The 10 Best Dividend Aristocrats by Ben Reynolds

The Dividend Aristocrats are a group S&P 500 that have each paid increasing dividends for 25+ consecutive years.

There are currently only 50 Dividend Aristocrats.  What’s important about the Dividend Aristocrats is how well they have performed.  The image below shows the Dividend Aristocrat’s performance over the last decade

Dividend Aristocrats, Dividend Investing 1

Source:  S&P Factsheet

Not all Dividend Aristocrats are good investments, especially in today’s overvalued market.  Low interest rates have pushed up real asset values, especially dividend stocks.  This makes finding high quality dividend growth stocks trading at reasonable prices more difficult.

This article uses The 8 Rules of Dividend Investing to identify the Top 10 best Dividend Aristocrats at current prices.  The rankings are determined using a mix of:

  • Dividend yield (the higher the better)
  • Payout ratio (the lower the better)
  • Volatility (the lower the better)
  • Expected growth rate (the higher the better)
  • Total return (the higher the better)
  • Price-to-earnings ratio (the lower the better)

All Dividend Aristocrats pass the 1st rule of The 8 Rules; to have 25+ years of dividend payments without a reduction.  There are currently over 180 stocks in the Sure Dividend database that pass this constraint.

The 8 Rules find high quality dividend growth stocks trading at fair or better prices.  This article applies these ranking metrics to the Dividend Aristocrats.

The top 10 best Dividend Aristocrats using The 8 Rules of Dividend Investing are below.

#10:  Coca-Cola

Coca-Cola (KO) is one of the most well-known corporations in the world.  The company’s ubiquitous red cans and bottles of soda show the power of the company’s brand.  Coca-Cola is the largest beverage corporation in the world.  The company currently has a market cap of over $188 billion.

Coca-Cola is among the most stable businesses in the world.  Not only is Coca-Cola a Dividend Aristocrat, the company is also a Dividend Kings.  There are currently only 18 Dividend Kings; dividend stock with 50+ years of consecutive dividend increases.  Coca-Cola has paid increasing dividends for 54 consecutive years.

There is more to Coca-Cola than just brown soda.  In total, the company has 20 brands that generate more than $1 billion a year in sales.  Out of those 20 brands, 14 are non-carbonated.  Coca-Cola owns an impressive portfolio of still brands, including:  Simply juices, Dasani water, Vitamin Water, and Gold Peak Tea (among others).  The image below shows more of the company’s still brands

Dividend Aristocrats, Dividend Investing 1

Source:  Coca-Cola Deutsche Bank Conference Presentation

Coca-Cola is currently trading for a price-to-earnings ratio of 20.7 using adjusted earnings.  The company is likely trading around fair value in today’s low interest rate environment.  Coca-Cola also has a dividend yield of 3.2%, which is significantly above market averages.

What makes Coca-Cola such a wonderful business is that it can return the bulk of its cash flows to shareholders; it need reinvest little back into the mature business.  The company’s higher-than-average ~70% payout ratio reflects this.  In addition, Coca-Cola regularly returns cash to shareholders through share repurchases.

Coca-Cola is not a value investment, and its rapid growth days are over.  Still, the company is a high quality blue chip business that offers investors income growth and stability.

#9:  V.F. Corporation

V.F. Corporation (VFC) is one of the world’s largest apparel companies based on its $26.5 billion market cap.  The image below shows many of the company’s well-known clothing brands:

Dividend Aristocrats, Dividend Investing

Source:  V.F. Corporation Investor Relations

The company was founded in 1899 and has a long history of success.  V.F. Corporation has paid increasing dividends for 43 consecutive years.  The company’s success over the last 100+ years shows that V.F. Corporation has found a way to stay in front of consumer trends in the apparel category.

Many of the company’s brands exhibit longevity that is uncommon in apparel.  Lee was founded in 1889, Wranger in 1944, Van’s and The North Face in 1966, and Timberland in 1973.  Decades (or over a century in Lee’s case) later, and these brands are still delivering profits to shareholders…  All 5 of the above mentioned brands generate more than $1 billion a year in sales.

V.F. Corporation is trading for an adjusted price-to-earnings ratio of 21.5, and a forward price-to-earnings ratio of 17.8.  The company is likely trading around fair value at this time given its strength and longevity.  V.F. Corporation has a slightly above average dividend yield of 2.3% at current prices.

The company has managed to compound its earnings-per-share at 11% a year over the last decade.  I expect the company to continue growing earnings-per-share at more than 10% a year going forward.

The company’s growth will come from a greater focus on its core brands.  V.F. Corporation recently agreed to sell its ‘Contemporary Brands’ business for $120 million.  The Contemporary Brands include Ella Moss, 7 for All Mankind, and Splendid.  The company is also seeking to sell its licensed sports group.

The planned divestitures help to focus V.F. Corporation on its core business.  This will likely help the company to continue growing at a double-digit clip.

#8:  Pentair

Pentair (PNR) is an Ireland based industrial equipment manufacturer.  Pentair was founded in 1966 and has a market cap of nearly $12 billion.  The company has paid increasing dividends for 39 consecutive years.

The company moved its domicile to Ireland in 2012 when it merged with Tyco Flow Control Solutions.  The merger allows Pentair to take advantage of the lower Irish corporate tax rate.

Pentair seeks to provide solutions and systems for food water and energy across the globe.  The image below gives an overview of the company:

Dividend Aristocrats, Dividend Investing

Source:  Pentair Electrical Products Group Presentation

Pentair’s competitive advantage comes from a mix of its diversification among business units, lower corporate tax rate, ability to redeploy capital from lower margin to higher margin businesses, and its ‘integrated management system’ – which focuses on efficiency gains.

Most companies talk about becoming more efficient, but Pentair has actually done it.  The company has increased its profit margins by a compound rate of 3.5% a year over the last decade.  This growth has caused earnings-per-share compound at 8.0% a year over the last decade, while sales have grown at just 3.0% a year over the same time period.

Pentair offers investors a dividend yield of 2.1%, which is about in line with the market average.  The company has maintained a conservative payout ratio of around 33% over the last several years.  This gives the company plenty of room to continue increasing dividends going forward.

Pentair currently trades for an adjusted price-to-earnings ratio of 16.7.  The company’s price-to-earnings ratio is significantly lower than the S&P 500’s current price-to-earnings ratio of around 25.  Pentair appears to be undervalued at this time relative to the S&P 500.

#7:  Walgreens Boots Alliance

Walgreens Boots Alliance (WBA) was founded in 1901 in Chicago, Illinois.  The company has paid increasing dividends for 40 consecutive years.

Today, Walgreens has a market cap of nearly $90 billion.  The company competes heavily with CVS Health (CVS) in the United States.  CVS

1, 23  - View Full Page