7 Dividend Aristocrats That Are Built to Last

Stocks to buy

The most of the dividend aristocrats, or stocks that have increased their dividends annually for at least 25 consecutive years, are some of the highest-quality dividend stocks out there. However, the key word here is “most.”

Among the 66 stocks holding dividend aristocrat status, there are quite a few names that, while established enough to keep raising their payouts for at least a quarter century, have worsening fundamentals and/or bleak/uncertain prospects.

Interestingly enough, many of these less appealing aristocrats have some of the highest forward yields of the group. For instance, 3M (NYSE:MMM), which has a forward dividend yield of 6.67%.

Yet while 3M may sport a high-yield, this is far outweighed by the risk of a continued long-term slide in price, because of factors like weak growth and legal liabilities.

In contrast, the more durable and dependable dividend aristocrats have relatively lower yields, yet at the same have a greater chance of not only maintaining aristocratic status, but have a stronger potential to benefit from long-term price appreciation.

These seven dividend stocks are prime examples of what I’m talking about.

Illinois Tool Works (ITW)

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With 27 years of consecutive dividend growth, Illinois Tool Works (NYSE:ITW) meets the criteria of being a dividend aristocrat.

Shares in this industrial conglomerate have a forward dividend yield of 2.4%. That may seem like a paltry payout at a time of 5.5% federal interest rates, but keep in mind the stock’s dividend growth rate.

Regarding ITW stock and dividend growth, the company has increased this payout by an average of 9.8% annually over the past five years. Even if payouts going forward increase by a smaller amount (like, say, mid single-digits, in line with future earnings forecasts), this could still produce steady returns for investors.

Speaking of earnings growth, as I’ve argued previously, shares will likely continue to trend upward, in tandem with increased earnings, resulting in steady price appreciation as well. Put it all together, and ITW stands to produce solid long-term total returns.

Johnson & Johnson (JNJ)

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Johnson & Johnson (NYSE:JNJ) is one of the best-known dividend aristocrats out there.

Shares in the healthcare giant not only meet the definition of dividend aristocrat; with JNJ’s payouts rising 60 years in a row, it’s considered a “dividend king” (more than 50 years of dividend growth).

Today, JNJ stock has a forward dividend yield of 3.02%. Payouts have increased at a moderate pace over the past five years, increasing by an average of 5.92% annually. Shares have underperformed lately, but the stock has a strong chance of getting out of this near-term slump.

Why? With the company’s recent split off of Kenvue (NYSE:KVUE) now out of the way, focus is shifting back to the operating performance of what remains of JNJ. Recently reporting solid results and guidance, the stock could get back on track, enabling investors to benefit from modest price appreciation, alongside a consistently-growing dividend.

Lowe’s (LOW)

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Lowe’s (NYSE:LOW) is another “king” among the dividend stocks. The home improvement retailer has increased its payout for about as long as JNJ.

With a 2.22% forward yield, LOW may rank on the low end of aristocrats/kings in terms of yield.

Still, as I pointed out in August, LOW stock has been increasing its payout at a very fast pace. Increases have on average been around 20% annually over the past five years.

That’s not to say Lowe’s will keep raising its payout at a similarly-sized pace, but as the economy normalizes/headwinds clear up, the company is expected to get back into growth mode with earnings.

This suggests room to continue increasing the payout by at least a high single-digit figure. Earnings growth (fueled in large part by Lowes’ aggressive share repurchase efforts) will undoubtedly put upward pressure on the stock over a long time frame.

Realty Income (O)

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Rising interest rates have hit real estate investment trusts (or REITs) like Realty Income (NYSE:O) especially hard. Yet even as interest rates sit at levels not seen since the 2000s, now may be the perfect time to enter a position in  the REIT that calls itself “the monthly dividend company.”

Currently, O stock has a forward dividend yield of just over 6%. Payout growth from this dividend aristocrat has been modest, averaging 3.7% over the past five years. However, there is potential for shares to experience a big price rebound. How so?

With O stock de-rated due to soaring interest rates, a drop in interest rates in 2024 and/or 2025 will likely lead to a re-rating to the upside. As a Seeking Alpha commentator recently pointed out, with O trading at a discounted valuation today, shares could experience outsized appreciation in a recovery, and still be reasonably-priced.

PepsiCo (PEP)

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PepsiCo (NASDAQ:PEP) is another of the better-known dividend stocks. The soft drink and snack foods company is also yet another of the aristocrats that’s also a king.

PEP has increased its payouts for 50 years in a row. Right now, shares sport a forward yield of 3.14%.

Dividend growth has averaged 6.87% over the past five years. Although PEP stock has a payout ratio of 64.3% (in other words, PepsiCo is paying out nearly two-thirds of its earnings out as dividends), such a high payout rate appears sustainable. The company has continued to deliver strong results, most recently seen in its Q3 2023 results.

This strength comes despite headwinds like high inflation, which has put the squeeze on consumer spending. As a venerable blue-chip, if you are looking for steady returns and income, PEP is still one of the stronger choices out there.

Sysco (SYY)

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Sysco (NYSE:SYY) may meet the definition of “boring business,” but there’s nothing boring about the food distribution giant’s dividend growth track record. The company has increased its payout 55 years in a row.

Right now, SYY stock has a forward yield of 3.08%. Dividends have increased by an average of 6.58% over the past five years.

Since August, shares have slumped lower. However, while Sysco has fallen out of favor among investors lately, this could shift back in time. At a valuation of just 15.1 times forward earnings, SYY appears more than reasonably-priced relative to earnings growth forecasts.

Analysts expect earnings to grow by between 9% and 10% in each of the next two years. Sysco’s recently-announced plans to acquire food service equipment/supplies distributor Edward Don could produce cost savings/growth synergies that enable SYY to meet/beat expectations, lifting shares higher as a result.

Exxon Mobil (XOM)

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Some may buy Exxon Mobil (NYSE:XOM) for its exposure to energy prices, but its status as one of the higher-profile dividend stocks is a big reason many investors add it to their portfolios.

According to SureDividend, the integrated oil and gas giant has increased its payout 40 years in a row.

With a forward yield of 3.27%, XOM stock has experienced dividend growth of 2.74% annually on average over the past five years. The stock has only appreciated modestly (around 4.6%) this year, but much higher levels of price appreciation may be just around the corner.

Why? Chalk it up to Exxon Mobil’s recently-announced plans to merge with Pioneer Natural Resources (NYSE:PXD). Per the deal press release, the transaction is expected to be accretive to earnings, especially over the mid-to-long term. As discussed previously, XOM has other catalysts on tap, including a decarbonization catalyst.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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