dividend Aristocrats to Buy Now: #5
United Technologies Corporation (NYSE:UTX)
With 36 consecutive annual dividend hikes, the United Technologies Corporation has maintained its status as a Dividend Aristocrat for more than a decade. Over the last 20 years, the company maintained an average dividend growth rate of more than 10% per year by increasing its total annual payout 635% since 1999. The current quarterly amount of $0.735 converts to a $2.94 annual distribution, which is equivalent to a 2.1% forward dividend yield.
Driven by downward pressure from the overall market correction in late 2018, the share price dropped nearly 20% between October and late December. However, the share price recovered all those losses by late-February 2019 and advanced higher to deliver asset appreciation of nearly 10%, for a total return of almost 12% over the trailing 12 months. An 18% share price decline between late 2014 and early 2016 limited the five-year total returns to just slightly below 50% and marginally above the 49.5% total return over the last three years.
5 Dividend Aristocrats to Buy Now: #4
Air Products & Chemicals, Inc. (NYSE:APD)
Air Products & Chemicals has boosted its annual dividend payout amount for the last 36 consecutive years. Over the last 20 years, the company has enhanced its annual dividend distribution amount more than 560%, which corresponds to an average dividend growth rate of nearly 10% per year. The current $1.16 quarterly dividend marks a 5.5% payout boost over the $1.10 amount from the same period last year. This new quarterly amount is equivalent to a $4.64 annual distribution and 2.2% forward dividend yield.
The company‘s share price has grown five-fold since the 2008 financial crisis and advanced nearly 37% just over the past year. The dividend yield pushed the combined total return above the 40% mark over the trailing 12-month period. The total return over the last three and five years reached 68% and 92%, respectively.
5 Dividend Aristocrats to Buy Now: #3
Target Corporation (NYSE:TGT)
With 51 consecutive annual dividend hikes, the Target Corporation has the longest streak on this list. Additionally, at that level, the company is also the only equity on this list eligible for inclusion among Dividend Kings. The current $0.66 quarterly dividend is 3.1% above the company’s $0.64 payout amount one year ago. This quarterly payout is equivalent to a $2.64 annualized dividend income distribution and yields 2.3%.
Target accompanied its rising dividend distributions with robust asset appreciation, especially over the past two years. The combination of high capital gains and rising dividend income rewarded Target’s shareholders with a total return of more than 42% just over the trailing 12 months. Over the past three years, the total return reached nearly 80%. Lastly, the company’s shareholders more than doubled their investment over the past five years with a total return of 105%.
5 Dividend Aristocrats to Buy Now: #2
Rowe Price Group, Inc. (NASDAQ:TROW)
The T. Rowe Price Group’s current streak of consecutive annual dividend hikes stretches back 32 years. The current quarterly distribution of $0.76 is 8.6% above the company’s $0.70 payout from the same period last year. Just over the past two decades, the Rowe Price Group’s annual dividend payout advanced more than 15-fold. That advancement pace corresponds to an average annual dividend growth rate of nearly 15%.
While experiencing minimal volatility and only a few corrections driven by overall market pressure, the company’s price has maintained a general uptrend over the long term. One-year asset appreciation of more than 10% combined with dividend income for a total return of nearly 14% over the trailing 12 months. A special dividend payout that effectively doubled the annual payout that year pushed the three-year total return above 80%.
5 Dividend Aristocrats to Buy Now: #1
PepsiCo, Inc. (NYSE:PEP)
PepsiCo has boosted its annual dividend for the past 47 consecutive years. Just over the last two decades, the company has enhanced its annual payout amount more than seven-fold, which corresponds to an average dividend growth rate of more than 10% per year. The current $0.955 quarterly payout is 3% higher than it was one year earlier and corresponds to a $3.82 annual distribution for a 2.8% forward dividend yield.
Notwithstanding a drop during the 2008 financial crisis and a minor correction in late 2018, the share price has been matching the dividend uptrend for a combined total return of more than 62% over the last five years. The three-year total return was nearly 40% and shareholders enjoyed a total return of nearly 27% just over the trailing 12 months.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.