If a company successfully raises its dividend for 25 years in a row, it joins the ranks of a select group of businesses called Dividend Aristocrats. Given that the business world is brutally competitive, it's extremely challenging to join this elite group, so when a company manages to do so it proves that the business is built to last.
We Fools greatly admire this group of companies and believe that almost every investor should find a place for at least a few of them in his or her portfolio. Knowing that, we asked a team of Motley Fool specialists to share a Dividend Aristocrat they think is a buy right now. Read below to see what they had to say:
Despite the volatility of oil prices, ExxonMobil (NYSE:XOM) has been able to grow its dividend each year for more than 30 years. It even increased its payout this year, though it was by the smallest rate since 2011. Further, the last time the oil giant cut its payout was the year Harry Truman entered the White House.
That history aside, what matters to dividend investors is the company's ability to keep that income-growth train rolling. Admittedly, right now the company is facing some pressures due to weaker oil prices, which has cut into its cash flow. During the first quarter, cash flow from operations and asset sales totaled $5 billion, which wasn't enough to cover the $5.1 billion it spent in capital expenditures, let alone its $3.7 billion in shareholder distributions. However, that was due to very weak oil and gas price realizations after oil crashed below $30 a barrel.
Oil has subsequently started to recover and is poised to continue to rally due to the growing belief that supplies are expected to be back in balance with demand before the end of the year. Moreover, after two years of underinvestment, the oil market could be woefully undersupplied by the end of next year unless oil averages $70 a barrel, according to analysts. Meanwhile, oil would need to average $90 a barrel in order to ensure long-term supply/demand balance in 2018 and beyond. In other words, unless oil demand falls off the table -- instead of growing as it has been doing -- its price should be much higher in the future, which would enable ExxonMobil to continue to grow its dividend.
Bottom line, oil prices might be down right now, but prices don't appear likely to stay low for too much longer. That bodes well for ExxonMobil's future.
I think that dividend-focused investors should take a closer look at pharma giant AbbVie (NYSE:ABBV) right now. The company has positioned itself for double-digit growth over the next few years, and its dividend yield is a market-beating 3.5% right now. That's a nice combination that any investor should appreciate.
AbbVie's stock has been a big winner over the past few years thanks in large part to Humira, its best-selling multi-indication anti-inflammatory drug. Last year, AbbVie sold more than $14 billion worth of Humira worldwide, up an impressive 19% over the prior year if you strip out currency movements.
Management expects that sales of Humira will continue to grow at a rapid clip for years to come, and when you add in the expected growth of the rest of its lineup -- like its cancer drug, Imbruvica, and its hepatitis C cure, Viekira Pak -- they are calling for earnings to grow by double-digit rates between now and 2020.
That's a bold prediction, and while the growth sounds great, many on Wall Street are concerned that biosimilar competition could put a stop to Humira's growth. While that's a potential risk, management remains confident that Humira is well-protected from copycats until at least 2022, which is why they are willing to provide such a long-term growth forecast.
AbbVie has a history of living up to its expectations, so I'm inclined to believe the outlook. If you agree, then AbbVie's stock looks quite cheap right now. Shares are trading for about 11 times next year's earnings estimates, giving shares a price/earnings to growth (PEG) ratio of about 0.83 (anything below 1 is considered cheap).
AbbVie's stock offers investors income, growth, and value right now. I find that to be a compelling combination.
There are only a few dozen companies that have earned the title of dividend aristocrat, and most of them trade at a substantial premium. Wal-Mart (NYSE:WMT), which is in the middle of making heavy investments that have eaten away at its bottom line, is one of the cheaper aristocrats available.
Wal-Mart already sells nearly $500 billion worth of products each year around the world, but the company recognized last year that it needed to make some major investments in order to drive growth going forward. Higher wages and increased training are raising costs and driving down profits, but the hope is that this extra spending will improve employee morale and customer satisfaction. Wal-Mart is also getting serious about e-commerce, increasing its capital spending dedicated to online sales and rolling out initiatives like online grocery order and pickup.
Because shares of Wal-Mart have been beaten down since hitting highs in early 2015, the dividend yield is currently about 2.85%. Based on Wal-Mart's earnings guidance for this year, it will pay out about half of its earnings in dividend payments. But the company expects earnings growth to resume next year, driven by its various initiatives, and that means that dividend growth could pick up as well. With Wal-Mart offering a dividend yield well above historical levels for the stock, June is a good time to consider picking up some shares.
Brian Feroldi has no position in any stocks mentioned. Like this article? Follow him on Twitter where he goes by the handle @Longtermmind-set or connect with him on LinkedIn to see more articles like this.
Matt DiLallo has the following options: long January 2017 $55 calls on Wal-Mart Stores and short September 2016 $67.5 calls on Wal-Mart Stores. Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.