In this article, we discuss 10 best dividend aristocrat stocks to buy and hold now.
The AI sector maintained its momentum unabated in the second quarter of 2024, with tech stocks continuing to lead the charge. Despite the Fed scaling back rate cut expectations from three to one at the quarter’s outset, stocks surged to end in positive territory by quarter-end. This was buoyed by better-than-expected inflation numbers and strong first-quarter earnings. The broader market gained 3.48% in Q2 2024 and its 12-month returns came in at over 23.4%. Dividend stocks underperformed the broader market recently, but with tech giants now beginning to issue dividends, analysts are optimistic about dividend prospects this year. The recent addition of Alphabet to the dividend-paying group suggests that these mega-cap tech companies could increase their dividends gradually over time. However, analysts caution that current dividend yields from these stocks remain relatively modest.
In the current market environment, investors are keenly exploring opportunities to boost their income. Despite their low performance so far this year, dividends gain importance in this regard as they have historically been crucial in generating returns for investors over many decades. Since 1960, approximately 85% of the total cumulative return of the S&P 500 Index can be traced back to reinvested dividends and the compounding effect they offer.
When we talk about the compounding effects of dividends, we refer to the advantages they provide, particularly when they grow consistently over time. This growth allows for larger dividend payouts which, when reinvested, can further accelerate the overall investment return through compounding. In addition to providing compounding effects, companies that raise their dividends have also historically outperformed the market and those companies that cut or don’t pay dividends at all. According to data by Ned Davis Research and Hartford Funds, dividend growers and initiators have delivered a 9.62% return to shareholders from 1972 to 2018, compared with an 8.78% return of dividend payers. Dividend growers also outperformed dividend non-payers, who returned only 2.40% during this period. Read more about dividend growers in our article, Best Dividend Kings to Buy for Safe Dividend Growth.
A company’s past track record of growing dividends is often the best crystal ball for predicting future growth. A low payout ratio, which measures dividends against earnings, also signals potential for future dividend growth. High dividend yields can falter in tough times, precisely when investors rely on them most. Companies with a history of dividend growth demonstrate their resilience, continuing to increase dividends even in downturns. Currently, there is rising demand for companies that distribute dividends, driven by an aging US population, seeking additional sources of immediate income. According to a report by Janus Henderson, global dividends reached $1.66 trillion in 2023, growing from $1.23 trillion in 2020. The banking sector achieved record-high dividends last year, accounting for half of the global dividend growth. This increase was largely facilitated by a higher interest rate environment, which allowed many banks to expand their profit margins. The firm expects global dividends to reach their all-time high of $1.72 trillion in 2024, which would show a 3.9% growth from 2023 on a headline basis.
Companies that consistently raise their dividends have strong business models and solid balance sheets. In this article, we will take a look at some of the best dividend aristocrat stocks for dividend growth.
Photo by Karolina Grabowska: https://www.pexels.com/photo/hands-holding-us-dollar-bills-4968630/
Our Methodology:
For this article, we scanned the list of Dividend Aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. From that list, we picked 10 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the first quarter of 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. A. O. Smith Corporation (NYSE:AOS)
5-Year Annual Dividend Growth Rate: 8.46%
A. O. Smith Corporation (NYSE:AOS) is an American manufacturing company that specializes in residential and commercial water heaters for its consumers. The company reported strong Q1 earnings due to increased sales of commercial high-efficiency water heaters and reduced steel costs in North America, where demand for water heaters remained strong. In addition, the company achieved a 6% sales growth in China, despite ongoing macroeconomic challenges, thanks to the positive market reception of its newly launched kitchen products. The company expects that sales from North America boiler and water treatment business will grow approximately 8% to 10% in 2024.
A. O. Smith Corporation (NYSE:AOS) benefits a lot from its global presence, which enables it to capitalize on an energy efficiency-driven replacement cycle in the US and growth in emerging markets in India and China. The company reported a 16% YoY growth in sales in India as demand was strong across all its segments. That said, China’s market is unpredictable due to geopolitical tensions and uncertainties about sustainable growth, with residential demand influenced by the overall housing industry trends.
As a dividend growth stock, A. O. Smith Corporation (NYSE:AOS) is favored among investors because of its dividend growth streak, which spans over 30 years. Moreover, in the past five years, the company has raised its payouts at an annual average rate of 8.46%, which makes it one of the best dividend aristocrat stocks. Currently, it offers a quarterly dividend of $0.32 per share and has a dividend yield of 1.60%, as of July 2. The company has the potential to raise its dividends in the future as well because of its strong cash flow generation. In the first quarter of 2024, it generated $106.6 million in operating cash flow and its free cash flow amounted to over $84.6 million. The company aims to spend $300 million in share repurchasing in 2024.
At the end of Q1 2024, 30 hedge funds tracked by Insider Monkey reported having stakes in A. O. Smith Corporation (NYSE:AOS), down from 33 in the previous quarter. These stakes have a total value of more than $1 billion. Among these hedge funds, Select Equity Group was the company’s leading stakeholder in Q1. The hedge fund also increased its AOS stake by 546% during the quarter.
9. Roper Technologies, Inc. (NASDAQ:ROP)
5-Year Annual Dividend Growth Rate: 10.36%
Roper Technologies, Inc. (NASDAQ:ROP) is a Florida-based company that manufactures and distributes industrial equipment. The company has expanded through acquisitions over the years, and the first quarter of 2024 continues this trend. During the quarter, the company acquired Procare Solutions, a software firm, for $1.75 billion. Procare, which develops cloud-based software for child-care centers and early childhood education facilities, is expected to generate approximately $260 million in revenue for the 12 months ending March 2025. With significant M&A capacity and a strong pipeline of attractive acquisition opportunities, the company is well-positioned to implement its disciplined and process-driven deployment strategy. It has a capacity of over $4 billion in capital deployment. Since the start of 2024, the stock is up by over 5% and its 12-month returns came in at nearly 18%.
In the first quarter of 2024, Roper Technologies, Inc. (NASDAQ:ROP) reported revenue of $1.68 billion, which showed a 14.3% growth from the same period last year. Moreover, its revenue has jumped from $4 billion in 2020 to $6.1 billion in 2023. The company has total debt of $7.7 billion but with the debt-to-equity ratio of 0.4, it shouldn’t be a cause of concern for investors. For dividend investors, cash flow is the lifeblood of any business. Roper Technologies, Inc. (NASDAQ:ROP) has a trailing twelve-month free cash flow of nearly $2 billion, up from $1.4 billion in 2020. In Q1 2024, the company generated $513 million in free cash flow and $531 million in operating cash flow, showing YoY growth from $445 million and $465 million, respectively.
On June 12, Roper Technologies, Inc. (NASDAQ:ROP) declared a quarterly dividend of $0.75 per share, which was in line with its previous dividend. Overall, the company has been growing its payouts for 32 consecutive years, which makes it one of the best dividend aristocrat stocks on our list. In the past five years, it has raised its dividends by over 10% on average. The stock’s dividend yield on July 2 came in at 0.53%.
The number of hedge funds tracked by Insider Monkey owning stakes in Roper Technologies, Inc. (NASDAQ:ROP) grew to 43 in Q1 2024, from 38 in the previous quarter. These stakes are valued at over $2.3 billion in total. With over 1.4 million shares, Akre Capital Management was the company’s leading stakeholder in Q1.
8. NextEra Energy, Inc. (NYSE:NEE)
5-Year Annual Dividend Growth Rate: 10.74%
NextEra Energy, Inc. (NYSE:NEE) is another best dividend aristocrat stock on our list with 28 consecutive years of dividend growth under its belt. The renewable energy company owns Florida Power & Light Company (FPL), which is the largest electric utility in the US. It delivers clean, affordable, and reliable electricity to its 5.9 million customer accounts, serving over 12 million people throughout Florida. Approximately 70% of the company’s operations are linked to FPL, which recently experienced its most significant quarterly customer growth in over 15 years, adding more than 100,000 new customers compared to the same period last year.
Increasing the customer base contributes significantly to growth by expanding the number of electricity consumers. Management has leveraged this strong foundation to establish one of the largest solar and wind power companies globally. According to analysts, the company is poised for continued expansion, with management aiming to more than double its capacity by the end of 2027. This will also contribute to its dividend growth in the future. Continued expectations indicate around 10% annual growth in dividends per share through at least 2026.
NextEra Energy, Inc. (NYSE:NEE) expects to benefit from rising electricity demand in the upcoming years. In one of his recent interviews, the company’s CEO, John Ketchum, highlighted with investors that US power demand is expected to surge by 38% over the next two decades, marking a significant increase compared to the growth rate observed in the previous 20 years. The company foresees renewables and battery storage playing a crucial role in meeting this heightened demand. Currently, NextEra Energy, Inc. (NYSE:NEE) boasts a strong pipeline of 300 gigawatts in renewable energy and storage projects.
NextEra Energy, Inc. (NYSE:NEE) offers a quarterly dividend of $0.515 per share and has a dividend yield of 2.95%, as of July 2. The company’s five-year average dividend growth rate stands at 10.74%, which places it as one of the best dividend aristocrat stocks on our list.
NextEra Energy, Inc. (NYSE:NEE) was a part of 72 hedge fund portfolios at the end of Q1 2024, up from 65 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a total value of more than $1.73 billion.
7. T. Rowe Price Group, Inc. (NASDAQ:TROW)
5-Year Annual Dividend Growth Rate: 11.01%
T. Rowe Price Group, Inc. (NASDAQ:TROW) is an investment management company that offers a wide range of related services through its subsidiaries. The company also manages various funds, accounts, and retirement plans. There is no doubt in the fact that the company operates in a fluctuating business environment due to its revenue model, which relies on charging fees to manage investments for its clients. These fees are typically tied to assets under management (AUM), meaning the company’s earnings can vary based on changes in the value of the assets it oversees for its customers. However, T. Rowe Price Group, Inc. (NASDAQ:TROW), with its extensive history, has developed resilience and expertise in navigating the fluctuations and challenges of Street volatility over the years.
In May, T. Rowe Price Group, Inc. (NASDAQ:TROW) reported growth in its AUM to $1.54 trillion from $1.49 trillion in April end. The management attributes this growth to favorable market conditions. However, the main reason to consider the company in your investment portfolio is that it has no long-term debt on its balance sheet. This financial strength provides the company with significant flexibility to sustain its business operations and maintain dividends regardless of market cycles.
In the first quarter of 2024, T. Rowe Price Group, Inc. (NASDAQ:TROW) reported revenue of $1.74 billion, up from $1.53 billion during the same period last year. The company’s net operating income jumped to $586.6 million, from $484.2 million in the prior year period. The company also remained committed to its shareholder obligation during the quarter, returning $365 million to investors through dividends and share repurchases.
T. Rowe Price Group, Inc. (NASDAQ:TROW), one of the best dividend aristocrat stocks, holds a 38-year track record of consistent dividend growth. The company’s current quarterly dividend comes in at $1.24 per share with an impressive dividend yield of 4.36%, as of July 2. In the past five years, it has raised its payouts at an annual average rate of over 11%.
As of the end of Q1 2024, 24 hedge funds in Insider Monkey’s database owned stakes in T. Rowe Price Group, Inc. (NASDAQ:TROW), compared with 32 in the previous quarter. These stakes have a total value of more than $938 million. Ken Griffin’s Citadel Investment Group was the company’s leading stakeholder in Q1.
6. S&P Global Inc. (NYSE:SPGI)
5-Year Annual Dividend Growth Rate: 11.09%
S&P Global Inc. (NYSE:SPGI) is a New York-based capital market company that mainly provides services in financial information and analytics. The company remained popular among elite funds in the first quarter of 2024 as hedge fund positions in the company jumped to 97, from 82 in the previous quarter, according to Insider Monkey’s database. The stakes held by these hedge funds have a consolidated value of over $9.5 billion.
Establishing a presence in the credit ratings industry is challenging due to regulatory requirements and high barriers to entry. In addition, building a strong reputation and earning the trust of investors takes considerable time. S&P Global Inc. (NYSE:SPGI) currently dominates this industry, benefitting from a strong economic moat that ensures stability and consistent cash flows for the company. Its trailing twelve-month (TTM) free cash flow is approximately $4 billion, significantly outpacing its competitor Moody’s, whose TTM free cash flow amounts to just $2 billion.
Analysts are giving a positive outlook for the credit ratings industry, rebounding from a decline it suffered in 2022. S&P Global Inc. (NYSE:SPGI) finalized a $44 billion all-stock acquisition of IHS Markit that year, significantly broadening its information and analytics capabilities. While this move expanded the company’s market presence, it also impacted the company’s return on invested capital. In addition, the continued hikes in interest rates during this period also put additional pressure on the stock price. However, conditions have begun to improve. In the first quarter of 2024, the company observed the highest level of debt issuance since 2021.
Oppenheimer presented a bullish outlook on the capital markets sector in July. The firm expects the sector to outperform in the coming quarters. The firm maintained a Buy rating on S&P Global Inc. (NYSE:SPGI). On June 24, the company announced that Martina Cheung, currently serving as the president of S&P Global Ratings, will succeed Douglas Peterson as president and CEO, starting November 1, 2024. The stock is up by over 2.2% since the start of 2024.
S&P Global Inc. (NYSE:SPGI) has been growing its dividends for the past 51 years and in the past five years, it has raised its payouts at an annual average rate of over 11%. The company pays a quarterly dividend of $0.91 per share and has a dividend yield of 0.82%, as of July 2.
While we acknowledge the potential of SPGI as an investment, our conviction lies in the belief that deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is as promising as SPGI but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
5. Target Corporation (NYSE:TGT)
5-Year Annual Dividend Growth Rate: 11.44%
Target Corporation (NYSE:TGT) is a retail corporation that operates a chain of discounted department stores and hypermarkets. The company has been a strong dividend payer mainly due to its stable cash flow generation. It has a trailing twelve-month free cash flow of $3.1 billion and an operating cash flow of $8.4 billion. Moreover, the company’s low payout ratio of 49% contributes a lot to its dividend increases and shareholder returns. In the first quarter of 2024, it returned $508 million to shareholders in dividends, compared with $497 million in the same period last year. On June 12, the company declared a 2% hike in its quarterly dividend to $1.12 per share. Through this increase, the company stretched its dividend growth streak to 53 years, which makes TGT one of the best dividend aristocrat stocks on our list. Its 5-year average annual dividend growth rate stands at 11.44%. As of July 2, the stock has a dividend yield of 3.08%, much higher than Walmart’s dividend yield of 1.38%.
Target Corporation (NYSE:TGT) has consistently prioritized innovative shopping experiences for its customers. In addition, the company is expanding its focus on expanding its e-commerce presence through marketplace initiatives. Recently, the company unveiled a collaboration with Shopify, a global commerce platform, to feature a range of popular merchants and their products on Target Plus. This partnership enhances the company’s third-party digital marketplace, providing customers with a carefully curated selection of goods. TGT has surged by nearly 8% over the past 12 months.
Target Corporation (NYSE:TGT) reported mixed results in the first quarter of 2024. The company sales and margin saw significant growth during the pandemic due to customer’s inclination toward online shopping. Since then, the company has been struggling to reach that level due to supply chain disruptions, inflation, and reduced consumer spending on non-essential items. In the first quarter of 2024, the company reported revenue of $24.5 billion, which fell by 3.12% from the same period last year. Its comparable sales, though in line with expectations, also fell by 3.7% compared to the prior-year period.
At the end of March 2024, 67 hedge funds tracked by Insider Monkey held stakes in Target Corporation (NYSE:TGT), growing significantly from 58 in the previous quarter. These stakes are collectively valued at more than $2.26 billion. Among these hedge funds, Diamond Hill Capital was the company’s leading stakeholder in Q1.
4. Abbott Laboratories (NYSE:ABT)
5-Year Annual Dividend Growth Rate: 12.05%
Abbott Laboratories (NYSE:ABT) is a global healthcare company that specializes in a wide range of related services and products. The company benefits from the defensive nature of its industry, where essential medical treatments take precedence over discretionary spending. In addition, the company’s business is diversified across three other segments: established pharmaceuticals, nutrition, and diagnostics. This diversification enables the company not to overly rely on any single segment of its business. Its diagnostic segment has been facing a decline in demand following the pandemic. In 2023, the company’s diagnostic revenues came in at over $9.9 billion, falling from $15.5 billion in 2021. However, despite this setback, Street analysts are optimistic, forecasting that the company will achieve 11% growth in revenues in both 2024 and 2025.
Abbott Laboratories (NYSE:ABT)’s medical device segment continues to be the primary growth driver for the company, encompassing essential products such as heart failure treatments and diabetes care solutions. Its medical dividend segment generated over $16.8 billion in revenues in 2023, up from $14.4 billion in 2021. The first quarter of 2024 marks the company’s fifth consecutive quarter of achieving double-digit organic sales growth in its core business segments, with notable strength seen in medical devices and established pharmaceuticals.
Over the past five years, Abbott Laboratories (NYSE:ABT) has raised its dividends at an annual average rate of over 12%. The company pays a quarterly dividend of $0.55 per share and has a dividend yield of 2.13%, as of July 2. With a 52-year streak under its belt, ABT is one of the best dividend aristocrat stocks on our list.
Insider Monkey’s database of Q1 2024 indicated that 62 hedge funds owned stakes in Abbott Laboratories (NYSE:ABT), down slightly from 64 in the previous quarter. The collective value of these stakes is more than $2.7 billion.
3. Automatic Data Processing, Inc. (NASDAQ:ADP)
5-Year Annual Dividend Growth Rate: 12.2%
Automatic Data Processing, Inc. (NASDAQ:ADP) is a New Jersey-based management services company that offers a wide range of services, including payroll processing, tax administration, and human capital management. The company is a leading player in the payroll and human capital management software industries. This diverse presence ensures that the company is not dependent on the success of any single customer, industry, or company.
Automatic Data Processing, Inc. (NASDAQ:ADP) reported strong fiscal Q3 2024 earnings due to healthy new business bookings and high client retention. Its commitment to delivering innovative products, differentiated services, and exceptional experiences has led to record-high client satisfaction this fiscal year. With a stable demand for human capital management (HCM), the company is focused on executing successfully in the upcoming quarters and building momentum in fiscal 2025.
Automatic Data Processing, Inc. (NASDAQ:ADP) reported revenue of nearly $5.3 billion in fiscal Q3 2024, up from $4.9 billion during the same period last year. The company’s net earnings for the quarter also jumped to $1.2 billion, from $1 billion in the prior-year period. As a dividend company, it has carefully managed its cash flow, enabling it to consistently increase its payouts year after year. In the most recent quarter, the company generated nearly $3 billion in operating cash flow.
Automatic Data Processing, Inc. (NASDAQ:ADP) currently offers a quarterly dividend of $1.40 per share and it supports a dividend yield of 2.39%, as of July 2. It is one of the best dividend aristocrat stocks on our list as the company has been raising its payouts for 49 consecutive years. Moreover, its 5-year average annual dividend growth rate is over 12%.
According to Insider Monkey’s database, 52 hedge funds in Insider Monkey’s database owned stakes in Automatic Data Processing, Inc. (NASDAQ:ADP), compared with 54 in the previous quarter. The total value of these stakes is over $3.8 billion. Citadel Investment Group remained bullish on the stock during the quarter, boosting its position in the company by 787%.
2. Nordson Corporation (NYSE:NDSN)
5-Year Annual Dividend Growth Rate: 14.2%
Nordson Corporation (NYSE:NDSN) is an American multinational manufacturing company that designs and produces dispensing equipment used for applying adhesives, sealants, coatings, and other materials. The company’s business model allows it to significantly benefit from acquisitions and partnerships. In fact, in fiscal Q2 2024, the company’s sales saw a positive acquisition impact of 5%. In May, the company announced its acquisition of Atrion for $460 per share in cash, totaling approximately $800 million. This acquisition aims to broaden Nordson Corporation’s (NYSE:NDSN) medical portfolio by entering new markets and therapies.
S&P Global Ratings noted that Nordson Corporation’s (NYSE:NDSN) acquisition of Atrion will slightly increase its adjusted debt leverage, but it will remain around the mid-2x level, which is within the acceptable range for its current rating. The firm believes that the company can use its free cash flow and synergy opportunities to keep leverage in the 2x-3x range over the next 12-24 months. Despite recent demand challenges, the company’s manageable leverage and strong EBITDA margins support its ratings. The firm believes that the company will continue using its free cash flow and incremental debt to finance acquisitions, thereby enhancing its organic growth.
In fiscal Q2 2024, Nordson Corporation (NYSE:NDSN) reported revenue of $651 million, which showed a slight 0.08% growth from the same period last year. Year-to-date its operating cash flow came in at $295 million, up from $288 million in the prior-year period. During the quarter, the company returned over $77.7 million to shareholders through dividends.
Nordson Corporation (NYSE:NDSN), one of the best dividend aristocrat stocks on our list, currently offers a quarterly dividend of $0.68 per share. The company holds a 60-year streak of consistent dividend growth and its five-year annual average dividend growth rate comes in at 14.2%. As of July 2, the stock has a dividend yield of 1.20%.
At the end of March 2024, 23 hedge funds tracked by Insider Monkey reported having stakes in Nordson Corporation (NYSE:NDSN), up from 19 in the preceding quarter. The total value of these stakes is more than $76.3 million.
1. Lowe’s Companies, Inc. (NYSE:LOW)
5-Year Annual Dividend Growth Rate: 18.04%
Lowe’s Companies, Inc. (NYSE:LOW) tops our list of the best dividend aristocrat stocks with an 18.04% annual average dividend growth over the past five years. The home improvement retailer operates a network of 1,700 stores across the US, offering a wide range of related products catering to both do-it-yourself (DIY) enthusiasts and professional customers. The company derives the majority of its total revenue from DIY shoppers. However, in the most recent quarter, the company mentioned that demand for DIY projects has decreased as consumers are now directing their spending more toward travel and dining out.
In addition to DIY projects, Lowe’s Companies, Inc. (NYSE:LOW) faces ongoing challenges in the current macroeconomic climate. Higher interest rates and persistent inflationary pressures have dampened consumer enthusiasm for large purchases and costly home renovation projects. Despite these challenges, the company remained financially stable. It has maintained consistent profitability, with its trailing twelve-month operating margin of 12.42%. The company’s revenue for Q1 2024 came in at $21.4 billion, which beat analysts estimates by $256.5 million.
Lowe’s Companies, Inc. (NYSE:LOW) remains committed to a disciplined capital allocation strategy aimed at creating long-term, sustainable shareholder value. In the most recent quarter, the company repurchased around 3 million shares amounting to $743 million, and paid out $633 million to shareholders through dividends. The company offers a quarterly dividend of $1.15 per share and has a dividend yield of 2.17%, as of July 2. It is one of the best dividend aristocrat stocks on our list as the company has been growing its dividends consistently for the past 60 consecutive years.
As per Insider Monkey’s database of Q1 2024, 60 hedge funds owned stakes in Lowe’s Companies, Inc. (NYSE:LOW), down from 68 in the previous quarter. The consolidated value of these stakes is over $2.4 billion. With over 1.4 million shares, Soroban Capital Partners was the company’s leading stakeholder in Q1.
While we acknowledge the potential of LOW as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than LOW but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
