In this article, we will take a look at some of the best dividend aristocrat stocks.
Dividend Aristocrats refer to companies with a strong track record of increasing their dividends for at least 25 consecutive years. These stocks are often favored by investors due to their reputation as dependable sources of income. A company’s ability to raise dividends consistently over decades is considered an indicator of financial resilience and stability. In addition, these stocks have demonstrated strong long-term performance, often surpassing other asset classes. According to a ProShares report citing FactSet data, the Dividend Aristocrat Index delivered a notable return of 27.7% between March 2022 and April 2023, outperforming the broader market, which posted a 25.2% return over the same period.
A company’s history of annual dividend increases, regardless of its length, does not guarantee that future payouts are secure. However, when management frequently highlights these streaks in earnings calls and annual reports, it suggests a strong commitment to maintaining and growing dividends when making capital allocation decisions. Even so, history shows that some Dividend Aristocrats have had to reduce their payouts, leading to their removal from the list.
The year 2020 served as a significant test of dividend durability among these companies. When the COVID-19 pandemic struck in March, consumer demand in several industries declined sharply. As a result, numerous companies either cut or suspended their dividends, some voluntarily and others as a condition of accepting government stimulus funds. By the end of 2020, a total of 66 companies in the broader market had distributed less in dividends than they had in 2019, according to a report by Morningstar.
While a dividend cut poses a risk, it can also create opportunities. Short-term investors focused solely on high dividends often sell their shares when a company reduces its payout. This can open the door for long-term, value-oriented investors to purchase shares at more attractive prices. Simon Adler, value equity fund manager at Schroders, made the following comment about this:
“We would never tell a company what its dividend should or should not be. Instead, we prefer to afford the management teams of companies in which we invest the space and the confidence to cut their dividend if they feel it is unsustainable or the money is better spent elsewhere. Far better it takes that approach than overstretch its balance sheet to pay a dividend it cannot afford.”
Dividend-paying stocks are often linked to value investing, as they typically offer higher yields and stronger financial fundamentals compared to growth stocks. A report from S&P Dow Jones Indices noted that income-focused investment strategies tend to exhibit characteristics associated with value stocks. Companies with high dividend yields and lower valuations frequently draw investor interest. However, the report also highlighted that the Dividend Aristocrats Index is not strictly value-focused. Instead, it maintains a balance between growth and value stocks. A long-term analysis of the index from 1999 to 2022 showed that, on average, 59.04% of its holdings fell into the value category, while 40.94% were classified as growth stocks. Given this, we will take a look at some of the best dividend aristocrat stocks.
Our Methodology:
For this list, we scanned the list of the Dividend Aristocrats, the stocks that have raised their payouts for 25 years or more. From this group, we identified 10 stocks with the lowest price-to-earnings (P/E) ratios. The chosen stocks featured in the list exhibit a forward P/E ratio below 25 as of February 14. The stocks are ranked in ascending order of their P/E ratios.
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10. International Business Machines Corporation (NYSE:IBM)
Forward P/E Ratio: 23.8
International Business Machines Corporation (NYSE:IBM) is an American multinational tech company that offers a wide range of related services and products to its consumers. Oppenheimer believes that investors have yet to fully recognize the company’s shift toward a stronger focus on software. The investment firm began coverage of the tech giant with an “Outperform” rating. Analyst Param Singh set a price target of $320 per share, indicating a potential upside of approximately 28%. Singh also expects IBM’s valuation to increase over time as the market gains a better understanding of its strategic move toward software.
In the fourth quarter of 2024, International Business Machines Corporation (NYSE:IBM) announced revenue of $17.6 billion, marking a 1% increase from the same quarter in the previous year. The Software segment saw double-digit revenue growth, driven by strong demand for Red Hat. Businesses across the globe are turning to IBM for AI-powered transformation, with its generative AI segment exceeding $5 billion in total revenue—an increase of nearly $2 billion from the prior quarter.
International Business Machines Corporation (NYSE:IBM) reported a strong cash performance in 2024, generating $13.4 billion in operating cash flow and $12.7 billion in free cash flow. During the fourth quarter, IBM distributed $1.5 billion to shareholders through dividend payments. It currently offers a quarterly dividend of $1.67 per share and has a dividend yield of 2.57%, as of February 14. IBM is one of the best dividend aristocrat stocks as the company has raised its payouts for 29 consecutive years.
9. Dover Corporation (NYSE:DOV)
Forward P/E Ratio: 21.55
Dover Corporation (NYSE:DOV) is an American manufacturer of industrial products, headquartered in Illinois. The company offers a diverse range of innovative equipment and components. Dover has been adapting to an evolving industrial environment characterized by strategic transitions and market fluctuations. As it gears up for future expansion, both investors and analysts are keeping a close watch on its performance and key decisions. This in-depth review explores the company’s latest financial results, strategic initiatives, and market standing to offer insight into its current position and growth potential. In the past 12 months, the stock has surged by over 26%.
In the fourth quarter of 2024, Dover Corporation (NYSE:DOV) reported revenue of $1.9 billion, reflecting a 1% increase. GAAP earnings from continuing operations totaled $238 million, marking an 8% decline, while GAAP diluted EPS from continuing operations dropped 7% to $1.72. On an adjusted basis, earnings from continuing operations remained steady at $305 million, with adjusted diluted EPS rising 1% to $2.20.
Dover Corporation (NYSE:DOV)’s cash position also remained strong. The company ended the quarter with over $1.8 billion available in cash and cash equivalents, up significantly from $400 million in the same period last year. In FY24, it generated over $1 billion in operating cash flow. The company offers a quarterly dividend of $0.515 per share and has a dividend yield of 1.02%, as of February 14. It holds one of the longest dividend growth streaks in the market, spanning over 68 years, which makes DOV one of the best dividend aristocrat stocks on our list.
