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3 Cheap Dividend Aristocrats to Buy Right Now

By David Jagielski - Jan 22, 2021 at 6:16AM

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The lowest yield on this list is 2.5% and well above what the average S&P 500 stock pays today.

Investors love dividend stocks because they allow you can generate cash flow from your investments without having to sell a single share. They pay you every month or quarter, just for hanging on to the stock. It's a great deal -- except when it's not. Dividends are not guaranteed, and investors learned that the hard way during the pandemic, as many stocks slashed their dividend payments amid the challenging economic conditions. 

But there are still safe dividend stocks out there. Dividend Aristocrats are income-generating stocks that have not just paid but increased their dividend payments for at least 25 years in a row. Their businesses are stable, and that gives them the ability to continue to steadily increase their payouts. What's even better is that there are some excellent growing-dividend stocks that are cheap buys today, including Cardinal Health (CAH 0.04%)Johnson & Johnson (JNJ 0.08%), and Kimberly Clark (KMB 1.34%).

A crown sitting atop a pile of cash.

Image source: Getty Images.

1. Cardinal Health

Cardinal Health has increased its dividend payments for more than 30 years in a row. Its diverse operations give it plenty of long-term stability. With a presence in 46 countries and the company playing a pivotal role in the healthcare industry, distributing pharmaceuticals and manufacturing medical products and surgical equipment, investors don't need to worry about the demand for its products and services running out anytime soon.

On Nov. 5, 2020, the Ohio-based company released its first-quarter results for the period ending Sept. 30, 2020. Revenue totaling $39.1 billion for the quarter rose by 4.6% year over year. However, Cardinal incurred litigation accruals related to opioids of more than $1 billion, which sent its bottom line into the red with a net loss of $253 million. That's an improvement from the $5.6 billion litigation charge it recorded related to opioids in the prior-year period, when Cardinal incurred a net loss of $4.9 billion. While the litigation expenses are concerning, they are related to an agreement from October 2019 which would resolve any pending and future lawsuits related to opioids that states may file. But there's no guarantee that the company won't incur future expenses related to this (especially since the deal doesn't include private plaintiffs, and is still not final).

However, with a strong business that's generated free cash flow of more than $2.5 billion over the past four quarters, and with cash and cash equivalents of more than $2.7 billion as of its most recent quarterly results, the company is still in a good financial position today. Lawsuits, unfortunately, are par for the course for many healthcare companies, but that shouldn't deter investors from buying shares of Cardinal Health.

Today, the stock's dividend yields 3.5% -- higher than what you'll get with the typical stock on the S&P 500, where the average payout is just 1.6%. And with a payout ratio of around 60%, the company is in a great position to continue making dividend payments, even in light of some challenging quarterly results. The stock also trades at a cheap forward price-to-earnings (P/E) ratio of less than 10. That's a bargain compared to the 25 times earnings investors are paying for the average stock in the Health Care Select Sector SPDR Fund.

2. Johnson & Johnson

Johnson & Johnson is no stranger to litigation, as it has faced a slew of problems related to opioids, talc baby powder, side effects related to its Risperdal drug, and vaginal estrogen therapy. However, that hasn't stopped the company from continuing to pay dividends or recording strong profits.

Over the nine-month period ending Sept. 27, 2020, Johnson & Johnson's sales of $60.1 billion were down a fairly modest 2%, while net earnings of $13 billion were up 16.8% from a year ago due to a decline in non-operating expenses. And during the trailing 12 months, Johnson & Johnson has reported an impressive profit margin of 21%.

Its existing business is strong, and it could get a boost if the company's COVID-19 vaccine obtains emergency use authorization (EUA) from the U.S. Food and Drug Administration (FDA). On Jan. 13, the company released positive interim results from its phase 1/2a trials, in which a single vaccination was able to produce antibodies to fight the coronavirus in 90% of participants. The one-dose vaccine would be quicker to administer than vaccines from Pfizer and Moderna, which require two doses to be effective.

Not only is Johnson & Johnson a great COVID-19 stock to hold in your portfolio, it's also one of the best dividend investments you can own. Today, it yields 2.5%, and with a streak of increasing dividend payments now at 58 years, this isn't just an Aristocrat but a Dividend King. And if that weren't enough to make the stock a great buy, consider that it's also at a relatively cheap forward P/E of 18.

3. Kimberly Clark

Kimberly Clark holds many well-known consumer brands in its portfolio, including Cottonelle and Huggies. Its everyday household and personal products are sold all over the world, and that makes its business a fairly stable and diverse one to invest in.

It last reported its quarterly results on Oct. 22, 2020 for the period ending Sept. 30, 2020. Net sales of $4.7 billion for the third quarter were up 1% from the prior-year period. Its profits of $483 million were 29% lower than a year ago, but the prior-year results also included the gain from a sale of a manufacturing facility. During the pandemic, the company has benefited from consumers loading up on essentials. Consumer tissue sales were up 9% in Q3, while the personal care segment grew by 1%.

The stock is a great defensive one to invest in, both in good times and in bad, as its products will be in demand regardless of the current economic situation. That low volatility, combined with a solid dividend that yields 3.3% annually, makes Kimberly Clark a great option for income investors. The stock is on the cusp of becoming a Dividend King. In November, it hiked its payouts for the 48th year in a row. And to sweeten the deal, it's also a cheap buy, trading at a forward P/E of less than 17. That's low compared to Clorox and Colgate-Palmolive, which are trading at around 25 times their future earnings. 

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$179.76 (0.08%) $0.14
Pfizer Inc. Stock Quote
Pfizer Inc.
$54.64 (1.73%) $0.93
The Clorox Company Stock Quote
The Clorox Company
$145.60 (2.47%) $3.51
Cardinal Health, Inc. Stock Quote
Cardinal Health, Inc.
$57.76 (0.04%) $0.02
Kimberly-Clark Corporation Stock Quote
Kimberly-Clark Corporation
$133.13 (1.34%) $1.76
Colgate-Palmolive Company Stock Quote
Colgate-Palmolive Company
$78.05 (0.72%) $0.56
The Select Sector SPDR Trust - The Health Care Select Sector SPDR Fund Stock Quote
The Select Sector SPDR Trust - The Health Care Select Sector SPDR Fund
$131.86 (0.45%) $0.59
Moderna, Inc. Stock Quote
Moderna, Inc.
$133.91 (2.34%) $3.06

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

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