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3 Dividend Aristocrats to Buy and Hold Forever

By Rich Duprey, Anders Bylund, and John Bromels – Updated Apr 12, 2019 at 12:36PM

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Cintas, A.O. Smith, and Brown-Forman are dividend-paying royalty that will reign for years to come.

Many investors know the value of investing in dividends, and finding a company that's consistently raising its payout can pay off even more. But there's something even more powerful at play when a business is able to raise its dividend for 25 consecutive years or more.

Coupled with a solid business that points to their being able to raise their payout every year for years to come, Cintas (CTAS -0.87%), A.O. Smith (AOS 2.57%), and Brown-Forman (BF.A -0.42%) (BF.B -0.48%) are three Dividend Aristocrats that you can buy once for your portfolio and hold on to forever.

Piggy bank with a crown

Image source: Getty Images.

An adaptable company

John Bromels (Cintas): Of all the businesses you might not expect to become Dividend Aristocrats, a used-rag-washing business started by a couple of out-of-work circus performers during the Great Depression is probably one of them. Yet Dividend Aristocrat Cintas hails from those humble beginnings. 

Cintas has lasted this long through its incredibly adaptable and flexible business model. When shop towels replaced rags in the 1940s, Cintas started to launder those. In response to demand for industrial laundering of uniforms, Cintas added that to its mix and then began renting uniforms -- now its primary business -- in the late 1950s. It continued to grow through making strategic acquisitions of competitors and by offering new services like floor-mat rental, restroom restocking, and first aid kit restocking, all of which the same driver could take care of on the same route. 

Cintas' adaptability is still on display as it continues to grow. The company posted 7% revenue and organic sales growth in its most recent quarter, while earnings increased an impressive 30%. The North American uniform rental market remains fairly fragmented, but Cintas is the largest player in the space, with plenty of opportunity to gobble up smaller competitors. 

The one drawback might be that, for a Dividend Aristocrat, Cintas has a fairly low yield at just 1%. But considering that's thanks to all the growing the share price has been doing, it shouldn't bother you. I don't know if Cintas will be around forever, but it should continue to grow and adapt to a changing market for years to come, and also reward shareholders in the process.

Check out the latest earnings call transcripts for Cintas, A.O. Smith, and other companies we cover.

Don't let the modest 1.7% dividend yield fool you

Anders Bylund (A.O. Smith): A hundred years ago, A.O. Smith made bomb casings and bolt-on bicycle engines. Now the company is the largest maker of water heaters in North America. Water treatment success in places like China, India, and the Netherlands shows that the company isn't afraid to evolve again if the market conditions so require.

To be clear, A.O. Smith has no plans to abandon the water heater niche that has been its bread and butter for eight decades. But a flexible approach to new opportunities is the most effective way to stay relevant for another century.

Holding this stock for a long time has been a winning strategy over the past few decades. If you had invested $1,000 in A.O. Smith's stock in 1989, your holdings would be worth more than $5 million today. That's a plain share-price boost, not including any contributions from dividend payments along the way.

The company has lifted its quarterly payouts 1,900% over the same period. Reinvesting the dividend into more A.O. Smith shares along the way would have turned that measly $1,000 into nearly $10 million at this point. To put these potential gains into perspective, an S&P 500 index fund would have grown a $1,000 investment into $830,000 without dividend reinvestments, or $1.3 million with a DRIP plan over 30 years. Not bad, but the long-term A.O. Smith investor would have crushed the market.

Don't forget that A.O. Smith was a mature business with decades of large-scale operating history at the start of this long-term thought experiment. Asking for another 12,000% return over the next 30 years might be a bit much, but this is most definitely a high-quality dividend stock for the long haul.

A distiller worth toasting

Rich Duprey (Brown-Forman): Distiller Brown-Forman has been caught up in the international trade war that saw retaliatory tariffs imposed on whiskey imports into Europe, Canada, and China. Because more than half of its sales come from international markets, profit margins have been pinched as the distiller absorbed many of the higher costs associated with the duties, but it has said it can't do that indefinitely, which means it will need to raise prices and possibly hurt sales. It also faces competitive pressures here at home, as rivals reduce prices to gain share because of whiskey's continued popularity. Brown-Forman's stock has slid 30% over the past year as a result.

Despite pressures in multiple markets, Brown-Forman's Jack Daniel's brand remains a top seller globally, and the trend toward premium and super-premium spirits means the distiller's Woodford Reserve and Old Forrester brands have been in high demand, blunting some of the impact. Because demand in whiskey isn't abating any time soon, Brown-Forman will continue to be a leader in the space.

Brown-Forman has paid cash dividends for 73 consecutive years and has raised its payout annually for 35 straight years. Not even the current global economic situation threatens the dividend.

Shares have bounced more than 10% off the low point they hit in January as concerns about a new round of tariffs have eased up. While the trade war dominates its discussions at the moment, the long-term trend is in Brown-Forman's favor, and with the stock having been beaten back, now is the time to consider this Dividend Aristocrat for your portfolio.

Anders Bylund has no position in any of the stocks mentioned. John Bromels owns shares of Cintas. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy.

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