5 Dividend Aristocrats to Buy

In the world of investing, few things are as stable as the so-called dividend aristocrats, a collection of blue-chip stocks that are included in the S&P 500 index and have increased their annual dividends for a minimum of 25 consecutive years.

 

These companies are historically good investments for those seeking income from their portfolios. Here are 5 top dividend aristocrats to buy if you’re looking for yield.

 

When it comes to dividend aristocrats, it doesn’t get much better than telecom giant AT&T (NYSE:T). This legacy company currently yields 8.62 percent for an annual dividend of $1.11 per share. This represents the single highest yield among the dividend aristocrats by a large margin and is only about 2 percent below the average historical return of the S&P 500 index.

While such high yields can suggest that a company is facing financial difficulties, AT&T seems to be an exception to this rule. The company generated $168.9 billion in consolidated revenues in 2021 and had free cash flows of $26.8 billion. Adjusted EPS rose from $3.18 in 2020 to $3.40 in 2021. 

 

However, AT&T should be viewed with a bit more skepticism than other aristocrats on the list. Its heavy debt load and management’s decision to reduce the dividend suggests high dividend payout is less safe than more modest yielding companies on this list.

 

With that said, in the coming 12 months, AT&T could also produce some considerable gains for investors through rising share prices. The median analyst price target is $28. This would result in a gain of 18.4 percent, not including the additional returns contributed by the company’s sizeable dividend.

 

While significantly below AT&T in terms of yield, manufacturing firm Leggett & Platt (NYSE:LEG) still provides an excellent dividend that has proven stable over the course of many years. The company’s yield is currently 4.61 percent, translating to an annual payout of $1.68 per share.

 

The growth in Leggett & Platt’s dividends has been extremely reliable, albeit somewhat slow. Since 2015, the company has raised its quarterly payouts by $0.02 each year. Nevertheless, as the second-highest yield among the dividend aristocrats, the company has generated strong dividend returns for its long-term shareholders.

The company is also on quite strong ground in terms of business performance. According to its Q4 reporting, Leggett & Platt reached a record full-year EPS of $2.94, up from $2.78 in 2020.

 

Sales for the quarter also reached a record high at $1.33 billion. For 2022, the company projects further growth with sales of $5.3-5.6 billion and EPS as high as $3 per share.

 

Analysts project robust share price growth for Leggett & Platt in the coming year, adding to its already strong dividend returns. The median price target for the stock is $45.50, up 29.7 percent against the current price at the time of writing.

 

Even the lowest price target, $41, would represent a gain of 16.9 percent. Unless the company substantially underperforms, investors can expect excellent returns over the next 12 months.

 

Walgreens Boots Alliance (NASDAQ:WBA), better known simply as Walgreens, falls only slightly below Leggett & Platt in terms of its yield.

 

The stock maintains a current yield of 4.02 percent or $1.91 per share annually. Thanks to its broad exposure to the pharmacy retail business, Walgreens has been able to significantly capitalize on the pandemic over the last two years.

In 2021, Walgreens’ sales rose by 8.6 percent to reach $132.5 billion. Adjusted full-year EPS also showed strong growth, rising by 14.6 percent to a total of $4.91.

 

At the same time, efforts to control costs delivered considerable savings, supporting higher margins going forward. According to the company’s reporting, these initiatives saved some $2 billion in 2021 and were a full year ahead of their planned schedules.

 

Analyst price targets give WBA stock an upside of 17.2 percent over the next 12 months at the median, assuming a rise from $43.58 to $51. Based on this target, it appears that the dividend aristocrat still has room to grow.

 

The gradual winding down of the pandemic may slightly hamper Walgreens’ growth rate, but the company appears to be in a good position to increase its valuation and continue raising its dividends going forward.

 

As the leading energy stock among the dividend aristocrats, Exxon Mobil (NYSE:XOM) is a historic favorite of long-term investors seeking income from their portfolios. At the time of this writing, Exxon stock yields 4.2 percent for an annual dividend of $3.52 per share.

 

Exxon is uniquely positioned to benefit from rising oil prices. In 2021, it paid down some $20 billion of debt with revenue from prices that were beginning to trend upward.

 

Those developments, however, came before the Russian invasion of Ukraine earlier this year that sent global oil prices heading for the stratosphere. With even higher oil prices setting in, it seems likely that Exxon and other oil majors will be able to increase the revenues from their existing business lines.

Also adding to the appeal of Exxon is the fact that the company continues to generate excellent earnings and cash flow. Full-year earnings for 2021 totaled $23 billion or $5.39 per share. Operating cash flow was extremely strong at $48 billion, the highest level in nearly 10 years.

 

Where Exxon does fall somewhat flat, however, is in its share price potential over the coming 12 months. Analyst forecasts give the stock a median target price of $88, up just 6 percent over the current price of $83.02.

 

Taking the dividend into consideration, however, this still leaves Exxon able to produce a decent overall return. While it will likely see lower returns over the next year than some of the other stocks listed above, a combination of yield and actual share price growth should still make Exxon a good buy.

 

Last among the top five dividend aristocrats is Franklin Resources (NYSE:BEN). This multinational holding company currently yields 4.15 percent for an annual dividend of $1.16.

 

The company has also had some recent good news with a significant earnings beat in its Q4 reporting. Franklin Resources was projected to earn $0.98 per share but outperformed with $1.08. This was also a marked gain from the same quarter in the previous year when the company earned just $0.73 per share.

Other bright spots in the Q4 reporting included an operating margin of 39.8 percent and a 3 percent growth in assets under management from the previous quarter. At the end of Q4, the company was managing a total of $1.58 trillion in total assets. Operating revenue grew by 11 percent year-over-year to reach $2.22 billion in the fourth quarter.

 

The average target price for Franklin Resources is $36.29, up nearly 30 percent from the current trading price at the time of research.

 

This gives Franklin Resources the highest likely upside among the five top dividend aristocrats, narrowly edging out Leggett & Platt. Paired with its excellent dividend history and high yield, Franklin Resources seems to be a stock that could be a good buy for the coming year.

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