UPDATE: This story was originally published on July 26. The charts have been updated for July 27.
Dividend stocks that reliably increase their payouts year after year have historically outperformed the market over long periods of time.
Even better: Dividend aristocrats are companies in the S&P 500 that have raised their dividends for at least 25 consecutive years.
Throughout their dividend growth streaks, they have faced numerous challenges -- recessions, commodity crashes, wars, and more. However, they had the strength to continue delivering reliable income growth for investors.
Many of these blue-chip dividend stocks operate strong and steady business models and have created substantial shareholder value over time.
The following dividend aristocrats collectively boast an average dividend yield of 3% and have an average dividend growth streak of 46 years.
Several of these dividend stocks are in this Conservative Retirees dividend portfolio as well.
The company was created in the 2014 spin off from Abbott Labs. AbbVie operates as a pure biotech research, development and marketer of treatments for some of the world's rare and complex diseases.
Over $4 billion is invested annually in research into Crohn's and Parkinson's disease, as well as Hepatitis C, HIV, Cyctic Fibrosis and various other autoimmune deficiencies. The fruits of this research spending have been bountiful. AbbVie has 30 new products in various stages of development that will drive future earnings and dividend growth.
Searching for a cure to rare diseases positions companies like AbbVie with the opportunity to create potential blockbuster drugs. Success can drive billions in revenues, profits, stock price gains and dividends.
At the same time, the majority of new drug research is unproductive. AbbVie is pursuing a large number of promising compounds in various stages of Phase 2 and 3 development. This hedges research investment risks and, with such a large number in the pipeline, is a positive qualitative measure.
Product diversification is also evident in the 30+ drug treatments that comprise AbbVie's $23 billion revenue base. With strong earnings growth, operating margins of more than 30%, and free cash flow of $4.28 per share, AbbVie is one of the most dynamic dividend aristocrats.
Rarely do we find an above average growth company with an equally above average dividend yield. The current $2.28 payout offers investors a 3.6% yield. Since the spin off from Abbott Labs, AbbVie's quarterly dividend has increased from 40 cents per share to 57 cents, representing more than 40% growth.
With a dividend payout ratio of 48% of free cash flow, AbbVie's solid dividend growth can be maintained. Based on consensus profit projections, this would allow for 10%-to-20% dividend growth.
Proctor & Gamble is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells PG? Learn more now.
The Procter & Gamble Company is one of the world's most respected marketers of consumer branded products and was previously a holding in Warren Buffett's portfolio of high-yield dividend stocks. The company's dedication to quality and superior performance is legendary.
Brand names like Tide, Pampers, Crest and Gillette can be found in over 180 countries. Business outside the U.S. accounts for more than 60% of revenue. Business segments include Laundry and Household Cleaning (32%), Baby, Feminine and Family Care (29%), Beauty (18%), Grooming (10%), Healthcare (11%).
The consumer-packaged goods business is perhaps the most competitive of all. The market is controlled by a small number of giants that battle for retail shelf space with high-cost advertising and price promotions. The high profit margins and cash flow annually attract many new entrants. Few of these last very long.
P&G is a dividend machine sending out checks in every one of the last 124 years. In each of the last 58 years, there have been increases. This is partially why this dividend aristocrat achieved a Dividend Safety Score of 99, indicating that P&G's dividend is about as safe as they come.
Over the last 10 years, dividends have grown 10.2% annually and 6.8% in the last five. P&G's payout ratio has averaged near 60% in recent years, indicating that there is plenty of financial flexibility remaining.
The annual dividend payout of $2.68 offers investors a 3.1% yield. The next dividend increase is likely at the end of the current June 30 fiscal year and a 4% raise to $2.78 would be in keeping with the projected earnings gain.
AT&T's diverse array of activities are managed in the following four groups: Business Solutions 49%, Entertainment Group 24%, Consumer Mobility 24% and International 3%. The legacy telephone business that defined AT&T for decades is in a long-term decline.
For these reasons, AT&T has made a number of acquisitions to create a more diverse mix of income. The most recent is the 2015 purchase of Direct TV that adds growth assets to the Entertainment Group.
The telecom and entertainment businesses are giants in their respective industries. The cost of entry to this club is enormous. The past three decades has been marked by consolidation of the major industry players. No doubt this will continue as sectors like wireless and entertainment mature.
Security and predictability of dividends are big parts of AT&T's strength. An increase in the payout has occurred in each of the past 32 years. That is why this dividend aristocrat also qualifies as a safe dividend stock. Even during the depths of the 2008-09 financial crisis, AT&T boosted it dividend 2.5%.
The shares offer a current yield of 4.5%. The $1.92 dividend was last increased at year-end 2015, and we would expect another gain this year as well. The prospective dividend is likely to range between $1.96 and $2.00, representing dividend growth of 2%-to-4%.
The combination of a high payout ratio near 70% and the Direct TV acquisition is the reason why dividend growth has averaged 2.3% more recently versus 5.5% annual growth in the previous five years. Growth should pick up a notch with the benefits of Direct TV helping earnings momentum down the road and a healthier balance sheet over time.
Johnson & Johnson is one of Americas largest and most enduring pharmaceutical companies, drawing its origins back more than 130 years. Dividends have been paid for almost 100 years and increased annually for more than 50 years, making Johnson & Johnson a dividend king.
The Company is organized into three business segments: Pharmaceutical (44.9%) Medical Devices (35.9%) and Consumer (19.2%). A short list of the dozens of everyday brand names includes: Listerine, Band-Aid, Tylenol, Johnson's baby products and Neutrogena. The Pharmaceutical Segment consists of 16 top selling prescription products. Only one of these, Remicade used in the treatment of arthritis, represents as much 9% of volume. The Medical Device business is highly diversified with leading positions in Orthopedics, Surgery, Vision Care, Cardiovascular and Diabetes Care.
The Food And Drug Administration in the U.S. and similar bodies in most countries regulate the healthcare industry. Gaining FDA approval for new products is both time- and capital-intensive. Through consolidation, the traditional oligopolistic competition is giving way to fewer giant players.
The last increase in the quarterly dividend was declared in April. The new annual rate is $3.20 per share, providing a current yield of 2.6%.
Dividend growth has been an above average 8.8% over the past 10 years and 6.9% over the past five years.
Johnson & Johnson is a favorite stock for investors living off dividends in retirement for its safety and growing payout. Here is why. Johnson & Johnson pays out just 55% of earnings. The company is highly profitable (25% operating margins) generates huge amounts of free cash flow ($19 billion), and has approximately $40 billion in cash on hand. A payout ratio of as much as 75% would not harm the company's ability to achieve the 6.5% earnings growth anticipated in coming years.
Starting from its 1902 founding as a full priced department store in Minneapolis, Target has always found a way to successfully adapt to changes in consumer tastes and retail shopping habits.
It operates 1,792 stores in the United States, each offering a full selection of apparel for the family, household goods, personal care items, electronics and furniture. Recently, CVS Pharmacies have been popping up at select Target stores.
Target has grown to become the nations second largest retailer behind the much larger Wal-Mart. Annual revenue growth has slowed to just under 2%, but strong operational and financial management have produced five year growth of 5.8% in EPS and nearly 10% in free cash flow per share. This is a very good measure of Target's ability to grow both its business and dividends at the same time.
Traditional bricks and mortar retailing has found itself with a powerful low cost competitor. Internet rivals like Amazon, eBay and others are disrupting the retail status quo. Target has adapted to these forces far better than most retailers by having products that meet consumer preferences at attractive prices and then making them readily available through its Target.com website.
Target has increased its dividend for 49 consecutive years. Target is one of the few companies whose dividend growth rate has accelerated over time: 14.3% over the past 20 years, 19.6% over 10 and 20.8% annual dividend growth over the past five.
The quarterly dividend will increase shortly to 60 cents per share, providing investors with a 3.1% annual yield. And with free cash flow of $7 per share and a payout ratio just 40% of earnings; Target has the capacity to continue these high rates of dividend growth.
With a rock solid list of over 10,000 products, Abbott Labs is the picture of a diversified global leader in pharmaceuticals and related healthcare products. And with a balance sheet of equal strength that holds $4 billion in cash, roughly $40 billion in assets, and only $8.6 billion in total debt, Abbott is well qualified to be a reliable dividend aristocrat.
The business is managed in four segments: Nutrition (34%), Medical Devices (25%), Diagnostic Products (23%) and Pharmaceuticals (19%). Doctors, Hospitals and Health Institutions are Abbott's prime customers. Consumers are in tune with nutritional brand names like Similac, Isomil, Ensure, PediaSure and ProSure.
Abbott is perhaps better know outside the U.S. where nearly 70% of it customers can be found located in over 150 countries. Abbott is constantly seeking emerging markets to sell in.
To keep a new product pipeline flowing, $1.4 billion is invested in research and development. Management seeks balanced growth so you won't find the company investing in the next blockbuster drug. But that is just fine for dividend aristocrat investors.
The current dividend of $1.04 offers a 2.4% yield to investors. Abbott's Dividend Safety Score is 94, meaning the dividend is extremely safe. The company is paying out 63% of earnings in dividends. In the past five years the Free Cash Flow Ratio has been around the 50% mark. This means that Abbott has the ability to grow it business and dividends at the same time.
The company's pending acquisition of St. Jude Medical will add some temporary strain to the balance sheet, but this deal will expand the company's opportunities for growth and comes at a reasonable price.
Emerson is a leading global engineering and technology company serving, industrial, commercial and consumer markets through five business units: Process Management, Industrial Automation, Network Power, Climate Technologies and Commercial/Residential. Change has been the cornerstone to Emerson since its founding in 1890 manufacturing electric motors used in the industrial revolution.
The company described above is embarking on further change. In 2015 its InterMetro business was sold. The entire network power systems business was targeted for a spin off to shareholders with completion expected in the third quarter of this year.
After completing these actions Emerson sales will approximate $15 billion compared with $25 billion at their peak. The company is also exploring other streamlining moves to position the 126-year-old company for growth.
Major corporate restructurings commonly reflect very low returns and weak balance sheets metrics. With Emerson, this is definitely not the case as its most important financial ratios look good. Operating margins of 14.3% compare favorably. The balance sheet shows $3.3 billion in cash and $1.8 billion in free cash flow against only $7.3 billion in book debt.
Emerson has a Dividend Safety Score of 81, suggesting that the company's dividend is very safe and more secure than most other companies' dividends. Indeed this is a solid dividend payer with 59 consecutive years of dividend growth, making Emerson a member of the dividend kings list.
Dividend growth has also been consistent as by the 10 year 8.3% and five year 7% pace of annual dividend increases.
The current payout ratios of 65% of EPS and 56% of Free Cash Flow are not excessive for a company undertaking restructuring. The current $1.90 payout offers investors a 3.4% yield with above average safety.
What is the value in a name? For VF Corp, brand names mean a lot. Perhaps, brand names mean everything to the 115-year-old global apparel company that is loaded with some of the best.
Starting with brands like The North Face, Wrangler, Vans, Timberland, Lee, Jansport and Nautica and you get the idea pretty quickly. VF is a big-name brand play.
Over the years the company has collected them one at a time, found low cost foreign production and gradually turned VF Corp into a brand-marketing colossus. In doing so, VF has become one of largest apparel companies anywhere. The best part may be the share of wallet they have with younger consumers.
The company has opened about 1,400 retail stores in recent years but most (75%) is sold at wholesale to department, specialty including online stores and mass merchants. Geographically, North America buys about 70% of VF's brands, Europe 20% and Asia the remaining 10%.
To note that the fashion apparel business is both highly competitive and marked by ever changing consumer tastes is an understatement. VF's strong and enduring brands focus more on appealing to the young consumer with products such as Wrangler and Lee brands where fashion is stable from season to season. The advantage of low cost foreign sourced labor, of course, further helps mitigate risk of loss from markdowns.
Dividends have been increased for 43 consecutive years. The current $1.48 payout offers a 2.4% yield. This yield may not be the highest, but VF Corp has been speedy in raising the total.
Over the past five and 10 years, dividend growth has average 17%. These two qualities are what make VF Corp a bona fide dividend aristocrat. The company's dividend is extremely safe thanks to VF Corp's excellent free cash flow generation, strong profitability, and healthy balance sheet.
With EPS and Free Cash Flow Pay Ratios averaging about 35%, there is ample room to grow the business and the dividend simultaneously.
Walgreens Boots Alliance is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells WBA? Learn more now.
Walgreens Boots Alliance is the world's first global wholesaler and retailer of pharmacy and related healthcare products and services.
The company was created through the year end 2014 merger between the U.S.-based Walgreens and British Alliance. The new company owned 13,000 retail stores in 11 countries and controlled more than 350 distribution centers dispensing over 200,000 pharmaceuticals in 19 countries. The combined company immediately became one of the world's largest purchasers of prescription drugs.
Retail brands include Walgreens, Duane Reade, Rite Aid, Boots and Alliance Healthcare. Within this retail empire, the company offers in-store health clinic services to customers and a number of different merchandise products.
About 70% of retail outlets are located in North America, while the remainder are mostly in the UK and Europe. The combined company reports $103 billion in sales and $4.2 billion in net income.
The formation of Walgreen Boots Alliance mirrors many changes in the economics of healthcare. The global retail pharmacy and pharmaceutical wholesale industries are highly competitive and have been experiencing consolidation in recent years.
Combining both wholesale and retail operations offer advantages of lower costs and attractive volume buying discounts. Prices for pharmaceuticals vary widely on a global basis making a global footprint beneficial.
On thing remains constant in the healthcare equation. Demand continues to grow at rates that outstrip both population and income growth as the America and European population ages.
For 40 years, dividends have been paid with consecutive increases. The company's Dividend Safety Score of 99 indicates extreme safety. The payout ratio is a conservative 50% of EPS and only 27% of Free Cash Flow. The growth of dividends over the past 10 years has been 19.3% and 17.3% over the past five.
The current payout of $1.50 indicates a modest 1.8% yield. However, what makes WBA an attractive dividend aristocrat is its rapid growth and with $2.5 billion in operating cash flow, a low payout ratio and projected 14.5% projected growth of EPS, historic trends in dividend growth can continue.
Archer Daniels is one of the world's largest agricultural processors and food ingredient providers serving customers in more than 160 countries.
From its founding in 1902, the company spawned a global complex of 428 locations to purchase crops, 280 processing facilities, supported by a truly global transportation network. The business fits into four classifications: Oilseed Processing (39%), Corn Processing (14%), Agriculture Services (46%) and Other (1%).
To enhance it competitive position, the company continuously invests in its hard-to-replicate logistical network and relies on research to develop improvements in its products and services. For this purpose, the company has 39 "innovation centers" in various parts of the world.
Rising commodity prices and growing world nutritional demands benefit Archer Daniels. The demand for synthetic fuels employing corn or similar commodities also factor into overall results. In recent years commodity prices have been soft including the more than 70% drop in crude oil prices from their peak.
Archer Daniels has managed total costs effectively. Over the last five years operating margins have slightly increased from 2.3% to 3.0% last year. This is unusually good performance considering industry pricing conditions.
ADM is deserving of dividend investors' recognition based on its high 97 rank for Dividend Safety, indicating an extremely safe payout. The company's history shows a regular quarterly dividend has been paid, starting in 1931.
Consistency has been a hallmark of dividend policy. Over the past 20, 10 and five years, dividends have grown at approximately 13% per year. The payout ratio has been a healthy 37% of EPS in three of the past four years.
Prices for commodities rise and fall, but the opportunity for dividend investors to see increases in the future is positive.
There is $6.5 billion in Archer Daniels bank account (more than its total debt balance), and the company generated over $1 billion in free cash flow last fiscal year. Without a compelling or costly investment, dividend aristocrat investors are likely to benefit.
This article is commentary by an independent contributor. At the time of publication, the author was long EMR, ABT, JNJ, and PG.