Whenever a company manages to increase its dividend payment for 25 years in a row, it joins an elite group of companies known as the Dividend Aristocrats. It takes a proven business model to provide that kind of stability, especially considering the financial storm that essentially every company went through in the financial crisis of 2008. When you can find one of these gems trading at a discount, it can be a good idea to tuck a few shares away in your portfolio..
Knowing that, we asked our team of Motley Fool contributors to highlight a dividend aristocrat that they think is a great buy right now. Here's what they had to say:
Brian Feroldi: The dividend aristocrat that I like most right now is pharma giant Abbvie (NYSE:ABBV). Since it split off from its parent company Abbott Laboratories (NYSE:ABT) in 2013, its stock has been a monster winner, leaving the returns of both the S&P 500 and its former parent in the dust.
AbbVie's megablockbuster drug Humira, which treats a variety of diseases including arthritis, continue to add billions to the company's top line, and is driving much of the revenue growth, which was up an impressive 19.4% in the most-recent quarter when you look at its operations (which ignore currency movements). AbbVie also has several other drugs that are growing quickly, as well as its cancer treatment Imbruvica, Hepatits C treatment Viekira Pak, and digestive health medication Creon. When combined with the the company's cost-cutting efforts, profits grew a strong 31% compared to the year-ago period.
Growth should continue well into the future, as its acquisition of Pharmacyclics should be accretive to earnings by 2017. Biologics may prove to be a long-term threat; but with AbbVie's shares currently yielding 3.6%, and its stock trading for around 11 times 2016 earnings estimates, I think the risk is more than priced in. I consider AbbVie to be a solid choice for investors who want to add some yield to their portfolios.
Selena Maranjian: If you're in the market for a dependable income-generating stock, check out the steel specialist Nucor (NYSE:NUE). It has dropped more than 10% during the past year, and its recent and forward-looking price-to-earnings ratios are 20 and 14, respectively, well below its five-year average of 38. That suggests undervaluation. Meanwhile, its dividend yield recently sat at a solid 3.6%, with the company having paid 170 consecutive quarterly dividends in a row.
It's not all unicorns and rainbows for Nucor right now, though. The U.S. steel industry is facing tough competition from imported steel, while low oil prices have depressed the oil industry, leading to lower demand for steel pipes, among other things. On the plus side, the auto industry is selling a lot of cars, which require a lot of steel, and a recovering housing market will boost demand, as well.
Nucor's problems are not likely to vanish in the near term, but they're not likely to last forever, either. In the meantime, Nucor is one of the most efficient steel companies around. It's raking in close to $20 billion annually, and has generated positive free cash flow in each year except one during the past decade.
It has also been investing in improving its operations, which positions it well for future growth. For example, it bought Skyline Steel in 2012, and has been investing in direct-reduced iron (DRI) manufacturing. With more than $1.6 billion in cash and manageable debt levels, it's ready to capitalize on other opportunities, too.
Steel is a cyclical business, meaning investors should expect lumpiness in demand, prices, and corporate fortunes. Patient believers in Nucor can collect a reliable dividend while waiting for market conditions to improve.
Cheryl Swanson With 53 incredible years of dividend increases under its belt, Johnson and Johnson (NYSE:JNJ) is a stock I own based on a simple threefold strategy: find management you trust, find a company that rewards shareholders, and hang on.
About half of J&J's sales are overseas, so it's no surprise that the multinational's third-quarter earnings were squeezed by a stronger dollar. Still, as CEO Alex Gorsky pointed out, "new and core products drove solid underlying growth in the quarter." Looking closer, overall earnings topped expectations. Gorsky also lifted the floor on the full-year earnings outlook to $6.15 to $6.20 a share from an earlier range of $6.04 to $6.19.
The market is an irrational beast, which makes it even more appealing to find a safe haven like J&J. Since 2000, J&J has grown its dividend between a high single-digit percentage and low double-digit percentage each year, and the yield is now a strong 3.15%.
In addition, according to FactSet, the company's stock trades for a little more than 15 times forward earnings. That's below its two-year average of 16.2. Bottom line: While foreign-exchange headwinds aren't likely to ease anytime soon, a choice like J&J can lead to a secure stream of income to weather almost any storm.
Eric Volkman: One of my favorite Aristocrats is also one of the less famous. It's HCP (NYSE:HCP), incidentally one of only a handful of real estate investment trusts with Aristocratic status. HCP owns and landlords hospitals, medical offices, life science facilities, nursing homes... really, almost any kind of property associated with the healthcare sector.
Given that the massive baby-boomer generation is entering its twilight years, that's been a particularly good business of late. In the first six months of this year, HCP's revenue increased by 14%, while adjusted funds from operations -- a key profitability metric for REITs -- rose 6%. And HCP keeps adding income-generating properties to its portfolio, to the point where total assets under management recently reached more than $24 billion.
Meanwhile, the stock is a bargain these days. It has fallen by 13% so far this year, due in no small part to concerns about an expected interest rate hike from the Fed (which, theoretically, squeezes profitability because it makes a REIT's funding sources more expensive). But if any REIT can outpace pricier funding with organic growth, it's this one. Besides, that weakened price has strengthened the dividend yield; it now stands at a beefy 5.9%.
Sean Williams: If you're looking for a Dividend Aristocrat with a rich payout history and the wherewithal to survive even the bleakest of recessions, then I'd suggest turning your attention to supplemental health and life insurance provider Aflac (NYSE:AFL).
One recent hindrance, which should soon translate into a benefit, is historically low lending rates in the United States. Insurers have pools of money that they use to pay claims and their day-to-day operations, which is called their float. But their float doesn't just sit around in a vault collecting dust. Insurers like Aflac invest their float in short-term fixed-income instruments such as U.S. Treasury bonds. These tools are interest sensitive, and when the Federal Reserve decides to hike lending rates, it should translate into more investment income for insurers of all walks.
Another important point is that Aflac generates about three-quarters of its business from Japan, and the remainder from the United States. The vast majority of its Japanese business is reported in yen, but is translated back into U.S. dollars. In the second quarter, the average yen/dollar exchange rate was 15.7% lower than last year. This does have a negative impact on Aflac's top- and bottom-lines; but investors need to understand that currency fluctuations are beyond the control of the company. Looking at things on an apples-to-apples basis, Aflac's year-over-year EPS declined a more reasonable 1% compared to the 10% top-line figure inclusive of the currency move.
Additionally, Insurers always have superior pricing power in their back pockets. If there's a catastrophe, insurers have all the recourse needed to raise premiums in order to ensure they have adequate capital to pay affected members. However, even in low-claim periods, insurers can still bump insurance rates higher as a way of staying ahead of the curve for when the next catastrophe strikes.
Sporting a market-topping 2.6% yield, a very modest payout ratio of 26% (implying plenty of dividend expansion potential), and riding a 32-year streak of annual dividend increases, I certainly wouldn't call you "quackers" for digging deeper into Aflac.