A flood of dividend cuts and suspensions last year drove home the importance (and difficulty) of finding reliable dividend payers. Fortunately, investors can look to the Dividend Aristocrats for dependable income – and better still, they can get some of these elite income plays on the cheap.
That latter point is especially attractive given just how lofty stock prices have become in 2021.
The S&P 500 (.SPX), for instance, currently trades at a rich price-to-earnings ratio of 34.5 – one of its highest P/Es ever. That's not the only evidence that the index is frothy. According to Multpl.com data, the S&P 500 also is trading at its highest price-to-sales (P/S) ratio and second-highest price-to-book (P/B) ratio since 2000. And the index's Shiller P/E, or cyclically adjusted P/E ratio (CAPE) – based on average inflation adjusted earnings over the past decade – is at its highest level in the last two decades.
Fortunately, several of the S&P 500 Dividend Aristocrats trade at much more reasonable valuations following the recent pullback in the broader market. And a September report by ProShares indicated Dividend Aristocrats haven't been this cheap relative to the S&P 500 in more than a decade. "Historically, similar valuation levels to the ones seen now have been attractive entry points for Dividend Aristocrats investors seeking outperformance," the report added.
For the uninitiated: The Dividend Aristocrats are a group of 65 S&P 500 dividend stocks that have increased their cash distributions for at least 25 years in a row. These companies have proven their strength and resiliency by hiking dividends through good times and bad, including during the COVID-19 pandemic and the Great Recession.
Here are 13 high-quality Dividend Aristocrats that are bargain-priced at the moment. To curate this list, we looked for stocks that are currently valued well below their five-year average P/E or price-to-cash flow multiple. The former essentially tells you how much investors are willing to pay for each dollar of a company's reported profits, while the latter measures a company's share price to its operating cash flow per share – both of which can be used to gauge a stock's valuation.
Data is as of Oct. 6. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Historic valuations are based on the average five-year P/E ratio as determined by earnings and price/cash flow as determined by operating cash flow as reported over the trailing 12 months (TTM). Stocks are listed in reverse order of valuation.
International Business Machines
- Market value: $104.8 billion
- Dividend yield: 4.6%
- Consecutive years of dividend increases: 26
- Discount to historic valuation: -8.8%*
International Business Machines (IBM) plans to reverse nearly a decade of sales declines by transitioning its business from hardware to software and cloud services. The company built its cloud business by acquiring Red Hat in 2019 and has since made cloud-related services its fastest-growing segment.
IBM's June quarter performance shows progress toward the company's goals. Revenues grew 3% year-over-year to $18.7 billion, beating analysts' consensus estimate of $18.3 billion. IBM also reported adjusted earnings per share (EPS) of $2.33 versus an average forecast for earnings of $2.29 per share. Most notably were the double-digit gains Big Blue achieved in its cloud business. The firm is guiding for full-year sales growth and $11 billion to $12 billion of adjusted free cash flow in 2021.
IBM is in the process of spinning off its $19 billion-in-sales managed infrastructure business Kyndryl, which will allow the company to focus more resources on its cloud business. After this spinoff, IBM expects to generate consistent, mid-single-digit revenue growth.
The Dow dividend stock has always been a significant generator of free cash flow – or the the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments to grow its business – which totaled $9.7 billion over the past 12 months and easily covered $5.8 billion of dividends. IBM has also paid down $6.4 billion of debt over that same time frame and still has $8.2 billion of cash on its balance sheet.
IBM has increased its payout 26 years in a row – making it one of the newer members of the Dividend Aristocrats – and it currently pays a $6.56 annual dividend, yielding 4.6%. However, as part of the Kyndryl spinoff, IBM plans to divide the payout between the two businesses, though it's not clear how the dividend will be split.
IBM shares look bargain-priced based on the stock's low 7.2 times price-to-cash flow multiple, which is an 8.8% discount to its five-year average.
*IBM's valuation is measured by its price-to-cash flow multiple.
- Market value: $26.4 billion
- Dividend yield: 4.2%
- Consecutive years of dividend increases: 47
- Discount to historic valuation: -9%
Consolidated Edison (ED) operates regulated electric, natural gas and steam delivery businesses. The company supplies electricity to approximately 3.5 million customers in metropolitan New York, natural gas to customers in Manhattan, the Bronx and Queens, and steam in Manhattan. Consolidated Edison owns $63 billion of assets and generates $12 billion of annual sales.
Due to the maturity of its East Coast markets, Consolidated Edison's growth rate has been slower than some other utility stocks. Over the past five years, average annual revenue growth has been less than 1%, while EBITDA (earnings before interest, taxes, depreciation and amortization) growth has averaged 5% and EPS has modestly declined. Analysts forecast 3.5% annual EPS growth for the company over the next three to five years, versus 6% growth projections for other utilities.
Most analysts are on the sidelines when it comes to ED stock. Of the 17 following it that are tracked by S&P Global Market Intelligence, just one says Buy versus eight that call it a Hold and four that believe it's a Sell or Strong Sell.
However, bullish investors look to the company's non-regulated solar energy business as a potential growth catalyst, fueled by the country's gradual transition to renewable energy. In 2019, Consolidated Edison ranked as the second largest solar producer in North America and seventh among solar power producers worldwide. And according to the U.S. Department of Energy, solar is expected to supply 40% of the nation's electricity by 2035.
Due to adverse weather events, Consolidated Edison delivered flat adjusted EPS during the first six months of 2021. The company is guiding for 2021 adjusted EPS of $4.15 to $4.35, up slightly at the midpoint from $4.18 in 2020.
Consolidated Edison has increased dividends for 47 straight years. Payout is high at 73% of EPS, but it is also manageable at 28% of cash flow. Annual dividend growth had ranged around 3%, but fell to 1% in 2021.
This Dividend Aristocrat is cheap at a trailing P/E of 17.4, which is a 9% discount to its five-year average.
- Market value: $15.3 billion
- Dividend yield: 3.7%
- Consecutive years of dividend increases: 41
- Discount to historic valuation: -9.1%
Franklin Resources (BEN) is one of the world's largest investment management firms, with offices in 30 countries and $1.55 trillion of assets under management.
The company, which operates as Franklin Templeton, more than doubled its assets last year via the $4.5 billion purchase of Legg Mason. The Legg Mason acquisition also enlarges the company's footprint in key geographies, balances its institutional and retail customer mix, and enhances its expertise in alternative asset classes.
As an active fund manager, Franklin has suffered profit declines in recent years due to a growing investor preference for index funds. Alternative asset products gained through the Legg Mason purchase are helping to reverse this and the company has experienced significantly improved fund inflows since the acquisition.
Net fund inflows into the firm's specialist investment managers hit record highs during the June quarter. Roughly $3.1 billion flowed into alternative asset products and $2.1 billion moved into fixed income assets.
Reflecting fund growth, the company's adjusted EPS improved 37% year-over-year during the June quarter. Franklin also launched a $1.0 billion closed-end fund (CEF), positioning it as the industry's fifth-largest ETF manager with over $24 billion of closed-end fund assets.
Another recent accomplishment was the merger of Franklin's commercial mortgage real estate investment trust (mREIT) with Capstead Mortgage Corp. to create the industry's fourth-largest publicly traded mREIT.
Franklin has a 41-year track record of dividend growth, including 9.2% annual dividend-hike growth over five years.
BEN is one of the most attractively priced Dividend Aristocrats, trading at 9 times earnings, which is 9.1% below the company's historic average.
- Market value: $35.8 billion
- Dividend yield: 2.5%
- Consecutive years of dividend increases: 39
- Discount to historic valuation: -12.2%
Aflac (AFL) is the No. 1 provider of supplemental health and life insurance in the U.S. The company pays out cash to its insured members who suffer medical events. AFL also has a strong presence in Japan, where it ranks as that country's top provider of cancer and medical insurance, covering one of every four households.
Aflac is a steady performer that has produced 16% annual EPS growth and 8% annual dividend growth over the past decade. More recently, the company has achieved 18 consecutive quarters of EPS beating analysts' consensus estimates.
Aflac's revenues grew 8% year-over-year during the first six months of 2021 and adjusted EPS rose nearly 25% as a result of the company's lower-than-expected benefit ratios and higher net investment gains. Aflac boasts a Superior rating for Financial Strength from AM Best and has cash and investments totaling $146.7 billion on its balance sheet.
Even better, Aflac anticipates a stronger 2021 second half for its U.S. and Japanese operations. Its strategic alliance with Japan Post Group is expected to drive robust sales of cancer insurance in Japan and the U.S. business should benefit from the pandemic recovery and employees returning to their offices.
Aflac offers a 39-year track record of dividend growth, modest 23% payout and averages 9.5% annual dividend-hike growth over five years.
The Dividend Aristocrat is also cheap at current levels, with a modest P/E ratio of 9.6 , which is 12.2% below its five-year average.
Becton, Dickinson and Company
- Market value: $70.4 billion
- Dividend yield: 1.4%
- Consecutive years of dividend increases: 49
- Discount to historic valuation: -15.5%
Becton Dickinson (BDX) develops, manufactures and sells medical supplies, laboratory equipment and diagnostic products. The company's largest business segment, BD Medical, specializes in medication delivery systems. BD Life Sciences offers diagnostic tools and BD Interventional supplies accessories needed for peripheral intervention surgeries, urology and critical care. The company generates over $17.1 billion of annual revenues.
Becton Dickinson is the market leader in nearly all of the major medical supply categories. It serves and supplies over 40 billion medical devices to healthcare providers annually.
The company anticipates future growth will come from new products such as a combination COVID/flu assay that detects antigens from nasal swabs and provides a digital readout on its BD Veritor device.
Additionally, acquisitions in higher-growth areas are supplementing organic sales expansion. Becton Dickinson closed six acquisitions last year, including NAT Diagnostics, which owns a molecular platform for point-of-care testing, and Adaptac, which developed an automated platform for measuring urine output.
The company's June quarter results reflect the benefits of new products, recent acquisitions and rising post-COVID healthcare utilization rates. Revenues improved 27% from the year prior and adjusted EPS grew 25%. Becton Dickinson also increased its full-year adjusted EPS year-over-year growth guidance from a range of 25%-26% to 26%-27%.
Becton Dickinson is in the process of spinning off its Diabetes Care business, which generates $1.0 billion of annual revenues and is the market leader in insulin injection devices. The spinoff is scheduled to close in early 2022.
The company has paid a steadily rising dividend since 1972. Over the last five years, annual dividend growth has ranged around 5% and payout has been modest at 25%. Year-to-date in 2021, Becton Dickinson has returned $1.8 billion to its investors through dividends and $1.0 billion of share repurchases.
BDX is one of the cheapest Dividend Aristocrats, trading at an 18.5 times P/E multiple, which is a 15.5% discount to its historic average.
Archer Daniels Midland
- Market value: $34.8 billion
- Dividend yield: 2.4%
- Consecutive years of dividend increases: 47
- Discount to historic valuation: -15.9%
Archer Daniels Midland (ADM) is a global agricultural supplies business and the world's leading processor of corn. Its Ag Services and Oilseeds segment accounts for over 75% of sales, and sources and processes soybeans, canola and other oilseeds used in foods, animal feed, fuels and as an industrial feedstock.
ADM generates over $64 billion of annual sales and operates over 320 food processing locations, serving customers in 200 countries. The company also owns several of the largest ethanol plants in the U.S.
The firm plans to boost profits by investing in faster growing niche areas that include alternative proteins, renewable energy and pet foods. The company acquired southern Europe's largest producer of plant-based proteins in July, forged a renewable diesel fuel partnership with Marathon Petroleum (MPC) in August and acquired a majority stake in four popular pet treat brands in September.
In the June quarter, the company's adjusted EPS improved 56% year-over-year and trailing 12-month adjusted EBITDA rose 24% as a result of strong performances from ADM's Ag Services & Oilseeds, Carbohydrate Solutions and Nutrition businesses. New plant-based food products, nutritional supplements and pet treats launching in the second half of 2021 are expected to continue this momentum and support robust 2021 EPS growth.
ADM has one of the most impressive track records among Divdend Aristocrats. Specifically, it has paid dividends for 89 years and grown dividends 47 years in a row, with annual dividend hikes exceeding 4% over the past five years. The company's modest 31% payout ratio and the company's excellent balance sheet suggests a strong likelihood for continued dividend growth.
Shares are trading at 12.9 times trailing earnings – a 15.9% discount to the company's historic average P/E ratio.
- Market value: $103.2 billion
- Dividend yield: 3.3%
- Consecutive years of dividend increases: 63
- Discount to historic valuation: -16.5%
Industrial products giant 3M (MMM) is a Dividend King that has delivered 63 consecutive years of dividend growth.
3M is best known for its iconic Scotch tape and Post-It notes. However, it also manufactures wound care products in its healthcare business, structural adhesives and abrasives in its safety and industrial products business, protective films and connectors in its transportation and electronics business and home cleaning and paint accessories in its consumer segment.
After several years of lackluster results, 3M began restructuring in 2020 with plans of cutting $250 million to $300 million from annual operating costs and paying down debt. The pandemic kept sales flat and slightly reduced adjusted EPS in 2020, but 3M showed resiliency by boosting free cash flow 23% to $6.6 billion, with a conversion rate – the ability of a company to convert profits into available cash – of 123%.
MMM is off to a strong start in 2021, generating organic sales growth across all four business groups. Total sales rose 25% year-over-year in the June quarter and adjusted EPS grew 44%.
3M also paid down $3.5 billion of debt and returned $2.4 billion to investors through dividends and share repurchases during the first half of 2021. Plus, the company increased 2021 guidance, and now expects 6%-9% organic sales growth and $9.70 to $10.10 in EPS – up from its previous forecast for 3%-6% organic sales growth and $9.20-$9.70 in EPS.
Dividend growth has declined to 4% annually over the past three years compared to its annual five-year growth rate of 6.3%, but 3M has paid its dividend consistently for over 100 years.
As far as Dividend Aristocrats go, this one is cheap, trading at 17.5 times trailing earnings – a 16.5% discount to the company's historic P/E ratio.
Walgreens Boots Alliance
- Market value: $40.6 billion
- Dividend yield: 4.1%
- Consecutive years of dividend increases: 46
- Discount to historic valuation: -18.4%
Walgreens Boots Alliance (WBA) is the largest retail pharmacy chain across the U.S. and Europe.
In addition to more than 9,000 Walgreens and Duane Reed locations nationwide serving approximately 8 million customers per day, the company also has approximately 4,200 pharmacies outside the U.S., operating under the Boots brand in the U.K., Thailand and the Middle East, Benavides in Mexico and Ahumada in Chile. If equity investments are included, Walgreens operates a network of 21,000 stores spanning 25 countries.
Last year's results were hurt by the pandemic, but Walgreens rebounded strongly in its fiscal third quarter, which ended on May 31, with sales increasing 12% year-over-year. Plus, adjusted earnings per share were up more than 81% for the three-month period, while free cash flow rose 36% to $3.3 billion.
Business initiatives expected to drive growth include expanding its MyWalgreens online platform, which now boasts more than 75 million members, accelerating the rollout of Village Medical healthcare centers in Walgreens stores and launching its digital healthcare services platform internationally.
WBA shares look bargain-priced at a 9.7 times P/E multiple on adjusted EPS, which is an 18.4% discount to the company's historic P/E.
Walgreens has a 46-year track record of dividend growth, with 5% annual dividend hikes over the past five years.
- Market value: $13.8 billion
- Dividend yield: 4.0%
- Consecutive years of dividend increases: 34
- Discount to historic valuation: -17.2%
Cardinal Health (CAH) ranks among the top pharmaceutical distributors in the U.S. and is also a leading manufacturer and distributor of medical and laboratory supplies. The company operates in 35 countries and generates over $162 billion in annual revenues.
Drug distribution is a slow growth business and Cardinal Health has generated only 6% annual top-line growth over five years. The company plans to boost profits by investing in faster-growing niche areas like specialty, at-home and nuclear and precision health solutions, streamlining its medical business for cost savings and paying down debt.
Cardinal Health sold its Cordis medical device business in August for $1 billion and is trimming its international footprint to focus on geographies where it has competitive advantages.
A major overhang for CAH stock came from opioid lawsuits and the company hopes to eliminate this issue through a settlement negotiated with various state and local governments. As part of this settlement, Cardinal and its competitors AmerisourceBergen (ABC) and McKesson (MCK) will pay roughly $21 billion combined over 18 years.
Although Cardinal had delivered consecutive quarters of strong EPS beats, the shares tumbled in early August when June quarter results fell short of analysts' estimates. While the firm did report 16% top-line growth, adjusted EPS fell 26% due to COVID-related writedowns and pre-tax charges related to opioid lawsuits.
The company generated strong cash flow of $2.4 billion in fiscal 2021, which was used to pay down $550 million of debt and returned roughly $800 million to shareholders through dividends and share repurchases.
Cardinal has produced 34 consecutive years of dividend growth and dividend gains averaging 5.6% annually over three years.
And in addition, the Dividend Aristocrat sports an attractive P/E ratio of 8.9, which is 17.2% below the company's five-year average.
- Market value: $193.2 billion
- Dividend yield: 4.8%
- Consecutive years of dividend increases: 49
- Discount to historic valuation: -25.4%
Pharmaceutical giant AbbVie (ABBV) is best known for Humira, its top-selling arthritis drug. It owns other blockbuster drugs as well, including Skyrizi and Rinvoq in immunology, Imbruvica and Venclexta in oncology and Botox and Vraylar in neuroscience.
While some investors fear the company's results will suffer when Humira loses U.S. patent protection in 2023, AbbVie has been preparing for that eventuality by expanding its new drug pipeline via research and development (R&D) and acquisitions. The company anticipates a temporary drop in sales in 2023, a return to modest top-line growth in 2024 and high single-digit yearly sales gains through 2030.
Skyrizi and Rinvoq sales are expected to reach $15 billion in 2025 and not peak until the early 2030s. Imbruvica and Venclexta comprise a $6.6-billion cancer drug franchise likely to deliver strong growth for at least a decade and AbbVie's migraine treatment portfolio addresses a $3 billion market that will hit $9 billion by 2025.
AbbVie has a fantastic track record of rewarding investors. The company has delivered 13.5% annual revenue growth and 18.8% adjusted EPS gains since 2013. Over that same period, dividends have increased 225% and shareholder returns have exceeded 340%.
ABBV's revenues jumped 42% during the first six months of 2021 as a result of the Allergan acquisition, new immunology assets and impressive growth in the neuroscience and aesthetics portfolios. Adjusted EPS improved 27% over the same time frame. AbbVie also raised its full-year adjusted EPS guidance to now arrive between $12.52 to 12.62 from its previous forecast for $12.37 to $12.57.
Of the 22 analysts following the Dividend Aristocrat that are tracked by S&P Global Market Intelligence, 11 say it's a Strong Buy, 5 call it a Buy and six believe it is a Hold.
AbbVie has had impressive dividend growth relative to its fellow Dividend Aristocrats, with its payout increasing 18% annually over the past five years.
ABBV also trades at just 9.3 times earnings, which is a 25.4% discount to its five-year average.
Stanley Black & Decker
- Market value: $28.8 billion
- Dividend yield: 1.8%
- Consecutive years of dividend increases: 54
- Discount to historic valuation: -25.6%
Stanley Black & Decker (SWK) is a worldwide leader in power tools, lawn and garden equipment and industrial products. Its iconic brands include Stanley, Black & Decker, DeWalt, Craftsman and Lenox. Power tools is the company's largest business, accounting for 71% of 2020 total revenues of $14.5 billion.
Over the past five years, the company has increased revenues at 5% per year, grown adjusted EPS 9% annually and converted 111% of earnings to free cash flow. The company targets 10% to 12% annual growth in future sales and EPS, which will be achieved by leveraging the strength of its brand names, rolling out new products in its electronic security and engineered fastener businesses and making acquisitions. SWK has invested in roughly $11 billion in acquisitions since 2005.
The company is guiding for 16% to 18% organic sales growth and 26% to 29% EPS growth in 2021.
In addition, SWK sees significant growth opportunities in electrification and recently acquired battery maker MTD to roll out battery-powered mowers, trimmers, power washers and other outdoor power equipment.
The company has paid dividends for 145 years and increased dividends for 54 years in a row, with annual hikes averaging 5% over five years. SWK is committed to returning 50% of its capital to investors via dividends and share repurchases and earmarks the remaining 50% for acquisitions.
Shares of the Dividend Aristocrat look undervalued at a 14 times P/E multiple, which is a 25.6% discount to its five-year average.
- Market value: $11.9 billion
- Dividend yield: 2.8%
- Consecutive years of dividend increases: 37
- Discount to historic valuation: -26.9%
Atmos Energy (ATO) is the nation's largest natural gas distributor. The company supplies natural gas to more than 3 million customers across eight Southern states. Atmos Energy owns approximately 72,000 miles of distribution and transmission pipelines, with key sections of its pipeline spanning the major Texas shale gas formations and key market hubs.
The company's earnings are 100% regulated and rate-based, making its EPS highly predictable. Atmos Energy targets 6%-8% annual EPS gains through 2025, which will come from rate base growth and $11 billion to $12 billion of planned capital expenditures to expand and modernize its gathering and delivery system.
Like most utility companies, Atmos Energy has a high debt load, but the company's cost of debt has been steadily declining, resulting in lower interest expense and more manageable near-term debt maturities. As a result, ATO has investment-grade credit ratings from Moody's and Standard & Poor's.
Atmos Energy has rewarded investors with 18 consecutive years of EPS growth and 37 consecutive years of dividend hikes. It looks like this streak is set to continue, too, with adjusted EPS up 9% in the nine months ended June 30. This Dividend Aristocrat also plans to raise its payout by 8.7% in fiscal 2021.
ATO stock is trading at 16.9 times trailing earnings, which is a 26.9% discount to its five-year average.
- Market value: $28.2 billion
- Dividend yield: 1.6%
- Consecutive years of dividend increases: 48
- Discount to historic valuation: -42.6%
Nucor (NUE) is North America's largest and most diversified steel and steel products manufacturer. The company operates 25 steel mills with annual production capacity of 27 million tons. It ranks No.1 in North America for structural steel, steel buildings and scrap metal recycling, No. 2 for rebar and plate steel, and No. 3 for sheet steel.
Steel demand dropped precipitously during the pandemic, but the U.S. steel industry is back with a vengeance in 2021 – fueled by a boom in construction. Nucor and other steelmakers are also benefiting from tariffs on imported steel that are helping domestic producers rebuild market share. A major tailwind for the steel industry could come from the infrastructure bill making its way through Congress.
Nucor is capitalizing on industry tailwinds by upgrading several of its steel mills and expanding capacity. Spending of $4 billion is budgeted for these projects, including $2 billion in 2021. Nucor is also making acquisitions and recently paid $1 billion for an insulated metal panels business purchased from Cornerstone Building Brands (CNR). This acquisition expands Nucor's footprint in faster-growing construction markets that include distribution centers, warehouses, cold storage and data centers.
Nucor generated record EPS in the June quarter and is guiding for an even higher EPS of $7.30 to $7.40 in the September quarter – well above consensus analyst estimates and more than 11 times the prior-year EPS. The company boasts the strongest credit rating in the steel sector and has $3.0 billion of liquidity to support future growth initiatives.
Nucor has delivered 48 consecutive years of dividend increases. While recent dividend growth has been less than 2% annually, payout is an ultra-low 14% of adjusted EPS – leaving plenty of room to accelerate dividend growth.
NUE is one of the cheapest Dividend Aristocrats right now. Its shares are frugally priced at 8.5 times trailing earnings, which is a 42.6% discount to the company's historic average.
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