Smart investors know the Dividend Aristocrats as excellent long-term investments. Not only does this group of stocks consistently increase their dividends year after year, but many of these stocks outperform the market over long periods of time.
We asked three of our analysts which Dividend Aristocrats they like in 2015, and here is what they had to say.
Matt Frankel
My favorite Dividend Aristocrats right now are the big oil companies on the list, especially Chevron (CVX 0.95%) because of its high dividend and low risk, and the fact that it has a lot of upside potential. Its an excellent idea to get some exposure to the oil sector while prices are depressed, and provide your portfolio with both safety and income. Chevron is expected to earn more than enough to cover its dividend (even if low oil prices persist), and its dividend yield is one of the highest of all the Dividend Aristocrats.
Since peaking this past summer, Chevron shares have lost more than 20% of their value thanks to the rapid decline in oil prices. While earnings will almost certainly suffer in the near future if low oil prices linger for a while, it should just be a temporary issue. Many experts expect oil to rebound to at least the $70-$80 range by the end of 2015, which is reflected in the company's projected earnings. The analysts who follow Chevron are indeed projecting a sharp decline in earnings to $5.81 per share in 2015 -- about 40% less than the company is expected to report for 2014. However, this amount is expected to rebound substantially to $8.60 per share in 2016. In other words, when you consider that Chevron trades for 12.5 times 2016's projected earnings, the stock doesn't sound so expensive after all.
Chevron has delivered extremely impressive performance over the years, with total returns averaging 13% annually for the past 20 years, which factors in the recent share price decline, and it has raised its dividend for 29 consecutive years. Chevron is yielding about 4% per year, which should be sustainable even as the company rides out the current storm.
So, while it may indeed take a couple of years for the oil sector to truly rebound, Chevron will pay you a very nice dividend for your patience, and should produce excellent returns in your portfolio for years to come.
Jason Hall
VF Corporation (VFC 0.84%) stock had a total return last year of 22% -- about double the S&P 500 -- and it's a little on the "pricey" side with a price to earnings multiple over 25. Further, it's only yielding 1.5% right now. Sounds like a terrible dividend stock, right? The reality is, the company is a great growth prospect.
Sales and earnings per share have grown 66% and 184% over the past five years. Management is projecting another 41% sales growth over the next three years. EPS is expected to climb 53% from current levels.
What's driving this growth? Brand and distribution power, and growing demand as the world's middle class expands. VF's brands are some of the most recognized in the world, like Vans, The North Face, Timberland, and Wrangler. The company's efforts to increase online and international distribution are adding significant sources of profitable business, in places where demand should only increase going forward.
The dividend has been increased 20% each of the past three years, and management intends to increase it regularly in line with EPS growth. If you're looking for a company that's growing its payouts, versus income today, VF Corporation deserves a close look.
Dan Caplinger
Smart dividend investors know that even among the Dividend Aristocrats, there are many names that fly beneath the radar. One of those is industrial company Illinois Tool Works (ITW 1.00%), which has quietly put together a track record of 40 consecutive annual dividend increases. The company makes a wide variety of different types of equipment, ranging from welding supplies and equipment and food-services machines to testing and measurement devices and automotive systems.
Recently, Illinois Tool Works has been firing on all cylinders, especially taking advantage of the health of the U.S. auto industry, but also seeing solid gains from the food, welding, and test and measurement businesses as well. Moreover, Illinois Tool Works has worked on becoming more efficient through its enterprise strategy, looking to boost operating margins and cut back on wasteful expenses. In its most recent earnings report, the company said that it expected earnings growth of more than 25% for the full 2014 year, and as the U.S. economy continues to strengthen, Illinois Tool Works is in good position to take advantage of lower energy costs to further boost its results. Over time, that should allow Illinois Tool Works to enhance its current 2.1% yield and give dividend investors more of what they want.
