We'll also touch on the best ways to gain exposure to the companies in the index.
Overview of Dividend Aristocrats
Who are the Dividend Aristocrats?
The current list of Dividend Aristocrats is a group of blue-chip S&P 500 companies with a documented history of increasing dividends for at least 25 consecutive years. Membership to this club is exclusive, but a company can find inclusion on the Dividend Aristocrats by meeting the following requirements:
- Their stock must be listed on the S&P 500
- They must have at least 25 consecutive years of dividend increases
- They must meet certain market cap and liquidity requirements. Currently, a company must have a float-adjusted market cap of at least $3 billion (meaning these are large-cap companies). Regarding liquidity, a dividend aristocrat should have an average trading volume of at least $5 million.
Why invest in Dividend Aristocrats?
Investing in dividend stocks is not a flashy way to wealth. You won't achieve the market-beating gains that might come from a small-cap technology stock. However, you also won't be exposed to the stomach-churning losses that can haunt investors who chase large returns.
That doesn't mean you have to sacrifice growth altogether. The Dividend Aristocrats list is a group of dividend stocks that not only consistently deliver growing dividends but also deliver performance that regularly outpaces the S&P 500 index.
Investing in dividend stock aristocrats is one of the most efficient ways for investors of all risk tolerances to build wealth over time. These companies demonstrate a commitment to building shareholder value by prioritizing raising the payout on their dividend.
Reliable dividends
By investing in dividend stocks, you receive income regularly, no matter what's happening with the company's stock price. But of course, this is only a benefit if a company continues to offer its dividend.
Steady growth
Companies on the Dividend Aristocrat stock list have demonstrated not only a consistent record of dividend growth but a tendency to outperform the S&P 500 index.
Can increase total return
When you look at the performance of dividend aristocrats over time, they consistently outperform other stocks. So, by investing in these companies, you can benefit from steady dividends and price appreciation. The income you generate by dividends mitigates some of the risk associated with market volatility, while capital appreciation helps build your wealth over time.
9 Best Dividend Aristocrats to buy now
Currently, Dividend Aristocrat companies offer some of the best opportunities for income and growth. Given their proven track record of consistently increasing dividends, they are the most likely companies with a business model that can stabilize any economy. Their long-term commitment to shareholders, coupled with solid financial performance, makes them a prime option if you're seeking stability in an uncertain economy. Here are nine of the top list Dividend Aristocrats to invest in today:
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Name
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Ticker
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Market cap
|
Industry description
|
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Colgate-Palmolive Company
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NYSE: CL
|
$63.57 billion
|
Consumer staples
|
|
The Coca-Cola Company
|
NYSE: KO
|
$264.52 billion
|
Food and beverage
|
|
Exxon Mobil Co.
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NYSE: XOM
|
$447.68 billion
|
Oil and natural gas
|
|
Johnson & Johnson
|
NYSE: JNJ
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$451.83 billion
|
Healthcare products
|
|
McDonald’s Co.
|
NYSE: MCD
|
$210.33 billion
|
Food and beverage
|
|
3M Inc.
|
NYSE: MMM
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$57.71 billion
|
Technology
|
|
International Business Machines Corp.
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NYSE: IBM
|
$130.38 billion
|
Technology
|
|
Caterpillar Inc.
|
NYSE: CAT
|
$145.49 billion
|
Manufacturing
|
|
Medtronic PLC
|
NYSE: MDT
|
$111.02 billion
|
Technology
|
Colgate-Palmolive Company
Colgate-Palmolive Company (NYSE: CL) is a consumer goods company that's been a Dividend Aristocrat since 1963. The company is a familiar brand in store aisles: it's known for toothpaste and toothbrushes and personal care products like body wash and deodorant. Colgate-Palmolive has a strong presence in emerging markets, contributing to its consistent revenue growth.
The company's commitment to Colgate-Palmolive dividends is evident in its payout ratio, which has consistently remained below 60% of earnings. This leaves plenty of room for future dividend increases and reinvestment in the business.
The Coca-Cola Company
The Coca-Cola Company (NYSE: KO) is another ubiquitous consumer goods company in the Dividend Aristocrat index. The beverage giant has increased its dividend for 62 consecutive years and currently yields around 3.02%. While the company faced some challenges during the pandemic due to reduced demand for its products, it has adapted by expanding into new categories, such as energy drinks and coffee.
Coca-Cola financials have a strong balance sheet and are poised for long-term growth. Still, it faces risks from changing consumer tastes and increased competition, so analysts rate Coca-Cola stock a moderate buy with a target price of $68.33 per share.
Exxon Mobil Company
Exxon Mobil Co. (NYSE: XOM) is one of the largest oil and gas companies in the world, operating in more than 30 countries. It has paid dividends since 1882, has consistently raised its dividend for 40 consecutive years and is now one of the Dow Jones Industrial Average components. The company currently offers a dividend yield of 3.25%.
As oil prices fluctuate, the company adapts to changing times by investing in renewable energy. Despite these efforts, some analysts remain cautious about the outlook for XOM analyst ratings, rating the stock as a hold with a target price of $124.32 per share.
Johnson & Johnson
Johnson & Johnson (NYSE: JNJ) has been a reliable dividend payer for over 50 years. It's known for its diverse portfolio of consumer health and pharmaceutical products and medical devices. Its current dividend yield is around 2.74%, and it's consistently increased its dividend for more than five decades.
While JNJ faced some legal challenges recently, its strong financial position and ongoing research and development efforts make it a solid investment option. JNJ analyst ratings are a "hold" with a target price of $171.80 per share, citing growth potential in its pharmaceutical and medical device segments.
McDonald's Co.
Thanks to the growth of McDonald's Co. (NYSE: MCD), the global fast-food chain's dividends have been paying out since 1976. The "golden arches" currently offer a dividend yield of around 2.18%.
While the pandemic impacted the company's operations, McDonald's has adapted by increasing its delivery and drive-thru capabilities. The chain has also continued to invest in technology and menu innovation to stay ahead of its competitors. Analysts rate MCD stock as a moderate buy with a target price of $320.55 per share, with potential headwinds from rising labor costs and competition in the fast-food industry.
3M Company
3M Company (NYSE: MMM) is a diversified tech company spanning various industries, from healthcare to transportation. The company has been paying a reliable dividend for over 100 years. Right now, it offers a yield of around 5.74%.
Despite facing some challenges during the pandemic, like many other companies, 3M financials have cut costs and focused on its core businesses. Of note, in 2019, the company acquired wound care company Acelity for $6.7 billion, which has strengthened its healthcare segment. Consensus analysts rate MMM stock as "reduce" with a target price of $115.83 per share due to concerns about potential regulatory risks and global economic uncertainty.
International Business Machines Corporation
International Business Machines Corporation (NYSE: IBM) has paid a consistent dividend for over a century. However, it has transformed in recent years, shifting its focus towards cloud computing and artificial intelligence.
While this has caused some bumps, IBM's commitment to innovation and investment in research and development will likely pay off in the long term. Currently, the company offers an IBM dividend yield of around 4.64%. Analysts rate IBM stock as a hold with a target price of $141.75 per share, with concerns about IBM competitors in the cloud computing space and potential regulatory risks. However, IBM's strong brand recognition and presence in enterprise technology still make it a solid option for stability and long-term growth.
Caterpillar Inc.
Caterpillar Inc. (NYSE: CAT), a multinational construction equipment company, has been a reliable dividend payer for over 25 years and currently offers a dividend yield of around 1.82%.
With operations in more than 190 countries, Caterpillar financials have led to a strong global presence in everything from mining to agriculture. While the pandemic has hit the company's sales, the company has reduced costs and improved efficiency. It's also pursuing new technologies like autonomous vehicles to stay ahead of the competition. Analysts rate CAT stock as a hold with a target price of $267 per share, citing challenges in the global construction industry.
Medtronic PLC
Medtronic PLC (NYSE: MDT) is a medical technology company specializing in devices for treating chronic diseases. It paid a consistent dividend for over four decades and currently offers a yield of around 3.31%. It has an incredibly diverse portfolio of products and services, ranging from insulin pumps to heart valves, with its research and development efforts responsible for numerous patient care innovations.
Medtronic has adapted to the changing post-pandemic economy by increasing its virtual offerings and exploring new business models. Analysts rate MDT stock as a hold with a target price of $90.72 per share, with Medtronic competitors and pricing pressures posing concerns.
A noble breed
Dividend Aristocrats are solid companies that have demonstrated the ability to issue increasingly rising dividends for at least 25 years. Membership in this club is exclusive, and while we can remove some companies from the index, it typically takes a major event, such as the financial crisis of 2008 or the long, steady decline of a one-time powerhouse, to move a company off the index.
Most companies are very proud of their aristocratic status and make the ability to add shareholder value through issuing dividends a primary objective of their business.
The best way to find Dividend Aristocrat stocks is to search for stocks included in the S&P 500 Dividend Aristocrat index. You can also use MarketBeat for a list of Dividend Aristocrats by yield, research individual dividend-paying stocks or look for the best Dividend Aristocrats mutual funds or exchange-traded funds (Dividend Aristocrat ETF) that track the performance of the S&P 500 Dividend Aristocrats index. Some brokers offer tools and screeners that allow you to filter through stocks based on dividend payments and other criteria such as market capitalization and sector.
The S&P 500 Dividend Aristocrat index currently includes 66 companies. The dividend yield of these aristocrat dividend stocks varies from 0.19% to 6.36%. The Dividend Aristocrats list by yield represents a broad range of sectors, including consumer staples, energy, financials, industrials, healthcare and materials.
Investing in Dividend Aristocrats can be a good idea for a steady income and long-term growth since these stocks have strong balance sheets and have demonstrated their ability to pay out dividends consistently. They can help you diversify your portfolio and benefit from the stability. However, like any investment, there's always the potential for losses and gains, so do your research and assess your risk tolerance before investing in Dividend Aristocrats.
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