Stock prices rise and fall, but many companies can still raise their dividends every year. The ability to grow dividends over long periods of time separates the best companies from the weakest.
The Dividend Aristocrats are those companies in the S&P 500 Index that have raised their dividends for at least 25 consecutive years.
The market-wide selloff has brought stocks of all stripes lower, but we believe that this presents an excellent opportunity to pick up shares of high-quality companies that now have much higher total return potential.
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Three of our favorite Dividend Aristocrats for total returns right now include:
- Lowe’s Companies Inc. (NYSE:LOW)
- Stanley Black & Decker Inc. (NYSE:SWK)
- Rowe Price Group Inc. (NASDAQ:TROW)
Lowe's
First up is Lowe’s, a leading home improvement retailer. The company’s’ nearly $90 billion of annual sales is second only to The Home Depot (NYSE:HD) in the home improvement industry.
Lowe’s operates close to 2,200 stores, mostly in the U.S. The company does have operations in Canada and Mexico has well.
Lowe’s has benefited from limited housing supply, which has resulted in a drastic increase in selling prices in most parts of the country. Customers are spending heavily to update their homes to maximize their potential profit or to better enjoy their current home. This has led to strong same-store sales growth over the past few years as the company enjoyed a two-year stacked growth rate of 35%.
The first-quarter did see a slight weakening of results as U.S. comparable sales fell 3.8%. A 9.3% increase in ticket size wasn’t enough to offset a 13.1% decline in total transactions. Tickets totaling at least $500 remained strong, but smaller tickets fell.
Even with this first-quarter performance, Lowe’s expects same-store sales to range from down 1% to up 1% for fiscal 2022. Producing positive comparable sales growth would be a testament to the demand for the company’s products following the high rates of growth seen over the past two years.
Lowe’s reaffirmed its earnings-per-share guidance of a range of $13.10 to $13.60 for fiscal year 2022, which would be an 11% improvement from the prior year at the midpoint of guidance. We believe that Lowe’s can grow earnings-per-share by 6% annually over the next five years, which takes into account strength of the business as well as the high starting base for earnings-per-share.
Lowe’s has raised its dividend for the past 60 years, including a 31% increase for the August 3rd payment. The company also qualifies the company as a Dividend King due to it smore than five decades of dividend growth. Shares yield 2.3%.
Shares of Lowe’s are currently trading at 13.6 times the midpoint of company guidance for the year. We have a five-year target valuation of 19.5, implying a meaningful tailwind from multiple expansion. Reaching our target multiple by 2027 would add 7.5% to annual returns over this period.
In total, we project that Lowe’s will return 15.6% annually over the next five years, stemming from a 6% growth rate, a 2.3% starting yield, and a high single-digit contribution from multiple expansion.
Stanley Black & Decker
Our next Dividend Aristocrat pick is Stanley Black & Decker, a global leader in power tools, hand tools, and related items.
Stanley Black & Decker is the world leader in tools and storage. The company has attained this leadership position due the high-quality nature of its products. The portfolio has a reputation of being the best in the industry, which, combined with a size and scale that most peers can’t match, has it well positioned going into the future.
The company has not been shy about using acquisitions to bolster its portfolio. Stanley Black & Decker came to be following the 2010 merger between Stanley Works and Black & Decker. More recently, the company added the Craftsman brand in 2017 and outdoor power equipment manufacturer MTD Products in 2021.
Inflationary pressures have impacted the company, though Stanley Black & Decker has managed to partially offset these additional costs with price increases, but volume gains have been inconsistent. For example, the most recent quarter saw sales growth 20%, but organic growth was down 1% as volume declines more than offset a 5% increase in realized prices.
Adjusted earnings-per-share have been where the company has really seen the most impact from higher input costs. For example, adjusted earnings-per-share of $2.10 compared unfavorably to $3.13 in the prior year. Stanley Black & Decker also took down its guidance for the year, with the company now expecting adjusted earnings-per-share of $9.50 to $10.50 for 2022 compared to $12.00 to $12.50 previously.
We believe that the positive tailwinds for Stanley Black & Decker remain very much in place and that eventually inflationary costs will subside. We project that the company will see earnings growth of 8% per year for the next half-decade, which is slightly below the long-term growth rate of 10%.
Stanley Black & Decker has a lengthy dividend growth streak of its own at 54 consecutive years. The company increased its dividend by almost 13% for the payment made last September, which was the largest raise in nearly a decade. Stanley Black & Decker yields 3%.
Shares trade at 10.6 times expected earnings-per-share for 2022. We believe the long-term average price-to-earnings ratio of 16.5 is a fair starting point for the company, which could lead to a 9.3% annual contribution from multiple expansion to total returns through 2027.
Altogether, we believe that Stanley Black & Decker will return 19.9% per year for the next five years, due to an 8% earnings growth rate, a 3.0% starting yield, and a high single-digit addition from multiple expansion.
T. Rowe Price Group
Our final Dividend Aristocrat pick to consider is T. Rowe Price, a leading financial services company.
With nearly $1.6 trillion of assets under management, T. Rowe Price is one of the largest publicly traded assets managers in the world. This reflects the broad appeal and trust that the company has among investors. The company provides a variety of financial services including mutual funds, advisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries.
T. Rowe Price’s AUM have a 10-year compound annual growth rate of 12%. This is an impressive growth rate given the amount of assets that the company manages. Some of this growth has been due to gains in market values, but the company’s past performance also works to attract new clients, furthering T. Rowe Price’s size and scale.
The company experienced a mixed first-quarter as revenue grew 1.6% to $1.9 billion, but adjusted earnings-per-share of $2.62 was lower than the prior year’s performance of $3.01. Part of this was due to a nearly 6% increase in operating expenses. The majority of the weakness was attributed to outflows that reduced AUM by $18.1 billion.
The good news was that T. Rowe Price continues to attract investment dollars. Inflows for multi-asset, fixed income, and alternative products were $6.7 billion, $5.3 billion, and $800 million, respectively, for the quarter.
Market volatility will likely remain as risk assets continue to sell off due to a host of worries, including Fed rate tightening, inflation, and the ongoing war in Ukraine, but T. Rowe Price is a leader in its industry and likely a long-term winner due to the strength of its business. We believe a 3% earnings growth rate is achievable.
Following a 11.1% increase in the quarterly dividends earlier this year, T. Rowe Price has raised its dividend for 36 consecutive years. The stock yields 4.4%.
T. Rowe Price is trading at 9.3 times our expected adjusted earnings-per-share of $11.59 for the year. With a 2027 target price-to-earnings ratio of 14, valuation could be an 8.5% tailwind to total returns for the period.
Therefore, T. Rowe Price is forecast to return 14.8% annually through 2027. This projection stems from a 3% earnings growth rate, a 4.4% starting yield, and a high single-digit tailwind from multiple expansion.
Final Thoughts
Market-wide selloffs often lead to even the strongest companies selling off. For the opportunistic investor, this can lead to high-quality stocks trading at bargain prices.
Lowe’s, Stanley Black & Decker, and T. Rowe Price are three companies that are among the best in their respective industries. All three companies have a dividend growth streak that is measured in decades, proof of a strong business model.
Lowe’s, Stanley Black & Decker, and T. Rowe Price offer the potential for at least mid-double-digit total returns over the next five years, earning each a buy rating from Sure Dividend as a result.
Written by Nate Parsh for Sure Dividend
