Wednesday, April 12, 2017

17 Dividend Aristocrats for Further Research

Last week, I shared the 2017 list of dividend aristocrats. The most common question I received focused on which companies are attractively valued today, according to my criteria.

The criteria I use have been well publicized over the past decade. They are simple, but effective tools to help me identify companies to include for my diversified dividend portfolio. Obviously, since we are looking only at the list of dividend aristocrats, we are starting out with a group of companies which are already pre-screened for quality. After all, only a company with a strong business model can afford to raise dividends like clockwork for 25 years in a row, or longer. I love companies which can afford to raise dividends like clockwork. Warren Buffett also loves companies that raise dividends like clockwork. Some of Berkshire's largest positions such as Coca-Cola, American Express, Geico, IBM, Wells Fargo are examples of high quality dividend growth stars which have compounded nicely for decades.

The first criteria is to focus on companies whose P/E ratio is below 20. I focus on this rule, in order to avoid overpaying for companies. As we all know, earnings per share can be lumpy in the near term, and distorted by one-time events. While they are not perfect, I use forward earnings as a shortcut to quickly estimate earnings power without doing too much digging in the initial stage.

The second criteria is to avoid companies which have a dividend payout ratio above 60%. I want to focus on companies that can easily cover their dividend. I take the concept of margin of safety very seriously.

The third criteria I look at is growth in dividends per share. In retirement, we are looking for an income stream that will at least maintain its purchasing power from the destructive forces of inflation. In this case, I focused my attention on companies where annual dividend payments grew faster than 3%/year over the past decade.

Last, but not least, I also evaluate the trends in revenues and earnings per share over the past decade. As we are all well aware, without growth in earnings per share, future dividend growth will be hard to come by.

After accounting for all those factors, I came up with the following list of dividend aristocrats for further research.

COMPANY
TICKER
SECTOR
Years of Annual Dividend Increases
Forward P/E
Dividend Yield
Dividend Payout Ratio
10 Year Dividend Growth
Abbott Laboratories
ABT
Health Care
44
17.8
2.43%
43.29%
13.24%
AbbVie Inc.
ABBV
Health Care
44
11.8
3.90%
46.02%
10.25%
AFLAC Inc
AFL
Financials
34
11.5
2.34%
26.89%
11.68%
Becton Dickinson & Co
BDX
Health Care
45
19.5
1.59%
30.94%
12.16%
Cardinal Health Inc
CAH
Health Care
29
15.2
2.20%
33.44%
22.70%
General Dynamics
GD
Industrials
25
19.2
1.79%
34.37%
12.81%
Genuine Parts Co
GPC
Consumer Discretionary
61
18.9
3.01%
56.83%
6.92%
Grainger W.W. Inc
GWW
Industrials
45
19.3
2.13%
41.06%
15.84%
Johnson & Johnson
JNJ
Health Care
54
17.7
2.57%
45.55%
8.03%
Leggett & Platt
LEG
Consumer Discretionary
45
19.4
2.66%
51.65%
6.86%
Lowe's Cos Inc
LOW
Consumer Discretionary
54
17.8
1.70%
30.24%
22.92%
Medtronic plc
MDT
Health Care
39
17.5
2.14%
37.48%
14.66%
PPG Industries Inc
PPG
Materials
45
17
1.51%
25.71%
5.03%
Stanley Black & Decker
SWK
Industrials
49
18.7
1.75%
32.74%
6.71%
T Rowe Price Group Inc
TROW
Financials
31
14.4
3.25%
46.73%
14.45%
VF Corp
VFC
Consumer Discretionary
44
17.9
3.07%
54.98%
12.17%
Walgreens Boots Alliance Inc
WBA
Consumer Staples
41
16.6
1.82%
30.18%
17.83%

This list is not an automatic buy recommendation for you to act upon however. You need to analyze each business, and determine for yourself if it is a good fit for your portfolio. Building a dividend portfolio takes time and patience. First of all, we are assuming that the investor regularly saves money to invest for their future. In addition, the number and variety of quality companies available for sale varies from month to month. Furthermore, some of the companies may not be good additions for a portfolio which is overweight in them.

As a future retiree, I am looking for dependable dividend income which can grow above the rate of inflation. I plan on living off dividends in retirement. I am fine if I underperform all benchmarks out there, as long as my organic dividend income grows above the rate of inflation over time.

If an investor had decided to purchase more than one dividend stock at once, they could potentially use a low-cost broker like Motif Investing. Motif Investing would allow an investor to purchase up to 30 individual securities for a low price of $9.95/trade. This keeps costs low for anyone who invests $1,000 - $2,000 per transaction.

Full Disclosure: I have a position in ABT, ABBV, AFL, BDX, GD, GPC, GWW, JNJ, LOW, MDT, TROW, VFC, WBA, IBM, KO, WFC, BRK/B

Relevant Articles:

Dividend Aristocrats List for 2017
Dividend Growth Stocks Protect Investors from Inflation
Create Your Own Dividend ETF With Motif Investing
Dividend Aristocrats for Dividend Growth and Total Returns
Warren Buffett’s Dividend Stock Strategy