Investing in great dividend companies is one of the smartest decisions an investor can make. For starters, it's a passive income source where all you have to do is sit around and collect checks each quarter. It's even better when you find a company that consistently increases its dividend payment each year because you'll collect an even higher dividend yield compared to your original investment price.
That's where Dividend Aristocrats come in. These are well-established companies in the S&P 500 that have increased their dividends for 25 consecutive years. Here are three Motley Fool analysts with some great picks for investors shopping in October.
A king in the making
Daniel Miller: Being a Dividend Aristocrat is nothing to sneeze at, by any means, but Stanley Black & Decker, Inc. (NYSE:SWK) makes that feat look like child's play. To clarify, a Dividend Aristocrat is a company that has increased its dividend every year for the last 25 consecutive years. Stanley Black & Decker has done it for 49 consecutive years, which puts it only two years away from joining a new group, Dividend Kings, companies that have raised their dividends for more than 50 consecutive years. While Stanley Black & Decker's dividend yield of just under 2% might not excite you, its consistent increases should.
Yet, despite having such a rich history of returning dividends to shareholders, the company has only recently hit its stride. Consider that in 2000, the company just topped $2 billion in revenue, and by the end of 2015, that had soared to more than $11 billion.
Stanley Black & Decker has more to offer investors than a consistent dividend, too. The company owns multiple iconic brands, and its reputation for high-quality power tools has been established for decades. It continues to be a leader in innovative products -- including its recent DeWalt FLEXVOLT battery system that it hopes will reshape the power tool industry -- and has a more diversified business than many investors realize.
Stanley Black & Decker isn't just power tools. Consider that, last year, the company generated $4.1 billion in revenue combined from its Security and Industrial business segments in addition to the $7.1 billion from tools and storage. I'll leave you with this graph that shows Stanley Black & Decker's winning history over the past 15 years, driven partially by its consistently increasing dividend.
A medical-device juggernaut
Brian Feroldi: The gradual graying of the U.S. population should put the wind at the back of nearly every company from the healthcare sector. One Dividend Aristocrat that I believe is poised to benefit from the trend is Medtronic (NYSE:MDT), one of the largest medical-device companies in the world.
Medtronic has been around for decades and it boasts a long history of buying or building products that compete in a broad range of disease states. This includes areas like cardiovascular disease, spine, diabetes, pain, neurovascular, brain modulation, and more. By keeping its business diversified, the company can continually put up strong growth numbers, even when a few of its product lines face short-term challenges.
Medtronic's revenue is diversified geographically, too. Roughly 44% of its top line comes from outside the U.S., and it has a growing presence in several emerging markets. That should allow the company to benefit from the rise of the global middle class.
With stable and growing operations, Medtronic has been able to use its financial might to reward its long-term shareholders. The company has increased its dividend payment for 39 years in a row, a remarkable achievement. And yet, despite the growth, today the dividend only consumes about 40% of earnings. That hints that investors can expect more dividend bumps in the years ahead.
Over the next five years, market watchers are expecting Medtronic's earnings to grow by nearly 8%, which is a healthy rate given the company's size. With shares currently trading for less than 17 times forward earnings and offering up a yield of 2%, I think this is a fine time to consider buying.
An overlooked growth story
Jamal Carnette: AT&T (NYSE:T) occupies a rare spot among Dividend Aristocrats. Currently, the telecommunications provider is the highest yielding non-REIT company with a current yield of 4.7%. Historically, being the highest yielder in the Dividend Aristocrat index signified the stock price had underperformed. In AT&T's case, this is not true as the company has increased 25% in the last year.
Still, AT&T is comparatively cheap. Shares of the company currently trade at 17 times earnings, significantly lower than the greater S&P 500's PE ratio of 25 times. A lower-than-average PE ratio indicates investors are not as bullish on the company's future growth prospects.
AT&T did nothing to change this narrative by missing its revenue estimates in second-quarter results. Intense competition from the likes of Sprint and T-Mobile in the company's important wireless business recently forced the company to eliminate data overages. Look for increased pressure in AT&T's Consumer Mobility segment on account of competition.
The question in the minds of investors isn't if AT&T can continue to pay its dividend, but if the company will be able to raise its dividend above the rate of general inflation. In the long run, AT&T will have to grow in order to keep raising its payout. And naturally, fear about the company's wireless position is depressing valuations. However, there are positive headwinds AT&T investors may not be considering.
First, the company is investing in Mexico and greater Latin America in a major way. As more citizens in these developing economies enter the middle class, demand for the company's AT&T Mexico wireless and Latin American Satellite services will increase. Second, AT&T is on the forefront of the Internet of Things, and grew connected devices -- monitoring and automobile systems -- at a 24% year-on-year clip last quarter.
For investors, AT&T is high yielding and cheaply priced with growth levers many investors are ignoring. As such, I think it's a good buy for income-hungry investors at these valuations.
Brian Feroldi has no position in any stocks mentioned. Daniel Miller has no position in any stocks mentioned. Jamal Carnette owns shares of AT and T. The Motley Fool owns shares of Medtronic. The Motley Fool recommends T-Mobile US. 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.