In this article, we discuss the 3 high-yield dividend aristocrats for income now.
Many investors, such as retirees, want to invest in dividend stocks that to help live off the income they receive. Income stocks can also be attractive due to their ability to generate cash flow that can be reinvested consistently, which makes for easier-to-stomach market downturns.
No matter why one invests in income stocks, one attractive sub-group consists of the Dividend Aristocrats.
A Dividend Aristocrat is a company that has managed to grow its dividend for at least 25 years in a row, which means that these companies have increased their payouts even during past crises such as the pandemic, the Great Recession, and the bursting of the dot.com bubble.
The reliability and recession resilience that these companies promise make them attractive for income investors looking for below-average risk picks. In this article, we’ll showcase three Dividend Aristocrats that offer high dividend yields at current prices and that could thus be worthy of further research for income investors.
3. 3M Company (NYSE:MMM)
3M Company (NYSE:MMM) is a large and diversified technology company that manufactures a very wide range of goods, from industrial products such as adhesives to personal protective gear such as helmets and earplugs. The very diversified end markets 3M sells mean that the company has been relatively resilient versus past industry downturns. When one end market is weak, this can oftentimes be balanced out by strength in other end markets.
This allowed 3M to be more resilient than most of its technology/industrial competitors and explains how 3M managed to grow its dividend for an ultra-impressive 64 years in a row.
At current prices, 3M offers a dividend yield of 5.2%, based on the current annual dividend of $5.96 and a share price of $115. With a dividend yield this high, not a lot of dividend growth or share price appreciation is needed to make 3M a compelling investment. Nevertheless, the company has a very solid dividend growth rate, as it managed to increase its payout by a little more than 5% a year over the last five years. Between the current starting dividend yield and the recent dividend growth rate, annual returns in the 10%+ range seem achievable.
Due to 3M’s currently pretty inexpensive valuation, actual returns could be even higher. 3M is trading for just 11x forward net profits, whereas we deem a mid-to-high-teens earnings multiple more appropriate, based on 3M’s past resilience and very strong dividend growth track record that makes it valuable for income investors.
The currently pretty low valuation can be explained by the market’s worries about lawsuits against 3M due to faulty earplugs, but it seems unlikely that those will threaten the company in the long run. Near-term issues that lead to very low valuations can provide attractive buying opportunities for companies that have a high likelihood of stomaching these near-term issues.
2. Realty Income Corporation (NYSE:O)
Realty Income Corporation (NYSE:O) is a triple-net lease REIT that primarily invests in retail properties. But unlike mall REITs, the retail space Realty Income invests in is very resilient. Dollar stores, pharmacies, groceries, post offices, and similar businesses belong to its tenants. Those are needed even during a recession, and the threat from online competitors is pretty small — which differentiates Realty Income’s tenants from brick-and-mortar retailers that sell apparel or books.
This is why Realty Income has not come under significant pressure during past crises. In fact, its funds from operations-per-share continued to climb even during 2020 and 2021, as the pandemic and related lockdowns did not bring down Realty Income’s earnings generation potential. Demand for its retail space remains very strong, as occupancy rates have hit a 10-year high in summer 2022.
This resilience has allowed Realty Income to increase its dividend for 26 years in a row, making it one of just a few REITs that have achieved Dividend Aristocrat status. At current prices, Realty Income’s dividend yield stands at 5%, which is above average both relative to the broad market’s yield and relative to where Realty Income’s yield stood in the past.
The company has grown its dividend and its FFO-per-share at a mid-single-digit pace in recent years, which makes it likely that investors will see similar dividend growth in the foreseeable future. Total returns in the 10% range, therefore, look achievable, especially since Realty Income is currently trading at a below-average valuation of 15x FFO and could thus benefit from multiple expansion tailwinds in the coming years.
1. Exxon Mobil Corporation (NYSE:XOM)
Exxon Mobil Corporation (NYSE:XOM) is a leading oil and gas supermajor. It owns strong low-cost production assets, e.g. in the Permian Basin and Guyana. That allows Exxon Mobil to be free cash flow positive in an environment where oil prices are relatively low. In the current environment, with oil prices at an elevated level, XOM is highly profitable and generates very strong free cash flows.
The company shares these cash flows with its owners by paying a dividend that currently yields 3.7%. Exxon Mobil has raised its dividend for several decades in a row, which is a strong feat for a company in this industry that can be cyclical. Exxon Mobil’s dividend payout ratio, based on earnings-per-share forecasts for the current year, is pretty low, at just 28%. This should allow Exxon Mobil to increase its dividend meaningfully over the next couple of years, even if profits were to pull back to some degree.
But due to tight oil markets and the recent OPEC decision to cut production, oil prices could remain at elevated levels for the foreseeable future and might even climb further, leading to even higher profits for Exxon Mobil in that scenario. This, in turn, could allow for increased shareholder returns, even faster balance sheet deleveraging, or could position Exxon Mobil for large-scale M&A in case the company finds attractive targets to pursue.
XOM trades at 7.5x this year’s expected net profit, which is a very inexpensive valuation. Exxon Mobil takes advantage of that by buying back shares under its current $30 billion repurchase authorization, which should lower the share count meaningfully over time, thereby making the dividend even more secure as dividends have to be paid to a lower number of shareholders.
You can also take a look at 10 Healthcare Dividend Stocks with Over 3% Yield and 11 Best Dividend Stocks Under $50.
