4 Top Dividend Aristocrats to Buy for Continuous Income

Several developments since the beginning of this year have buoyed investors’ confidence about the continuation of the stock market’s bull run. With the new Presidential administration pushing a $1.9 trillion stimulus package, the market seems reluctant to slow its charge.  Nevertheless, the financial markets are expected to remain volatile because the pandemic is far from over and there uncertainties remain related to timing on when the economy will enter a robust  growth trajectory.

Consequently, many risk-averse investors are shifting some of their investments to quality dividend-paying stocks to ensure at least a steady stream of income. Investing in dividend stocks might be the best option for investors currently, given an unattractive bond market and the Fed’s determination to keep interest rates low for the foreseeable future.

But it is important that investors ensure the sustainability of a company’s dividend payment before betting on its stock. Dividend aristocrats are for the most part 65 stocks in the S&P 500 Index that have raised their dividends for at least 25 consecutive years based on their steady cash flows, strong fundamentals and sound business model.

Abbott Laboratories (ABT), Lowe’s Companies, Inc. (LOW), S&P Global Inc. (SPGI), and Archer-Daniels-Midland Company (ADM) are the top stocks in the dividend aristocrats group. In addition to offering a steady stream of income, these four stocks hold strong price appreciation potential.

Abbott Laboratories (ABT)

ABT manufactures and sells health care products worldwide with a portfolio of life-changing technologies spanning the spectrum of healthcare, with leading businesses and products in diagnostics, medical devices, nutritional and branded generic medicines. The company operates in four business segments – Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products.

ABT has been growing its dividend consistently for the last 49 years. On February 19, it  declared a dividend of $0.45 per share, marking the 389th consecutive quarterly dividend by ABT since 1924. During the past three years, its free cash flow and dividend payout have grown at CAGRs of 10.8% and 14.1%, respectively. While the four-year average dividend yield for ABT is 1.70%, the current annual dividend of $1.80 translates to a 1.49% yield.

Over the past three years, ABT has grown its revenue and EPS at CAGRs of 8.1% and 132.7%, respectively. In the fourth quarter, ended December 31, 2020, ABT’s sales of $10.7 billion increased 28.4% on an organic basis. Its worldwide diagnostics sales surged 108.9% during the quarter, driven by demand for COVID-19 diagnostic tests. Global COVID-19 testing-related sales were $2.4 billion in the fourth quarter, led by combined sales of $1.9 billion from ABT’s BinaxNOW, Panbio and ID NOW rapid testing platforms. As a result, its adjusted EPS came in at $1.20, rising 52.6% compared to the year-ago value.

Despite challenging conditions, ABT achieved double-digit EPS growth, delivered ground-breaking innovation and advanced its new product pipeline last year. The company  expects demand for cardiovascular and neuromodulation devices and for routine lab testing services to revert to normal in the coming months. In line with ongoing robust demand for  Freestyle Libre diabetes care devices, nutrition brands, and COVID-19 diagnostic tests, analysts expect ABT’s current-year revenue and EPS to grow 22.2% and 39.2%, respectively, year-over-year.

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ABT’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. ABT has an A grade for Growth and Sentiment. In the 238-stock Medical – Pharmaceuticals industry, it is ranked #4.

In total, we rate ABT on eight different levels. Beyond what I’ve stated above, we have also given ABT grades for Value, Momentum, Stability and Quality. Get all ABT’s ratings here.

Lowe’s Companies, Inc. (LOW)

LOW operates as a home improvement retailer in the United States and Canada, serving approximately 18 million customers per  week. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. As of September 30, 2020, LOW’s operated 1,969 home improvement and hardware stores. The company also sells its products through its websites and mobile app.

LOW has paid and raised its  dividend without fail for 57 years. Over the past three  years, LOW’s dividend has grown at an average rate of 13.3%, while the CAGR of its  free cash flow has been 25.8% in the same period. LOW has already declared a cash dividend of $0.60 per share for its fiscal first quarter, ending April 30, 2021. Moreover, the company’s annual dividend of $2.40  translates into a yield of 1.42% at its current share price.

LOW’s revenue and EPS have grown  at CAGRs of 7.4% and 19.4%, respectively, over the past three  years. In the fiscal third quarter, ended October 31, 2020, the company generated net sales of $22.3 billion, increasing 28% year-over-year. While online its sales surged 106%, comparable sales for the U.S. home improvement business increased 30.4% year-over-year. In addition,  LOW delivered more than 15% growth in all merchandising departments and more than  20% growth across all geographic regions. Its adjusted EPS came in at $1.98, rising 40.4% compared to the year-ago value of $1.41.

LOW  recently unveiled a new retail fundamental strategy under its “Total Home” strategy. The company plans to offer everything a homeowner needs–a total home solution. The strategy aims to enhance customer engagement and grow market share by intensifying the company’s  focus on the “Pro customer”, expanding its online business, modernizing its installation services, improving localization efforts and elevating its  product assortment. In line with LOW’s expected progress with the strategy, analysts expect LOW’s current year revenue and EPS to grow 23% and 52%, respectively.

LOW’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy. LOW has an A grade  for Momentum and a B for Growth and Quality. It is ranked #10 of #64 stocks in the A-rated Home Improvement & Goods industry.

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In addition to the POWR Ratings grades I’ve just highlighted, you can see  LOW’s ratings for Value, Stability, and Sentiment here.

S&P Global Inc. (SPGI)

SPGI is the world’s foremost provider of credit ratings, benchmarks and analytics in the global capital and commodity markets, offering ESG solutions, deep data and insights on critical business factors. The company operates through the following segments – S&P Global Ratings, S&P Global Market Intelligence, S&P Dow Jones Indices and S&P Global Platts.

SPGI has paid a dividend each year since 1937 and has increased its dividend annually for at least the last 48 years. During the past three years, the average annual dividends per share growth rate for SPGI was 8.7%. The company’s free cash flow also improved at a CAGR of 20.3% over that  period. And on January 27, SPGI declared a 15% hike in its quarterly dividend to $0.77 per share. Its annual dividend of $3.08 currently  translates to a yield of 0.95%.

SPGI’s revenue and EPS have increased at CAGRs of 7.1% and 18.7%, respectively, over the past three  years. In the fourth quarter that ended December 31, 2020, SPGI’s revenue increased 8% year-over-year to $1.87 billion, with growth in all four businesses. This improvement was due primarily  to increased asset-linked fees. The average AUM in exchange-traded funds based on S&P DJI’s indices was $1.9 trillion during the quarter, growing 16% year-over-year. SPGI’s adjusted EPS came in at $2.71, rising 7% compared to the prior year value.

At a time when most major economies suffered because of the COVID-19 pandemic, the U.S. stock market has rallied to unprecedented highs. This has fueled a significant increase in demand for SPGI’s benchmarks, data, ratings, and research. The company  showcased its technology expertise over the last year with innovative new products such as Marketplace, ProSpread, and RiskGauge, SPGI management expects to  launch new products this year and expects SPGI’s pending merger with IHS Markit to be completed  this year. As a result, Wall Street analysts expect SPGI’s current year revenue and EPS to grow 4.4% and 5.3%, respectively.

It’s no surprise that SPGI has an overall rating of B, which equates to Buy in our POWR Ratings system. SPGI has an A grade for Quality and B for Stability. In the 105-stock Financial Services (Enterprise) industry, it is currently ranked #18.

Click here to see the additional POWR Ratings for SPGI (Growth, Value, Momentum, Sentiment, and Industry).

Archer-Daniels-Midland Company (ADM)

ADM is a global leader in human and animal nutrition and the world’s premier agricultural origination and processing company. The company procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients in the United States and internationally. It operates through three segments – Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition.

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ADM has  consistently grown its dividend over the last  89 years. The company recently declared a dividend of $0.37 per share, increasing the payout by approximately 2.78% from its prior payment. In fact, the dividend  marked ADM’s 357th consecutive quarterly payment. Over  the past three years, its dividend payout has grown at a CAGR of 3.8%. While the four-year average dividend yield for ADM is 3.19%, the current annual dividend of $1.48 translates to a 2.60% yield.

Over the past three years, ADM has grown its revenue and EPS at CAGRs of 1.9% and 4.1%, respectively. In the fourth quarter, ended December 31, 2020, ADM reported a top-line of $18 billion, increasing 10% year-over-year. Ag Services and Oilseeds segments delivered outstanding results, crossing the $2 billion profit mark for the year by capitalizing on  a flexible global footprint to meet strong demand. Its EPS for the quarter came in at $1.22, rising 35.5% compared to the year-ago value of $0.90.

ADM performed exceptionally well last year, delivering  four straight quarters of year-over-year adjusted segment operating profit growth, along with solid returns and a record full-year adjusted EPS of $3.59. Based on improving market conditions, management is confident about generating solid cash flows this year also  from ADM’s  diversified and global value chain. Consequently, analysts expect ADM’s current year revenue and EPS to rise 3.8% and 7.2%, respectively.

ADM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to Strong Buy. ADM has a B grade for Value and Stability. It is ranked #4 of #32 stocks in the Agriculture industry.

In addition to the POWR Ratings grades I’ve just highlighted, you can see the ADM’s ratings for Growth, Momentum, Sentiment, and Quality here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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ABT shares were trading at $122.14 per share on Wednesday morning, up $1.34 (+1.11%). Year-to-date, ABT has gained 12.00%, versus a 3.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…

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