3 Dividend Aristocrats For Growth And Income

This is a guest post by Bob Ciura of Sure Dividend. Bob spends his time performing fundamental, bottom-up equity research on dividend stocks for Sure Dividend’s website, publication partners, and premium investing newsletters.

3 Dividend Aristocrats For Growth And Income

The recent volatility in the U.S. stock market is a reason for income investors to become more defensive. The ongoing coronavirus crisis, along with the potential for a global recession, mean that income investors could benefit by focusing on high-quality dividend growth stocks. At Sure Dividend, we believe the Dividend Aristocrats represent some of the best dividend growth stocks to buy and hold for the long-term.

The Dividend Aristocrats are a group of 66 stocks in the S&P 500 Index, with 25+ consecutive years of dividend increases. These stocks have maintained their dividend increases every year, even during recessions. They broadly have leadership positions in their respective industries, with durable competitive advantages.

As a result, the Dividend Aristocrats are likely to hold up relatively well, if the U.S. economy is about to enter a recession. The following three Dividend Aristocrats are good examples of companies that are likely to maintain their dividend growth, even during the coronavirus crisis.

Dividend Aristocrat #1: Pentair (PNR)

Pentair was founded in 1966. In the decades since, the company diversified itself into a number of different areas. The Pentair of today is a pure-play water company, which is a fundamentally secure industry, as water is a necessity of life. The company is now a global leader in water solutions, with 2019 revenue of $3 billion, and approximately 120 locations in 25 countries.

In 2019, adjusted earnings-per-share of $2.38 increased 1.3% from the previous year. The company remained highly profitable and registered modest growth, which allowed it to raise its dividend by 6% along with its quarterly earnings report. This represents the 44th consecutive year of dividend growth for Pentair.

Pentair should be able to continue growing its dividend in the years ahead, because of its highly defensive business model. It operates in the water solutions industry, by providing a wide range of products and services used by individuals and businesses. Pentair is not immune from recessions, but it has the ability to remain profitable because it delivers necessary products and services.

For example, while Pentair’s earnings-per-share declined by 33% in 2009, during the Great Recession, the company remained profitable and quickly returned to growth. Earnings-per-share increased by 36% in 2010 and 21% in 2011. Therefore, we believe the company will maintain its dividend even in an upcoming recession.

Dividend Aristocrat #2: Chevron Corporation (CVX)

Chevron is an oil and gas giant, with an integrated business model that includes upstream exploration and production, along with midstream storage and transportation, as well as downstream refining. It is unusual for companies operating cyclical business models (such as oil and gas) to maintain long histories of annual dividend increases. Indeed, there are just two energy sector companies on the list of Dividend Aristocrats (the other being Exxon Mobil).

Chevron has increased its dividend for 33 years in a row, including an 8% increase in 2020. Chevron recently announced it will trim 2020 capital expenditures by $4 billion, a 20% reduction. It will also suspend its share buybacks, but the company has reiterated that its dividend is its top priority.

The company’s future growth will be fueled primarily by production growth, as oil and gas prices remain at depressed levels. Fortunately, Chevron has an impressive lineup of future projects that are ramping up.  In late January, Chevron reported (1/31/20) financial results for the fourth quarter of fiscal 2019. In the quarter, production remained flat over the prior year’s quarter but in the full year it grew 4% thanks to strong growth in the Permian Basin. The company achieved record annual net oil-equivalent production of 3.06 million barrels per day in 2019. And, Chevron added approximately 494 million barrels of net oil-equivalent proved reserves in 2019.

Chevron’s annualized dividend payout of $5.16 per share represents a high yield of 6.2%. This makes Chevron one of the highest-yielding Dividend Aristocrats today. The dividend appears secure, as the company’s capital expenditure reductions and integrated business model help provide some protection against weak commodity prices.

Dividend Aristocrat #3: Leggett & Platt (LEG)

Leggett & Platt is an engineered products manufacturer. The company’s products include furniture, bedding components, store fixtures, die castings, and industrial products. The company qualifies for the Dividend Aristocrats Index as it has 48 years of consecutive dividend increases. Leggett & Platt was founded in 1883, is headquartered in Carthage, MO, and is currently valued at $3.5 billion.

The company has generated steady growth for many years, and 2019 was another year of strong results for Leggett & Platt. The company reported its fourth quarter earnings results on February 3. The company reported revenues of $1.14 billion for the quarter, which represents an 8.6% growth rate compared to the prior year’s quarter. Revenues missed the consensus analyst estimate slightly. The company’s revenue growth was based on a 13% sales gain thanks to the impact of acquisitions, while the company’s decision to exit some businesses resulted in a small headwind to revenues.

Leggett & Platt generated earnings-per-share of $0.68 during the fourth quarter, which represents a solid gain of 10% versus earnings-per-share of $0.62 during the previous year’s quarter. Leggett & Platt’s earnings-per-share for the fourth quarter also beat the analyst consensus estimate slightly.

The company is vulnerable to recessions as its business model is reliant on a healthy global economy. As a result, fears of a global recession have caused the stock to decline by over 40% year-to-date. But long-term investors should view this decline as a buying opportunity, as Leggett & Platt possesses durable competitive advantages. Investors should expect the company to return to growth once the coronavirus crisis is over.

In the meantime, the stock is attractively valued, with a high dividend yield. Shares trade for a price-to-earnings ratio of 11.5, while the stock has a current dividend yield of 5.6%. Therefore, future shareholder returns could be quite attractive at the current price.

Key Takeaways

The coronavirus crisis has caused fears of an upcoming recession. In times of great uncertainty, investors should focus on the best companies that are most likely to survive the crisis. This is why we continue to recommend the Dividend Aristocrats, which have proved the ability to navigate recessions while maintaining annual dividend increases to shareholders. The three Dividend Aristocrats on this list have competitive advantages and long-term growth potential that should allow them to continue raising their dividends for years to come.


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