Last week, I shared the 2017 list of dividend aristocrats. The most common question I received focused on which companies are attractively valued today, according to my criteria.

The criteria I use have been well publicized over the past decade. They are simple, but effective tools to help me identify companies to include for my diversified dividend portfolio. Obviously, since we are looking only at the list of dividend aristocrats, we are starting out with a group of companies which are already pre-screened for quality. After all, only a company with a strong business model can afford to raise dividends like clockwork for 25 years in a row, or longer. I love companies which can afford to raise dividends like clockwork. Warren Buffett also loves companies that raise dividends like clockwork. Some of Berkshire’s largest positions such as Coca-Cola, American Express, Geico, IBM, Wells Fargo are examples of high quality dividend growth stars which have compounded nicely for decades.

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The first criteria is to focus on companies whose P/E ratio is below 20. I focus on this rule, in order to avoid overpaying for companies. As we all know, earnings per share can be lumpy in the near term, and distorted by one-time events. While they are not perfect, I use forward earnings as a shortcut to quickly estimate earnings power without doing too much digging in the initial stage.

Dividend Aristocrats
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The second criteria is to avoid companies which have a dividend payout ratio above 60%. I want to focus on companies that can easily cover their dividend. I take the concept of margin of safety very seriously.

The third criteria I look at is growth in dividends per share. In retirement, we are looking for an income stream that will at least maintain its purchasing power from the destructive forces of inflation. In this case, I focused my attention on companies where annual dividend payments grew faster than 3%/year over the past decade.

Last, but not least, I also evaluate the trends in revenues and earnings per share over the past decade. As we are all well aware, without growth in earnings per share, future dividend growth will be hard to come by.

After accounting for all those factors, I came up with the following list of dividend aristocrats for further research.

COMPANY TICKER SECTOR Years of Annual Dividend Increases Forward P/E Dividend Yield Dividend Payout Ratio 10 Year Dividend Growth
Abbott Laboratories ABT Health Care 44 17.8 2.43% 43.29% 13.24%
AbbVie Inc. ABBV Health Care 44 11.8 3.90% 46.02% 10.25%
AFLAC Inc AFL Financials 34 11.5 2.34% 26.89% 11.68%
Becton Dickinson & Co BDX Health Care 45 19.5 1.59% 30.94% 12.16%
Cardinal Health Inc CAH Health Care 29 15.2 2.20% 33.44% 22.70%
General Dynamics GD Industrials 25 19.2 1.79% 34.37% 12.81%
Genuine Parts Co GPC Consumer Discretionary 61 18.9 3.01% 56.83% 6.92%
Grainger W.W. Inc GWW Industrials 45 19.3 2.13% 41.06% 15.84%
Johnson & Johnson JNJ Health Care 54 17.7 2.57% 45.55% 8.03%
Leggett & Platt LEG Consumer Discretionary 45 19.4 2.66% 51.65% 6.86%
Lowe's Cos Inc LOW Consumer Discretionary 54 17.8 1.70% 30.24% 22.92%
Medtronic plc MDT Health Care 39 17.5 2.14% 37.48% 14.66%
PPG Industries Inc PPG Materials 45 17 1.51% 25.71% 5.03%
Stanley Black & Decker SWK Industrials 49 18.7 1.75% 32.74% 6.71%
T Rowe Price Group Inc TROW Financials 31 14.4 3.25% 46.73% 14.45%
VF Corp VFC Consumer Discretionary 44 17.9 3.07% 54.98% 12.17%
Walgreens Boots Alliance Inc WBA Consumer Staples 41 16.6 1.82% 30.18% 17.83%

This list is not an automatic buy recommendation for you to act upon however. You need to analyze each business, and determine for yourself if it is a good fit for your portfolio. Building a dividend portfolio takes time and patience. First of all, we are assuming that the investor regularly saves money to invest for their future. In addition, the number and variety of quality companies available for sale varies from month to month. Furthermore, some of the companies may not be good additions for a portfolio which is overweight in them.

As a future retiree, I am looking for dependable dividend income which can grow above the rate of inflation. I plan on living off dividends in retirement. I am fine if I underperform all benchmarks out there, as long as my organic dividend income grows above the rate of inflation over time.

If an investor had decided to purchase more than one dividend stock at once, they could potentially use a low-cost broker like Motif Investing. Motif Investing would allow an investor to purchase up to 30 individual securities for a low price of $9.95/trade. This keeps costs low for anyone who invests $1,000 - $2,000 per transaction.

Full Disclosure: I have a position in ABT, ABBV, AFL, BDX, GD, GPC, GWW, JNJ, LOW, MDT, TROW, VFC, WBA, IBM, KO, WFC, BRK/B