3 Dividend Aristocrats That Will Keep Paying in 2023

Markets have been choppy this year and they could be choppy again in 2023 given all of the volatility in the broader economy at the moment.

For investors not interested in jumping on this volatile stock ride, the best alternative might be to seek passive income through strong dividend-paying stocks. A good place to look for passive income is among Dividend Aristocrats, which are companies in the S&P 500 that have not only paid a dividend for at least 25 consecutive years, but also increased their dividend annually in that time frame. 

These stocks have been battle tested through recessions and have still been able to raise their dividends. Here are three Dividend Aristocrats that I expect to keep paying in 2023.

1. Target

It hasn't been an easy year for Target (TGT 0.70%) with its stock down about 37% in 2022, but the retail giant has been paying out and increasing its dividend for 51 straight years and I doubt it's going to want to end this streak any time soon.

As a retail giant, Target's business is heavily impacted by the health of the consumer, which has started to wane recently. In its third-quarter earnings report, Target's CEO Brian Cornell said that at the end of the quarter, "sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty."

But despite the issues, Target raised its dividend this year by 20% and now has an annual dividend yield of 2.7%.

Now, due to the slowdown in its business, Target was left with the wrong kind of excess inventory on its shelves as consumers shifted their spending habits away from discretionary items. Target has also seen its cash position fall from roughly $5.9 billion at the very start of this year to less than $1 billion at the end of the third quarter, which isn't exactly reassuring.

But Target has now repositioned its inventory, which, while painful in the near term, should pay off long-term. Considering management's track record, the 20% raise is likely an indication that Target can maintain its status as a Dividend Aristocrat, so while the next few quarters may not be easy, I expect the dividend to remain strong and keep growing long-term.

2. Realty Income

Many real estate investment trusts (REITs) have certainly had their struggles since the pandemic, but if you can find a good one, it can be one of the best sources of passive income. That's because REITs receive special tax treatment and in return must pay out 90% of their annual taxable income in dividends.

Realty Income (O 0.95%) is a triple-net-lease operator that purchases retail properties, most of which are single-tenant, and then leases those properties back to the tenants, who are responsible for upkeep and maintenance costs. Realty Income's portfolio consists of more than 11,700 properties in all 50 states of the U.S. as well as Puerto Rico, the United Kingdom, and Spain. The portfolio is also quite diverse with 79 separate industries and 1,100 different clients.

Realty Income generated 4.4% compound annual dividend growth rate since 1994 and raised its dividend on 117 different occasions over 28 years. The company now has an annual dividend yield of 4.26%.

Furthermore, adjusted funds from operations (AFFO) per share of $2.92 through the first nine months of the year have easily been able to cover dividend payouts of $2.22. Considering this is a company with above-average AFFO annual growth, I am confident it will be able to keep growing the dividend.

3. Cincinnati Financial

Property and casualty insurer Cincinnati Financial (CINF -1.51%) has now raised its dividend for an astounding 61 straight years, and now has an annual dividend yield of about 2.7%. This year the company raised its common dividend by 9.5%.

Like most insurers, Cincinnati Financial invests premiums it receives from customers into securities such as stocks and bonds. Cincinnati is unique because it invests a larger portion of its cash into equities than your standard insurance company. Currently, bonds and stocks are struggling, so the company has taken billions in investment losses this year, impacting its book value.

However, these are just paper losses and can reverse as the assets regain their value in the future. Cincinnati Financial was also impacted by expenses from Hurricane Ian and inflationary pressure, which has hopefully peaked. Additionally, the company is still generating enough operating cash flow to more than cover the dividend.

After six decades of raises, I am confident in management's ability to continue to grow the dividend.