Dividend Aristocrats are companies in the S&P 500 that have increased their dividends for 25 consecutive years. Not only are they usually favorite stocks among income-seeking investors, but they are also often sought out for the quality and surety of their earnings. As such, investing in them is almost as much about a capital growth opportunity as it is a matter of income/dividends. In that vein of thought, here's why Raytheon Technologies (RTX 0.84%) and Emerson Electric (EMR -0.67%) are worth buying right now.
1. Raytheon Technologies: The pick of the aerospace and defense sector
Raytheon makes the list by dint of its commercial aerospace-focused businesses (Pratt & Whitney and Collins Aerospace) coming from the former United Technologies. As the name suggests, Raytheon Technologies is a combination of the former Raytheon Company (a defense-focused business) and the formerly mentioned United Technologies' aerospace businesses. Given the timing of the deal in 2020, Raytheon's shareholders were grateful for the earnings and cash flow from the defense-focused business during the worst of the pandemic lockdowns.
However, it's now time to turn the growth baton back to Pratt & Whitney and Collins Aerospace, as they enjoy a multi-year recovery in commercial air travel. The recovery won't be without turbulence -- see the comments of Boeing CEO David Calhoun on the ongoing supply chain issues in the industry -- but it is ongoing, and passengers have demonstrated a concerted determination to get back to the skies.
Moreover, due to the unfortunate circumstances of the conflict in Ukraine, Raytheon could see replenishment demand coming in for its Javelin (anti-tank munitions) and Stinger (portable air defense missiles) used in the combat theater. Also, there's likely to be a renewed focus on rearmament in light of the war. While Raytheon will surely suffer some supply chain disruptions in the second quarter, its long-term growth looks assured, and the stock represents a relatively safe option in the current environment.
Management believes it's on track for $10 billion in free cash flow (FCF) by 2025. Also, given that the current market cap is $135 billion, the stock looks a good value for long-term investors.
2. Emerson Electric: A dividend investor's favorite
The industrial conglomerate (automation solutions, climate technologies, tools & home products, plus a 55% stake in industrial software company Aspen Techology) takes dividends very seriously. Even as the business has been restructured in recent years (the network power business was sold in 2016, and most of its industrial software business was combined with AspenTech to create "new" AspenTech this year), management has kept on raising dividends. Moreover, there's reason to believe it can do so for many years to come.
Emerson has a short-term opportunity to benefit from increased spending on energy (from the 11% of its revenue coming from upstream oil & gas), but CEO Lal Karsanbhai is committed to selling its "commoditized upstream oil and gas businesses" so investors don't need to worry too much over long-term exposure to an industry threatened by the rise of renewable energy.
Furthermore, Emerson's process automation solutions are also used in alternative energy sources such as LNG, clean fuels, and renewables. Emerson's climate technologies business also has good long-term prospects, not least from the favorable trends in heating, ventilation, air conditioning, and refrigeration (HVACR). These trends include urbanization (city temperatures tend to be higher), demand from the growth of middle classes in emerging countries, cold-chain solutions (delivery of food and medical supplies using cold storage), and the need to ensure healthy, clean buildings (ventilation is key to cleaning building air).
With Emerson's FCF per share easily covering its dividend per share, the company can pay increased dividends for years to come.
Data by YCharts.
Moreover, its majority ownership of AspenTech gives it exposure to the faster growth potential of industrial software. Trading at less than 16 times estimated earnings in 2022, Emerson Electric is a good option for income-seeking investors.
