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3 Dividend Aristocrats to Buy and Hold Forever

By Lawrence Rothman, CFA – Jun 21, 2020 at 10:20AM

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These large-cap companies have built enviable track records and rewarded shareholders with decades of annual dividend increases.

Dividend Aristocrats are S&P 500 companies that have raised their dividend payouts for at least 25 straight years. This remarkable run puts these large-cap stocks in rarefied company. After all, it's quite remarkable that they have provided dividend hikes for that many years, through all kinds of business conditions.

There are 66 companies that are Dividend Aristocrats. Narrowing this impressive group down further, here are three stocks that are a cut above the rest and should be the backbone of your portfolio.

A bag of money, a bar chart going up, and a running hourglass

Image source: Getty Images.

1. Walmart

Walmart (WMT -0.37%), which opened its first discount store nearly 60 years ago, has a simple and effective business plan. It leverages its scale to keep costs low and then passes these savings on to its customers as the retailer known for "everyday low prices."

This is a timeless strategy that always resonates with shoppers. After all, who doesn't like saving money? And it has even greater appeal in an economic downturn as consumers tighten their purse strings. In Walmart's fiscal 2021 first-quarter earnings release, CFO Brett Biggs said, "Customers trust us to deliver on our brand promise, and I'm confident in our ability to perform well in most any environment."

The latest quarterly results were strong in the face of the pandemic as people rushed out to buy essentials and other products. The company reported 8.6% year-year-over top line growth for the period ended April 30, and operating income was up 5.6%.

The business generates a lot of cash flow. Last year, free cash flow hit $14.6 billion, and the company rewarded shareholders by paying out dividends totaling $6.0 billion.

In February, Walmart's board of directors raised the annual quarterly dividend from $2.12 to $2.16, continuing the annual string of increases to 47 years. The stock yields 1.8% as of this writing.

2. Johnson & Johnson

Johnson & Johnson (JNJ -0.28%), well over a century old, offers consumer products (e.g., baby care, oral care, women's health, and wound care), pharmaceuticals, and medical devices.

These businesses are not cyclical, performing well in a good or bad economy. Its pharmaceutical business, which accounts for more than half of the company's sales, continues to do well. The unit's adjusted revenue increased by more than 10% year over year in the first quarter.

Johnson & Johnson's consumer unit includes well-known products like Tylenol, Sudafed, Listerine, Benadryl, Stayfree, and Band-Aid. In other words, it sells common household essentials -- no wonder that segment's first-quarter adjusted sales were also up double digits. Medical devices had a down quarter due to COVID-19 causing people to put off procedures, but this will undoubtedly bounce back as local governments remove restrictions and allow more people into healthcare facilities.

The company generates over $80 billion in annual sales. There is strong geographic diversity with nearly 50% of its top line coming from outside of the U.S., which helps protect the company from weakness in any particular region. These strong businesses produced just under $20 billion in free cash flow last year, and Johnson & Johnson used about half to pay dividends.

With this strong foundation, the company recently hiked its payout by more than 6%, making it 58 straight years with an increase. Its June payment was $1.01, up from $0.95. At the current stock price, the dividend yield is 2.8%.

3. Procter & Gamble

Procter & Gamble (PG -2.10%), founded in the 1830s, is another company with amazing staying power. For the last 130 years, it has paid a dividend. The company sells consumer staples like shampoo, deodorant, toothbrushes and toothpaste, laundry detergent, diapers, and paper towels. Its brands -- Head & Shoulders, Old Spice, Crest, Downy, Luvs, Pampers, and Bounty, among others -- are household names.

Year after year, they generate a lot of revenue. For the first nine months of fiscal 2020, which ended March 31, 2020, P&G's sales were $53.3 billion compared with $50.6 billion in the year-ago period.

The pandemic did not have a major impact on results, boosting sales of cleaning and health products in certain regions, but there were declines in other areas like China and Japan. Long term, these products have strong demand no matter the state of the economy.

Like the other Dividend Aristocrats discussed above, Procter & Gamble has plenty of free cash flow to cover the approximately $7.5 billion of dividends it pays out annually. And in April, the board of directors announced it raised the quarterly dividend 6% to about $0.79 per share, and the stock now yields 2.7%. While shareholders have grown accustomed to P&G growing the payout yearly, with the company doing so for 64 years in a row, this is the largest percentage increase since 2014.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Walmart Stock Quote
$130.82 (-0.37%) $0.49
Johnson & Johnson Stock Quote
Johnson & Johnson
$165.23 (-0.28%) $0.47
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$132.87 (-2.10%) $-2.85

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