We’ve discussed the exclusive Dividend Aristocrats Index before. The S&P 500 DIVIDEND ARISTOCRATS (TICKER: SPDAUDP) index is the best place to start for any income seeking investor looking for the most stable monthly dividend stocks. It’s an index of blue chip companies that have managed to maintain or grow their dividends for 25 years or more.
Consecutive dividend increases over such a long duration is usually a very encouraging sign. Not only does it prove the business model is sustainable, but it also shows that management is trying to reward shareholders. As the dividends grow over time, shareholders can see their wealth stay on par with the company’s successes. Companies on the list are also the ones most likely to keep growing as their industry expands and their business model evolves.
Right now, the index includes over 50 companies with a median market cap of $33 billion. The index has managed to outperform the S&P 500 since its launch in 2005. In other words, this is a great index for dividend investors.
However, the index is constantly evolving. New stocks are added and old ones taken off when their fundamentals change. Some of the most stable monthly dividend paying stocks are on track to be included on the list in the near future as they complete 25 consecutive years of dividend increases. Here’s a list of some of the most likely candidates for future dividend aristocrats:
Although the dividend yield on SBUX is below 2%, there’s plenty of room and potential for growth. By 2021, the premium coffee chain aims to have at least 37,000 stores globally. That’s a major feat for any company since most restaurant and cafe chains struggle to crack beyond their local region. Also, nearly half of the stores are owned by the company while the other half are licensed franchises. This means SBUX can supercharge growth if it moves completely to the franchise model like McDonald’s. Starbucks pays out only 44% of earnings, which means there’s a chance the dividend could grow as the earnings improve. Last year the dividend was increased by 25%. If this trend continues, SBUX could be a part of the Dividend Aristocrats soon.
Nike is another potential blue chip dividend gold mine. The fitness apparel retailer has managed to boost dividends for 8 years in a row so far. Yet the dividend payout ratio is still nearly 30%, which means there’s room to grow. Although the dividend yield is still relatively low at just 1.7%, the company has managed to grow dividends by an average of 14% a year for the past three years. If the trend towards wellness and fitness continues to grow, Nike could see its sales and profits expand.
Disney is probably one of the most interesting dividend stocks at the moment. It has a massive portfolio of some extremely valuable tangible assets, such as the Star Wars and Marvel comics Intellectual Properties. However, the stock has been falling for the past two years. This is because the trend of cord cutting is affecting the core sports streaming business of ESPN. Keeping the NBA and NFL rights is expensive while falling subscriptions have put a squeeze on Disney’s bottom line.
However, the company is determined to make a change and boost earnings from online video streaming and original content. At the moment, the stock yields 1.7% and is trading at 11 times forward earnings. With 7 years of consecutive dividend growth and a low payout ratio, DIS has the potential to create tremendous value for shareholders willing to hold for the long term.
The iPhone maker has gone from no dividends to some of the most generous dividends in the market. Since the dividend program was initiated by Tim Cook in 2012, Apple has increased its dividend and buyback program in each of the past five years. At this point, the company pays the largest dividend in the world. In 2017, it is on track to distributed $13 billion to shareholders in the form of dividends. Although the dividend yield is still just 1.7%. Apple pays out about 37.7% of its annual earnings. Considering the company has nearly $238 billion in cash on the books and potential for more growth with newer device launches in the future, this is certainly a stock that will someday be a Dividend Aristocrat.
Another tech giant that pays out heavyweight dividends is Microsoft. Microsoft may have been struggling to keep up with competition in the tablet and smartphone era, but it’s still a cash generating juggernaut. The company has $126 billion in cash on its books and has reported substantial earnings growth in the past three years. Under new CEO Satya Nadella, the company has refocused on its core enterprise market. With its advanced AI capabilities and cloud computing platform, Microsoft is well ahead of rivals Oracle and SAP. The company pays out a 2.2% dividend yield with a 55% payout ratio, so there’s plenty of room to grow. The dividend has been growing every year for the past ten.
Gilead Sciences (NASDAQ:GILD)
With issues over revenue and insider selling over the past few years, Gilead has had a bad run that’s beaten the stock down. The result is a pharma company with a strong balance sheet paying out an above-market dividend yield of 2.7%. It’s HIV drugs portfolio and opportunities for M&A can help the company create growth in the future. Meanwhile, the payout ratio remains at a relatively low 26%. GILD also trades at a serious discount at just 8x trailing earnings. It’s a contrarian bet for income seekers willing to wait for a turnaround.
Analog Devices (NASDAQ:ADI)
Semiconductor manufacturer ADI specializes in chips that help signal transmissions and data conversions. The company has the ability to generate cash at a fantastic clip and continues to beat Wall Street Analyst estimates. Analysts expect the stock to deliver 10.6% compounded annual growth in earnings over the next five years, which could lead to substantial gains in dividends. With a 1.97% dividend yield, ADI is a rare tech growth opportunity for income seeking investors.
Republic Services (RSG)
Solid waste management and disposal company Republic Services offers a decent yield and a long history of dividends. It’s been paying dividends for more than 14 years and currently offers a 2.12% yield. Analysts downgrades for the industry have hurt the company’s shares on the market. However, the stock still trades at a lofty 25 times earnings. With only one other company, Waste Management, offering competition, this could be a great bet on the industry if you’re willing to put up with the premium valuation.
Perrigo Company plc (NYSE:PRGO)
The specialty pharma company may only yield 0.77% at the moment, but it has an impressive history of dividends for fourteen years in a row. The company manufactures and distributes over-the-counter medication that helps with allergies, smoking cessation, and gastrointestinal issues. In fact, the company holds 70% of the market in over-the-counter meds. If operations improve and the management can refocus on the core assets, the company could reward shareholders handsomely over the years.
The Dividend Aristocrats Index has lived up to expectations and outperformed the S&P 500. Great quality, high-yield and the most stable monthly dividend stocks often outperform the market average. That’s because sustaining a generous dividend over decades is incredibly difficult. Only the best companies can create enough cash to keep paying higher dividends over time.
The 55 stocks on the Dividend Aristocrats Index are genuinely great dividend companies. These are some of the most stable monthly dividend stocks in the country. However, income seeking investors can uncover rare and lucrative opportunities by looking at the fringes of this index. The stocks listed here are all capable of making the list if they can sustain growth over the next few years and return capital to shareholders. Perhaps buying them now would be prudent.