Dividend investors appreciate the income they receive from their dividend-paying stocks, and the roughly four-dozen stocks that qualify as Dividend Aristocrats have demonstrated their ability to keep raising their payouts year in and year out for at least a quarter century. Yet many Dividend Aristocrat stocks don't check off all the boxes that investors would want, with some having low yields and others having little or no potential for future growth. PepsiCo (PEP 1.18%), Target (TGT 0.70%), and Emerson Electric (EMR -1.51%) stand out from the Aristocrat crowd because of their generous payouts and future prospects.
PepsiCo
PepsiCo has satisfied the thirst that dividend investors have for consistent payout growth. The stock has boosted its quarterly dividend every year for 45 straight years, including its most recent 7% boost in May. PepsiCo shares currently sport a dividend yield of 2.8%, and even with its generous dividend policy, the soft-drink and snack giant only pays out about two-thirds of its earnings as dividends, leaving plenty of ammunition ready for strategic investment in its business.
PepsiCo has been smart in its handling of its two main divisions, which have benefited the company by providing it with diversification. A strong brand gives PepsiCo the ability to retain pricing power both for its soft drinks and its snack offerings, and that helped contribute to rising sales and profits in its most recent quarter despite headwinds from concerns about the health impacts of sugary carbonated beverages. PepsiCo CEO Indra Nooyi has been instrumental in preparing the company for the trend toward healthier food offerings, and initiatives to promote new products like enhanced water and controlled-calorie snack foods have a lot of promise. PepsiCo's dividend looks safe, and investors should be able to count on lucrative streams of income well into the future.
PepsiCo products go well beyond its soft drinks. Image source: PepsiCo.
Target
Target has distinguished itself as a go-to shopping destination for dividend investors looking for the right combination of current yield and sustainable growth. For 50 consecutive years, Target has increased its dividend, with its most recent boost having come just last month. With its new payout of $0.62 per share each quarter, Target sports a 4.4% yield, putting it in the upper echelon of Dividend Aristocrat stocks. Yet the retailer's total dividend outflow represents just half of its earnings, leaving it with other capital available for alternative use.
Retail has been a tough industry recently, and Target in particular has needed to come up with a viable turnaround strategy in order to offset sluggish results. In its most recent quarter, Target managed to post revenue growth of nearly 2% on a 1.3% rise in comparable-store sales. Target's digital initiatives have resulted in higher online sales, and the retailer intends to use its store network to double as a method of fulfilling online orders. Innovation in delivery options includes tests of curbside pickup, same-day delivery, and next-day essential household item shipments could further help Target keep up with online-only competitors and forestall migration of customers away from traditional retail names. Target has room to invest and still keep paying its dividend, and the decline in its stock price has pushed its dividend yield even higher recently, making it even more attractive for dividend investors.
Emerson Electric
Emerson Electric is probably the least well-known of these three stocks, but it has an equally impressive track record from a dividend perspective. Emerson's streak of annual dividend increases stretches back for 60 years, and its most recent dividend increase brought its quarterly payout to $0.48 per share, giving the stock a yield of 3.3%. The industrial electrical equipment specialist shares most of its spare capital with shareholders, with a payout ratio currently at about 85% of earnings.
Emerson has had to deal with sluggish industry conditions for quite a while, which has resulted in contraction in sales for the company. Yet in its most recent quarter, Emerson turned things around, enjoying 10% sales growth and remaining largely consistent with what executives had hoped to see. Automation solutions are gaining in popularity, and Emerson believes that growth there and in the commercial and residential solutions market should accelerate into 2018. If that proves to be the case, then Emerson could be in line to rebound from weakness, and that could add share-price gains to the dividend income investors will already receive from the stock.
Be smart about the dividend stocks you choose
Dividend Aristocrats have universally shown that they can keep increasing their dividends in good times and bad times. But some Dividend Aristocrats are better than others. With a combination of proven track records of dividend growth, strong current yields, and opportunities for future expansion, Emerson Electric, Target, and PepsiCo are stocks that you can't afford to ignore.
