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3 Dividend Aristocrats That Need to Be on Your Radar for 2022

By Eric Volkman – Jan 6, 2022 at 11:00AM

Key Points

  • For such a large and well-established business, McDonald's has proven surprisingly nimble.
  • AT&T is becoming a leaner and more focused business as the 5G-upgrade cycle cranks up.
  • Realty Income is a top retail REIT that operates a bulging portfolio.

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This trio has excellent potential for powerful growth ahead.

There's a reason Dividend Aristocrats are among the most popular stocks on the market. After all, to make this exalted list, a company must raise its dividend every year for at least 25 years. Only the most durable, cash-generating businesses are able to maintain such a streak.

But there are some Dividend Aristocrats that have even more going for them than that lofty standard. Here are three that should benefit strongly from current and upcoming trends this year: McDonald's (MCD 0.93%), AT&T (T 1.40%), and Realty Income (O -0.54%).

DIVIDEND written in wooden blocks.

Image source: Getty Images.

1. McDonald's

Is there a more resilient restaurant stock than McDonald's? In its recent history, the classic American burger joint has not only survived the global shift to healthier food choices, but has also made its way through a pandemic. As proof of what a smart and effective operator it is, the company has continued to post excellent growth on both the top and bottom lines.

For such a large and well-established business, McDonald's is surprisingly nimble. Not letting health-food purveyors steal its lunch, the company unveiled a set of healthier menu options years ago; many are still popular choices at its restaurants. And there's no need to seek out a local designer coffee after your meal since the company's McCafe provides a brew that is well in demand by customers.

When the pandemic came along, McDonald's strong technological backbone enabled it to weather the challenges better than most food businesses. Adjustments to its drive-thru facilities have made it a comfortable choice for diners unwilling or unable (due to sporadic closures) to eat inside restaurants.

Meanwhile, such innovations as the increasingly ubiquitous ordering kiosks inside its restaurants should make the McDonald's experience even quicker and more efficient once in-restaurant dining again becomes the norm. And the drive-thru should continue to be a busy locale for drivers seeking a quick dinner, lunch, or coffee pickup.

As it has for so many years, McDonald's looks set to have a fine 2022 full of growth. Investors should also get a few more coins in their pockets as the Dividend Aristocrat will almost certainly bump up its payout again. At the moment, the company's quarterly dividend is $1.13 per share, bringing the yield to just under 2.1% -- notably better than the S&P 500's 1.3%.

2. AT&T

A dog of a stock last year, AT&T is primed and ready for a rebound in 2022. It's becoming a leaner and more focused business just as the 5G-upgrade cycle is cranking up. This technology is certain to lead to even more customer time spent watching videos and cruising the internet -- and it should allow AT&T to sell more premium plans and devices compatible with the technology.

Meanwhile, the company is jettisoning the massive entertainment-content business it was saddled with for years, which never quite meshed with its core telecom operations.

Smartly, AT&T will use a big chunk of the incoming monies from these deals to help pay down its massive debt (over $177 billion at the end of last September). As those borrowings get trimmed, interest expenses on the profit and loss statement will come down, allowing for improved profitability. Many investors on the sidelines should then take a renewed interest in the stock.

AT&T's quarterly dividend is $0.52 at the moment. However, the slimming-down company has said it will reduce its dividend after the spinoff, in no small part to devote more funds to debt servicing. At that point, it will cease being a Dividend Aristocrat.

Yet, AT&T is well aware that a handsome payout is a big part of its stock's appeal, so we can expect the company to at least keep the amount competitive. Some analysts speculate that the cut will put the dividend at just under $0.29, providing a yield of almost 4.6%. That would add extra incentive to snap up shares of this well-positioned company while they're cheap and haven't yet come back into favor.

3. Realty Income 

Not only is Realty Income a Dividend Aristocrat, but this sturdy real estate investment trust (REIT) also pays out on a monthly basis rather than the once-per-quarter model that's standard for most dividend stocks. It manages to distribute its earnings so frequently because it's bringing in millions of dollars every month.

That's because Realty Income is a top retail REIT that operates a bulging portfolio (7,018 properties at last count) of retail locations throughout the U.S. and, increasingly, overseas. As such, it gets a torrent of rent money 12 times per year. And this torrent only gets stronger as a typical Realty Income lease is long term and mandates modest but constant annual increases. Also, this well-managed operator is constantly expanding its footprint with new leasable spaces.

These are all reasons why Realty Income's revenue and cash flow (known in this sector as "funds from operations") have generally continued their upward trajectory -- even through the challenges of the coronavirus pandemic, which hit the retail sector especially hard.

At present, the monthly payout is just under $0.25 per share, providing a healthy yield of almost 4.2%. Over the course of 2021, Realty Income declared five dividend raises (albeit marginally in each instance). We can certainly expect many more in the coming years.

Although it might be difficult to conceive just now, we will get past the pandemic at some point. When that begins to occur, the retail sector should experience a monster recovery -- as will Realty Income.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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