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5 Top Dividend Aristocrats to Buy and Hold Forever

By Daniel Foelber – Jul 23, 2020 at 8:15AM

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These 5 stocks will pay you a regular income that is likely to grow consistently for years to come.

Dividend Aristocrats sometimes fall into the boring and overlooked category of companies because they consistently make money and return a share of it to their investors. But even boring companies can provide something every well-diversified investment portfolio needs -- reliable income.

To qualify for inclusion in the very select Dividend Aristocrat club, a company must be in the S&P 500, pay a dividend, and raise its yearly base dividend rate for at least 25 consecutive years. That's no easy feat, and it got even harder this year with the coronavirus-induced recession. Once you find a good Dividend Aristocrat for your portfolio, it's likely you'll want to keep it there for years.

Here are five companies in the Dividend Aristocrat club that are worthy of consideration for your portfolio.

A crown sits on top of a pile of cash.

Image source: Getty Images.

1. Caterpillar

Caterpillar (CAT -1.10%) tends to get a mixed reputation because -- although it's an industry leader -- it's also in a cyclical industry. Construction stocks can ebb and flow with the economy, and Caterpillar is no different. Where Caterpillar stands out is the company's reputation for consistently raising its dividend.

Caterpillar has raised its dividend for 26 consecutive years, yields 3% on that dividend at the time of this writing, and has a below-market valuation with a P/E ratio under 15.

Caterpillar can be a volatile stock, but its long-term earnings growth is strong. Its dividend will pay you to be patient during challenging market cycles.

2. Illinois Tool Works

Illinois Tool Works (ITW -1.76%), often known as ITW, is a global manufacturer that makes components for a wide range of industries. In its largest industry, automotive, ITW makes safety and performance products for automotive original equipment manufacturers, known as OEMs. That segment contributed 22% of 2019 revenue but is facing an expected revenue decline of 60% to 70% in the second quarter. ITW sees a total second-quarter revenue decline of 30% to 40%, but even with that decline, the company expects to generate at least $500 million in free cash flow (FCF). That would be enough to cover its quarterly dividend payment with change left over. 

A humming global economy is better for ITW, but the company is proving now -- and has proved through 48 consecutive years of dividend growth -- that it has what it takes to get through tough times.

ITW's dividend yields 2.4% at the time of this writing.

3. Sherwin-Williams

Sherwin-Williams (SHW -1.49%) is one of the largest industrial and residential paint and coatings businesses in the U.S., acting as the manufacturer, distributor, and retailer in many cases.

Sherwin-Williams has given investors 40 years of consecutive dividend growth, but its yield is just 0.9% at the time of this writing. That's partially because its stock price has been on fire, increasing over 140% over the past five years and outpacing its dividend -- even though Sherwin-Williams doubled its dividend over the same time frame and just announced an 18.6% raise to $1.34 a share per quarter. 

CAT Dividend Chart

CAT Dividend data by YCharts

This year may be challenging for Sherwin-Williams, but even in a scenario where economic conditions remain poor until the first quarter of next year, the company expects sales to be down just mid- to high-single digits. Not bad, all things considered.

Understanding that Sherwin-Williams' low yield is more of a result of its rising stock price, not a lack of dividend raises, is a good sign for its continued tenure as a Dividend Aristocrat.

4. Dover

Dover (DOV -1.12%) has 57 consecutive years of dividend growth -- the longest on this list. The company is involved in several different industries such as refrigeration equipment, technology, and power systems or the equipment, security, and payment options for fueling stations. 

Dover is the classic industrial company that has been around for a while and is just really good at what it does. Like all of the other companies on this list, 2020 will be hard on Dover. It has knocked off 35% of its originally expected capital expenditures and suspended share buybacks to help preserve liquidity and make room for the $70 million in FCF it needs to pay its current quarterly dividend. 

Dover's dividend yields 1.9% at the time of this writing.

5. Chevron

Chevron (CVX -0.76%) has shown time and time again that it knows when to step up to the plate, and when to walk away.

After Occidental Petroleum (OXY -1.06%) outbid Chevron for Anadarko, Chevron decided to stand down and accept a $1 billion breakup fee from Anadarko. In hindsight, Occidental overpaid for the assets and stuffed its portfolio with even more debt.

Chevron's bid to take over Noble Energy (NBL) earlier this week is different. Unlike last spring, when the oil market was better, this bid comes at a time when the whole drilling sector is hurting because the world has too much crude oil right now. Even with the premium Chevron is bidding for the shares, it would still get them at around a 70% discount to where they were trading five years ago.

There are problems with the drilling sector in general, but given the current state of the market, Chevron is at least getting a reasonable price for Noble.

Chevron has raised its dividend for 32 consecutive years and it yields 6% at the time of this writing.

Go with companies you can count on

It's not easy for energy or industrial and basic materials stocks to become Dividend Aristocrats. For energy stocks, reliance on commodity prices can disrupt a lot of things in the short term. For industrials, the global economy can often throw a wrench in expectations and plans. The five companies on this list have spent decades raising dividends and proving that they are leaders in their respective industries, making them Dividend Aristocrats you can truly buy and hold forever.

Daniel Foelber owns shares of Caterpillar. The Motley Fool recommends Sherwin-Williams. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Caterpillar Inc. Stock Quote
Caterpillar Inc.
$164.08 (-1.10%) $-1.82
Chevron Corporation Stock Quote
Chevron Corporation
$143.67 (-0.76%) $-1.10
The Sherwin-Williams Company Stock Quote
The Sherwin-Williams Company
$204.75 (-1.49%) $-3.09
Dover Corporation Stock Quote
Dover Corporation
$116.58 (-1.12%) $-1.32
Illinois Tool Works Inc. Stock Quote
Illinois Tool Works Inc.
$180.65 (-1.76%) $-3.23
Noble Energy, Inc. Stock Quote
Noble Energy, Inc.
Occidental Petroleum Corporation Stock Quote
Occidental Petroleum Corporation
$61.45 (-1.06%) $0.66

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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