Written by Bob Ciura for Sure Dividend
When it comes to dividend investing, there are plenty of routes an investor can take, depending upon their specific goals. This can include companies with high rates of dividend growth, very safe payouts, ones with very long dividend histories, and of course, stocks that have high current yields. Not all high yields are created equal, however, as some stocks have high yields because the market is anticipating the current payout being cut.
That’s why we prefer starting with extremely high-quality dividend names when looking for high-yield stocks, such as the Dividend Aristocrats. This is a group of just 66 stocks in the S&P 500 that have dividend increase streaks of at least 25 years.
With that sort of longevity, we can be assured the companies’ business models can stand the test of competition, recessions, and technological changes that inevitably occur. Thus, starting with this list of excellent stocks and narrowing it down to the higher-yielding names tends to produce truly great dividend stocks. Below, we’ll take a look at three Dividend Aristocrats we like today for their very high yields.
Leggett & Platt (LEG)
Our first stock is Leggett & Platt, a company that designs and manufactures engineered components and products and sells them globally. The company has three main segments: Bedding Products, Specialized Products, and Furniture, Flooring & Textile Products. Leggett & Platt’s businesses are inherently cyclical, given demand for furniture, bedding, and industrial products wanes during recessionary periods. However, despite this, Leggett & Platt has managed to boost its dividend for a very impressive 50 consecutive years.
The company was founded in 1883, it produces about $5.3 billion in annual revenue, and trades with a market capitalization of $4.9 billion.
The stock earned its place here because in addition to its half-century of boosting the payout, its current dividend yield is 4.6%. That’s more than triple that of the S&P 500, so on a pure income basis, Leggett & Platt is outstanding. In addition, we see the payout ratio for this year at under 60% of earnings, meaning there should be a high level of safety to the payout. One would expect the payout to be safe for a company that has withstood 50 years of recessions and competitive changes.
We also see 5% annual earnings-per-share growth going forward for Leggett & Platt, so we believe it has the capacity to be a robust dividend growth story for years to come, even when the next recession strikes.
3M Company (MMM)
Our next high-yielding Dividend Aristocrat is 3M, a diversified technology and consumer goods company that operates worldwide. 3M has four primary segments: Safety and Industrial, Transportation and Electronic, Health Care, and Consumer. Through these segments 3M serves a huge variety of customers from consumers to large scale industrial companies with tens of thousands of different products that meet an assortment of needs.
3M was founded in 1902, generates about $36 billion in annual revenue, and trades with a market capitalization of $82 billion.
Like Leggett & Platt, 3M has an exemplary history of increasing its dividend. In fact, the company’s streak stands at 64 years currently, putting it in the top handful of names in the entire stock market on this measure. With the payout ratio at just over half of earnings, as well as steady mid-single digit growth forecast for the years ahead, we think 3M’s payout is extremely safe and will continue to rise for many years to come.
In addition, its current yield is 4.1%, which is almost three times that of the broader market. In addition, it is the highest yield 3M has possessed in the past decade, following some weakness in the share price. That weakness is a terrific chance to pick up these shares at a very high dividend yield not only on an absolute basis, but relative to historical yields as well.
Exxon Mobil (XOM)
Our final stock is Exxon Mobil, the venerable energy company that was once part of Standard Oil. The company traces its roots to 1870, and in that time, it has grown to be a global leader in capacity and scale. Exxon has a fully integrated energy and chemicals business that has upstream, downstream, and manufacturing components.
Exxon’s scale is massive, with $365 billion in revenue forecast for this year, as well as a $348 billion market capitalization.
While Exxon Mobil isn’t necessarily among the best-of-the-best in terms of dividend increase streaks, it’s still quite impressive at 39 years. Among oil and gas names – which are notoriously cyclical – Exxon Mobil marks itself aside from the rest. In addition, the current yield is 4%, putting the stock well into high-yield territory.
The payout ratio is also just 50% for this year, meaning the dividend should be safe, even under a sharp recession scenario. Exxon Mobil was able to continue to raise its dividend throughout the Great Recession, and the massive bear market in oil and gas that occurred in the mid-2010s, so we don’t see any reasonable scenario where the big yield would be at risk.
We think growth will be challenging to come by in the near-term for Exxon Mobil simply because this year’s forecasted earnings are set to be the highest in nearly a decade. However, we don’t think this modest outlook detracts from the high-yield story Exxon Mobil offers.
When it comes to picking high-yield stocks to buy, not all are created equal. The Dividend Aristocrats is a group of 66 stocks that have all raised their dividends for at least 25 consecutive years, and given that longevity, it’s a great place to start the search for yield.
We like Leggett & Platt, 3M, and Exxon Mobil as stocks with high yields, but also the longevity and peace of mind that a Dividend Aristocrat offers. There are certainly higher yields available, but these three companies have stood the test of time with their dividends, and all are available with historically high yields today. For maximum wealth compounding over time, buying Dividend Aristocrats at such times has proven successful, and we see that as the case today.