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2 Cheap Dividend Aristocrats You Can Buy and Hold for Decades

By David Jagielski – Jan 12, 2022 at 10:45AM

Key Points

  • Walgreens' dividend yield is more than double the S&P 500's payout.
  • Target is a new Dividend King that last raised its payouts by more than 32%.
  • Both stocks are cheap relative to their rivals and can be excellent investments.

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Use these stocks to fight inflation or just to help pay your bills.

Dividend stocks are a great way to boost your cash flow over the years. But to help combat inflation, you also want to consider stocks that increase their payouts to ensure the real income you are earning isn't decreasing. 

Two stocks that have raised their dividend payments for more than 40 years in a row are Walgreens Boots Alliance (WBA -0.14%) and Target (TGT 3.34%). And with above-average yields, they can be solid options for income-oriented investors.

A smiling couple counting money.

Image source: Getty Images.

1. Walgreens

Pharmacy giant Walgreens is coming off a strong quarter thanks to increased traffic due to COVID-19; Walgreens stores are convenient places for people to get vaccinated. For its first quarter ended Nov. 30, the retailer reported that it had administered 15.6 million vaccine doses, bringing its total since the start of the pandemic to more than 56 million.

All that foot traffic is leading to more in-store purchases. For the quarter, the company reported that comparable U.S. retail sales grew 10.6% -- the highest it has been in decades. It's also benefiting from strength in digital sales, which grew 88% year over year as same-day pick-up orders rose in popularity.

The neighborhood pharmacy is proving to be a trusted brand among consumers amid such a challenging time in the world, and that can translate into long-term stability for investors. Walgreens is building on that trust by launching primary care services at many of its locations. It has partnered with VillageMD with which it now has 81 co-located stores around the country -- and that number is projected to double by the end of the year.

Walgreens has an opportunity for growth down the road by focusing more on healthcare. And that will complement its already strong retail pharmacy business which can serve as a base. All this makes Walgreens one of the safest, high-yielding stocks you can own. The Dividend Aristocrat offers a 3.6% payout, far more than the S&P 500's 1.3%. Plus, it has been remarkably consistent, raising its payouts for 46 years in a row.

The healthcare stock is also cheap, trading at a forward price-to-earnings (P/E) multiple of less than 11, which is two points lower than that of rival CVS Health. With its low valuation, high yield, and growth opportunities, Walgreens may be one of the best buys out there today.

2. Target

With 50 consecutive years of dividend increases, this retail giant actually beats out Walgreens' record and falls into the even more exclusive club of Dividend Kings. While Target's current dividend yield of 1.6% may look low to short-term investors, buying and holding can earn you much more on your initial investment over time.

Target has demonstrated that it is willing to share the wealth with its investors. When it last announced a dividend hike in June 2021, it was a whopping 32.4% increase -- from $0.68 to $0.90 per quarter. Those types of boosts won't happen every year, and the company only did it because of its strong numbers due to the pandemic. Still, it's a great sign to investors that a dividend increase is a priority for the business.

In its third-quarter results for the period ended Oct. 30, Target saw revenue rise 13% year over year to $25.7 billion while operating profit increased 4% to $2 billion. That's even more impressive when you consider that's building off an already-impressive performance during the same period a year ago when Target's sales rose by 21% and its operating income jumped 93%.

The retail operator has, like Walgreens, been a convenient one-stop shop for consumers during the pandemic and is a brand that they've shown they trust. Although it doesn't pay a terribly high yield today, it's cheap compared to peers. Its forward P/E of 17 is well below that of big-box retailer Walmart whose investors are paying more than 22 times future earnings.

In short, Target is suitable for investors who just want to buy and hold their stocks a long time.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

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