Dividend Aristocrats are companies that have increased their dividends at least once per year, every year, for no fewer than 25 straight years. That kind of dividend growth demonstrates two things: stable cash flow and a commitment to rewarding shareholders. Better yet, most Dividend Aristocrats offer generous yields, typically in the 3% to 4% range—much higher than the 2% yield you’d receive from the “average” dividend stock.
When you invest in a Dividend Aristocrat, you not only count on receiving a quarterly dividend payment, but you can also rely on those payouts increasing every year.
Dividend Aristocrats aren’t a super-exclusive group. After all, roughly a quarter of the 425 dividend payers in the S&P 500 qualify as Dividend Aristocrats.
Most Dividend Aristocrats you already know. They are blue-chip companies known for being reliable and shareholder friendly. Those include:
- McDonald’s (MCD): 39 straight years of dividend growth
- Johnson & Johnson (JNJ): 53 years of dividend growth
- Coca-Cola (KO): 53 years of dividend growth
- Wal-Mart (WMT): 41 years of dividend growth
- Exxon Mobil (XOM): 33 years of dividend growth
Here’s the rub, though: many Dividend Aristocrats offer reliable dividend growth, but not consistent share-price growth. What you want is reliable dividend growth AND market-beating returns.
Lately, a number of Dividend Aristocrats have behaved more like growth stocks than safe-yet-boring dividend stalwarts. The average Dividend Aristocrat has risen 8.4% this year, more than twice the year-to-date return in the S&P 500.
Why is it happening? For one, the low-interest-rate environment continues to drive income investors to dividend stocks, and it makes sense that they would gravitate toward the best, most reliable dividend growers. Another factor could be the recent bounce-back in the market: companies with the most cash to shell out—either via dividend payments or stock buybacks—typically thrive when times are good.
Whatever the reason, Dividend Aristocrats are a good place to invest right now—and not just for the dividends. With that in mind, here are three in particular that have stood out of late:
AT&T (T)
Consecutive years of dividend growth: 31
Current yield: 4.9%
2016 share price appreciation: 15.7%
After years of stagnating growth, AT&T’s sales rebounded in a big way last year, improving nearly 11%, the telecommunication giant’s highest year-over-year growth since 2007. Earnings per share growth was far better at 91%, a sharp turnaround from the 64% loss the company suffered in 2014.
The reason? DirecTV. AT&T bought out the satellite television giant for a whopping $49 billion last July, and it has changed the company’s fortunes since: quarterly sales growth has jumped from an average of 1% to 3% prior to the deal to 18% to 24% in the three quarters since.
Technically speaking, the stock looks good too.
After its double bottom in the 31 to 32 range last fall, T broke above 35 resistance in February and kept on rising all the way to 39 by the end of March. Two and a half months of consolidation has followed, but T is showing signs of breaking out of that base. If it tops 40, another extended rally could be in order.
Cincinnati Financial (CINF)
Consecutive years of dividend growth: 55
Current yield: 2.8%
2016 share price appreciation: 18.1%
Chances are you haven’t heard of this company, and with good reason. On the surface, there’s nothing exciting about a Cincinnati-based property and casualty insurance company with an $11.5 billion market cap.
But 55 straight years of dividend hikes is pretty exciting. So is 20% earnings growth in 2015. The latter is the reason why CINF, which hadn’t budged much from mid-2013 to mid-2015, has really gotten going of late. Not only is the stock up 18% year to date, it’s also up 36% over the last 12 months. Now it’s knocking on the door of 70 for the first time in its history.
On the heels of a strong run up from 64 in late April, it makes sense to wait for the dips if you’re intrigued enough to buy CINF. But the fact that it hasn’t dipped below its 50-day moving average in four months feels pretty reassuring. So is the 2.8% yield.
McCormick & Company (MKC)
Consecutive years of dividend growth: 29
Current yield: 1.8%
2016 share price appreciation: 15.4%
For months, this maker of spices, herbs and flavorings flirted with acquiring Premier Foods, a food company based in the U.K. It didn’t end up happening, and McCormick ended up settling for a much smaller purchase when it bought the Australia-based Botanical Food Company for $114 million in April.
McCormick’s decision to back off its Premier Foods bid was a bit of a letdown for investors, but not enough to erase much of the momentum the stock had built during those months of “will they or won’t they” speculation. A strong first quarter (32.7% EPS growth) certainly helped matters.
Looking at the stock, the bulk of MKC’s 2016 gains came in January, February and March, when the stock jumped from 79 to 100. Some expected consolidation followed, and MKC came tumbling down to 91 in late April. It’s been slowly gaining steam ever since, topping its 50-day moving average in mid-May and now knocking on the door of 100 resistance.
Like many Dividend Aristocrats these days, MKC looks like a solid momentum stock. Who knows how long the run will last. In the meantime, the hefty yield is a nice cushion against any sudden downturns—something the best dividend-paying stocks are typically less susceptible to than the average growth stock.
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