This is a tricky time for income investors. Interest rates broadly are still near their all-time lows, but the Federal Reserve anticipates numerous hikes to its benchmark fed funds rate through 2024. The prices of some dividend stocks are already starting to reflect this impending rise, but others aren't doing so yet. Shifts in a stock's dividend yield, of course, can result both from changes to the share price and from the company's decisions about how much it will pay out.
Even against the current backdrop, though, there are some dividend stocks with exceptionally solid track records that are buys at their current levels. These three Dividend Aristocrats would make good additions to your portfolio, not despite this environment but because of it.
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1. Cincinnati Financial
When investors think of Dividend Aristocrats, Cincinnati Financial (CINF -0.75%) isn't usually one that springs to mind. The life and business insurance company's modest market cap of $20 billion keeps it off of most people's radars. And, while its yield of 2.2% at current share prices is respectable, it's hardly jaw-dropping.
However, there's something that many people may overlook about Cincinnati Financial that should earn it more attention: Its dividend payout has been growing quickly in recent years. Management has boosted its quarterly payment from $0.40 per share 10 years ago to $0.69 now. That amounts to annualized payment growth of 5.6% -- an impressive rate that certainly outpaced inflation over that stretch.
It's also a reliable payout for all the right reasons.
While the insurance industry often faces unpredictable expenses like business disruptions linked to a worldwide pandemic and semi-predictable ones like those stemming from hurricanes, insurance companies are perpetually updating their premium models to reflect new types of risks, as well as changes to the costs of offering coverage for well-understood risks. These adjustments may not hit the books until a year after the risks become apparent, which can result in some tough fiscal years. Those price adjustments always materialize, though. The actuaries -- the statisticians and mathematicians of the business -- make sure of it.
Cincinnati Financial also brings in plenty of profits to cushion it. Though the company paid out more in dividends than it earned in the middle of 2020, that was a short-lived imbalance. The insurer earned a fairly typical total of $6.41 per share last year, but only paid out $2.52 per share in dividends.
2. International Business Machines
Yes, International Business Machines (IBM 1.05%) is a Dividend Aristocrat. It earned that status in April 2020 when it upped its annual dividend payment for a 25th consecutive year, though the news was mostly obscured by other, bigger things happening at the time. The company maintained its status by increasing its payout again last year.
But isn't IBM an increasingly irrelevant mess? And won't the company's recent spinoff of its infrastructure services business impact its dividend profile, effectively restarting the clock?
The answer to both questions is no, and for the same reason.
The spinoff of the managed infrastructure segment, now called Kyndryl (KD -1.41%) was not only a long time coming, but a much-needed move. The business units that remain under the IBM umbrella are hyper-focused on hybrid cloud computing and artificial intelligence, both of which are enormous growth opportunities. Last quarter's top line was up 8.6% year over year on a constant-currency basis, with hybrid cloud sales growing at 16%. That's solid, but it still reflects only a fraction of the trillion-dollar opportunity that IBM CEO Arvind Krishna thinks hybrid cloud computing is.
As for the separation of Kyndryl impacting the company's bottom line and per-share payout, most observers will understand the underlying math and adjust its payment history accordingly. Its status as dividend nobility isn't in any real jeopardy.
IBM's yield at current share prices is a surprisingly high 5.3%, suggesting most investors still don't see just how well this company has evolved away from its past and moved into more modern businesses.
3. Consolidated Edison
Finally, add Consolidated Edison (ED 0.64%) to your list of Dividend Aristocrats you should buy today if your portfolio needs reliable income streams. While its yield of just over 3.7% isn't as high as IBM's, what it lacks in sheer payout it more than makes up for in reliability.
This utility company, better known as ConEd, serves 10 million customers in and around New York City. It has upped its annual dividend payments for 48 consecutive years now -- the longest payment-boosting streak among utility stocks in the S&P 500. And there are no signs of that growth stopping anytime soon, nor even slowing.
Credit the nature of the business for those reliable payment increases. The world needs to keep the lights on, so ConEd's revenue is recurring. While utility companies must certainly watch their expenses and win approval from regulators for rate increases, those requests are rarely rejected. For perspective, New York City residents saw their electricity rates rise in 2020 as well as 2021, yet Consolidated Edison has successfully imposed price increases on those customers this year as well. These rate increases are more than enough to cover any past and prospective dividend payments. ConEd distributed dividends of $3.10 per share last year while earning $4.39 per share. That's a nice profit cushion should things turn fiscally complicated in the future.
