In this article, we will analyze the list of the best dividend aristocrat stocks according to hedge funds.
The appeal of dividend growth growth stocks is unmatched. For those considering investing in dividend stocks, growth typically outweighs yield due to the consistent returns they have delivered over the years. Within dividend growth strategies, the dividend aristocrats stand out. Of the approximately 6,000 stocks listed on the NYSE and NASDAQ, only 67 companies earn the title of dividend aristocrats. These companies have consistently increased their dividend payouts for a minimum of 25 consecutive years. They are part of the broader market and are tracked by the Dividend Aristocrat Index.
Also read: 10 Best Dividend-Paying Stocks Under $50
Companies that regularly increase their dividends typically show strong financial health and stability, indicating their consistent profitability. A report by Fortune highlighted that, although it has lagged behind its benchmark, the Dividend Aristocrat Index has surpassed nearly all US active managers over the past decade. Rupert Watts, the head of factors and dividend indices at S&P Dow Jones Indices, discussed dividend growth strategies with the global media organization. Here is what the analyst said:
“Raising your dividend for 25 plus years is no easy feat. These are high-quality companies.”
Dividend aristocrats have delivered impressive returns, surpassing other asset classes. Since the index’s inception in 2005 through September 2023, the dividend aristocrats index has provided a total return of 10.35%, outpacing the broader market’s return of 9.54% for the same period. These stocks are celebrated not only for their dividend growth and steady equity gains but also for their lower volatility. During this timeframe, dividend aristocrats exhibited a volatility level of 15.35%, compared to the market’s slightly higher 16.31%. This indicates that dividend aristocrats tend to have more stable price movements. Their consistent dividend increases over 25 years or more demonstrate their ability to reward shareholders even during tough times, such as the 2007 financial crisis and the 2020 pandemic.
The debate between high yields and dividend growth continues. As of August 19, the High Dividend ETF, which tracks high-yielding companies in the broader market, offers a dividend yield of 4.18%. This yield would have been quite attractive to investors in the past. However, this year the ETF has only returned 4.8%, compared to the market’s 18% return. According to FactSet, investors have withdrawn over $1.1 billion from the fund, which is more than 15% of its $6 billion in assets. This indicates that investors tend to prefer dividend growth over high yields, as high yields are often seen as a sign of financial difficulties. In this article, we will take a look at some of the best dividend aristocrat stocks according to hedge funds.
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Our Methodology:
For this article, we first listed down all dividend aristocrat stocks — the companies with 25+ years of consecutive dividend increases. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. We chose 10 dividend aristocrat stocks with the highest number of hedge fund investors.
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. Parker-Hannifin Corporation (NYSE:PH)
Number of Hedge Fund Holders: 67
Parker-Hannifin Corporation (NYSE:PH) is an American manufacturing company, based in Ohio. The company specializes in motion and control technologies. Despite challenges in the industrial sector this year, the company reported strong earnings in fiscal Q4 2024. It achieved record sales nearing $20 billion, a record adjusted segment operating margin with a 200 basis point increase from the previous year, 18% growth in adjusted earnings per share, and a record $3 billion in free cash flow. The company’s strong outlook for fiscal year 2025 suggests a promising future, keeping it on track to meet its financial targets for fiscal year 2029.
In addition to its recent earnings, Parker-Hannifin Corporation (NYSE:PH) has shown growth over the years. In the past five years, the stock surged by over 270%, outperforming the broader market, which gained nearly 96% during this period. The company also stands out as a strong dividend payer with remarkable cash flow generation. For fiscal 2024, the company saw a 20% increase in year-to-date cash flow from operations, reaching a record $2.1 billion, which represents 14.6% of sales, up from $1.8 billion or 12.8% of sales the previous year. The company also achieved significant improvements in adjusted segment operating margins, with the Aerospace Systems Segment performing exceptionally well. This strong performance contributed to record year-to-date operating cash flow. Looking ahead, the company anticipates a 50% increase in free cash flow and plans to double its dividend over the next five years, resulting in larger dividends for shareholders each year, which is expected to positively influence the stock’s price.
Parker-Hannifin Corporation (NYSE:PH), one of the best dividend aristocrat stocks, declared a quarterly dividend of $1.63 per share on August 15, which was in line with its previous dividend. Overall, the company has been growing its payouts for 68 consecutive years. The stock’s dividend yield on August 19 came in at 1.11%.
At the end of Q2 2024, 67 hedge funds tracked by Insider Monkey reported having stakes in Parker-Hannifin Corporation (NYSE:PH), up from 63 in the previous quarter. These stakes have a total value of more than $2 billion. Among these hedge funds, Diamond Hill Capital was the company’s leading stakeholder in Q2.
9. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 67
An American fast-food restaurant company, McDonald’s Corporation (NYSE:MCD) ranks ninth on our list of the best dividend aristocrat stocks.
A few years ago, McDonald’s Corporation (NYSE:MCD) saw significant benefits during the pandemic due to rising prices. However, the current situation is different, as customers are now pushing back against higher costs caused by inflation. In response, the company has extended its $5 Meal Deal Promotion. McDonald’s management observed that consumer sentiment, especially among lower-income groups, remains weak across its key markets, with people being very selective in their spending. They expect these challenging conditions to continue for several more quarters, suggesting that consumers are finally resisting the substantial price increases in the fast-food industry in recent years. The stock is down by nearly 4% since the start of 2024 as the company has been facing some challenges due to ongoing geopolitical conflicts.
Carillon Tower Advisers also highlighted these issues in its Q1 2024 investor letter. Here is what the firm has to say:
“McDonald’s Corporation (NYSE:MCD) faces several short-term headwinds. Lower-income consumers have been cautious with spending, as they are feeling the cumulative effects of inflation more than higher-income cohorts. As the low cost/ value player in fast food, McDonald’s has a customer base that skews lower income. Also, as an international company, McDonald’s is feeling negative effects from war and tensions in the Middle East, as well as softness in China.”
McDonald’s Corporation (NYSE:MCD) showed signs of weakness in its second quarter 2024 earnings report. Global comparable sales dropped by 1.0%, with decreases seen across all segments, and quarterly revenues remained unchanged from the previous year. Despite these challenges, analysts have not been overly critical of the company’s performance. Due to its large size and scale, McDonald’s has considerable leverage to adapt through its purchasing power and marketing strategies.
McDonald’s Corporation (NYSE:MCD) currently offers a quarterly dividend of $1.67 per share and has a dividend yield of 2.33%, as of August 19. It is one of the best dividend aristocrat stocks on our list as the company has been growing its payouts for 67 years consistently.
The number of hedge funds tracked by Insider Monkey owning stakes in McDonald’s Corporation (NYSE:MCD) grew to 67 in Q2 2024, from 63 in the previous quarter. The consolidated value of these stakes is over $2.1 billion. With nearly 2 million shares, Viking Global was the company’s leading stakeholder in Q2.
8. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 68
The Coca-Cola Company (NYSE:KO) is a Georgia-based multinational beverage company that deals in a wide range of beverages, including non-alcoholic beverage concentrates and syrups. The company reported strong earnings in the second quarter of 2024. Its revenue for the quarter came in at over $12.3 billion, up 3% from the same period last year. The company has grown over the years by making strategic acquisitions and responding to changing consumer preferences that are moving away from sugary sodas. Over the last decade, the company has invested significantly in diversifying its product range. These efforts have enabled Coca-Cola to turn around a major revenue decline, increasing net sales from $33 billion in 2020 to $46 billion in 2023.
Though The Coca-Cola Company (NYSE:KO) has a strong balance sheet and its earnings are in place, the company’s larger size poses bigger challenges for it. As of the most recent quarter, the company has over $45 billion in debt and has a debt-to-equity ratio of 1.64. Its cash position is strong, with an operating cash flow of $4.1 billion in the second quarter of 2024 and a free cash flow of $3.3 billion. The company remains committed to fulfilling its obligations to shareholders, but after covering its cash outflows, there is limited capacity to reduce its overall debt. That said, the company has maintained strong operations and income over the years, which should help gradually reduce its debt over time.
One of the best dividend aristocrat stocks, The Coca-Cola Company (NYSE:KO) has been rewarding shareholders with 62 consecutive years of dividend growth. The company’s current quarterly dividend comes in at $0.485 per share and has a dividend yield of 2.81%, as of August 19.
Insider Monkey’s database of Q2 2024 indicated that 68 hedge funds owned stakes in The Coca-Cola Company (NYSE:KO), growing from 62 in the preceding quarter. These stakes are worth nearly $32 billion in total. With 400 million shares, Warren Buffett’s Berkshire Hathaway owned the largest stake in the company.
