Please ensure Javascript is enabled for purposes of website accessibility

3 Dividend Aristocrats to Buy and Hold Forever

By Reuben Gregg Brewer - Feb 27, 2021 at 10:51AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you want to own great companies, this trio of iconic dividend stocks should be right up your alley.

Everything is relative in the investment world, and sometimes long-term dividend investors need to consider lower-yielding names that are trading at attractive yields compared to their own histories. That's exactly the case today with 3M (MMM -2.13%), Hormel Foods (HRL 0.94%), and Federal Realty Investment Trust (FRT). Each of these Dividend Aristocrats deserves a very close look from the buy-and-hold crowd right now. 

1. An industrial giant

Formerly known as Minnesota Mining and Manufacturing, 3M has increased its dividend every single year for over six decades. That not only makes it a Dividend Aristocrat, but some would call it a Dividend King (meaning it has 50-plus years of annual hikes). Here's the thing: The yield is "only" 3.3% today. But that's toward the high end of the company's historical yield range. In fact, the yield hasn't been this high since the 2007-to-2009 recession. 

The word dividend in yellow with a jagged rising graph below it.

Image source: Getty Images.

The reason for the current state of affairs is that the stock is roughly 30% below its early 2018 highs. The main cause of this is a pair of lawsuits around product quality and production practices. The hit could be material, but 3M is a $100-billion-market-cap company with an investment-grade credit rating and highly diversified and reliable business. It should be able to handle the hit and keep rewarding investors for years to come.

That's not meant to diminish the lawsuits in any way, just to put the headwind into a broader context. If you can handle a little uncertainty while this issue plays out, now could be a good time to add this iconic industrial stock to your portfolio. 

2. The SPAM company

If you don't know the name Hormel, you probably do know SPAM. However, that's just one of the protein-focused food maker's many leading-name brands. Hormel's roughly 2.1% yield is even less exciting than 3M's, but as in 3M's case, Hormel's diminutive yield is toward the high end of its historical range. As for dividend increases, Hormel has amassed a 54-year streak of annual hikes. 

Why is the company's yield so high? There are two reasons. First, Hormel has been shifting its business away from commodity meat products. That's required a number of acquisitions and divestitures that have put investors a little on edge, since not every deal has worked out as well as hoped. The second reason is more specific to the current pandemic environment. Hormel has a sizable business selling directly to restaurants, and foodservice sales are down 23% in fiscal 2020, with weakness spilling over into the first quarter of fiscal 2021. However, that business should come back over time as the world moves past the coronavirus. 

And, with a still strong balance sheet (debt to equity is just 0.2 times), Hormel is embarking on yet another acquisition, with plans to add the Planters brand to its portfolio later in the year. Hormel already has a nut business, so this brand fits into its existing portfolio well and expands the company's reach materially in the convenience sector, which it currently has minimal exposure to. It should be a long-term growth driver. If you don't mind sitting tight as Hormel deals with adversity and continues to expand its portfolio, now could be a good time to jump aboard. 

MMM Dividend Yield Chart

MMM Dividend Yield data by YCharts

3. A well-positioned landlord

Hormel and 3M are pretty iconic names in their sectors, and people will likely know them, or at least the products they make. But real estate investment trust (REIT) Federal Realty generally flies under the radar, despite its over-five-decade-long streak of annual dividend increases. This is because the landlord isn't the public face of its properties -- its tenants are.

But the real value of the roughly 100 properties that Federal Realty owns is their location, location, location, as the old real estate saying goes. Indeed, the REIT has long focused on owning retail centers (largely anchored by grocery stores) and mixed-use developments in wealthy and population-dense regions. 

Compared to the other two names here, Federal Realty's 4.2% yield looks absolutely generous, but it's actually not that inspiring for a REIT. Still, the yield hasn't been as high as it is today since the 2007-to-2009 recession. The reason for the elevated yield is that the coronavirus pandemic has led to an uptick in vacancies and rent collection issues at the company's properties. However, management expects the business to bottom out in the first half of 2021 and then start to rebound. In a sign of strength, it increased the dividend in 2020 despite the temporary headwinds it is facing. If you can handle a brief bit of adversity while Federal Realty retenants its portfolio, the yield on offer from this Dividend Aristocrat looks very enticing. 

The art of being reliable

When you step back and think about it, achieving Dividend Aristocrat status is an incredible accomplishment. That said, 3M, Hormel, and Federal Realty have achieved the requisite 25 years of annual dividend increases two times over. They are the epitome of reliable dividend payers, which should interest any dividend-focused investor.

And while their yields may not be huge, they are high relative to their own histories, suggesting that now is an opportune time to buy even though they are all facing some adversity. Backing that view up is the fact that, with at least five decades of annual dividend increases under each of their belts, they've clearly survived hard times before -- and continued to reward their loyal investors. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

3M Company Stock Quote
3M Company
MMM
$143.83 (-2.13%) $-3.13
Hormel Foods Corporation Stock Quote
Hormel Foods Corporation
HRL
$48.26 (0.94%) $0.45
Federal Realty Investment Trust Stock Quote
Federal Realty Investment Trust
FRT

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.