We recently compiled the list of 25 Best Dividend Aristocrats Stocks According to Analysts. Since West Pharmaceutical Services, Inc. (NYSE:WST) ranks highest on our list, we have analyzed the stock in detail.
The age-old debate of investing in dividend growth or high-yield stocks continues to reappear within the dividend investing realm. Between these two, dividend growth is currently the favored option in the market as investors seek out strategies to grow their income over time. In this regard, investors turn to dividend aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. These stocks have delivered strong returns over the years regardless of market conditions. Between February 2005 and December 2023, dividend aristocrats delivered a 12.50% return in falling interest rate periods and an 11.5% return in rising interest rate periods, according to data by Bloomberg.
Numerous analysts have pointed out the long-term potential of dividend growth stocks, a sentiment echoed by Warren Buffett’s investment in Coca-Cola. Back in August 1994, Berkshire Hathaway completed its acquisition of 400 million shares in the company, worth $1.3 billion. Berkshire initially received a cash dividend of $75 million from Coca-Cola in 1994, the amount which surged to $704 million in 2022. This shows a remarkable growth potential of dividend-paying investments over the long term.
With investors showing a growing preference for dividend-paying stocks, major tech companies started initiating their dividend policies this year. Mark Iong, an equity fund manager at Homestead Advisers, expressed his approval of this move by tech companies in one of his recent interviews with Bloomberg. Here are some comments from the analyst:
“Dividends will be table-stakes for big tech going forward. I think if you don’t pay one, it will now be taken as a sign your business is more volatile. What’s exciting is they are doing dividends and buybacks simultaneously, while also cutting costs and growing, which is them stepping on the pedal for profits across the board.”
Not limited to the tech sector alone, companies across the broader market are showing a strong commitment to dividends this year. Though these equities lagged behind the market last year, their outlook remains strong this year. According to a recent report by S&P Dow Jones Indices, in the first quarter of 2024, companies in the index paid $151.6 billion in dividends, up from $146.8 billion paid during the same period last year. In addition, 796 companies reported dividend hikes during the quarter, amounting collectively to $22.7 billion. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, expects that the index will report a 6% year-over-year increase in dividend payments in 2024.
Now, let’s take a look at some of the best dividend aristocrat stocks to buy according to analysts.
Photo by Viacheslav Bublyk on Unsplash
Our Methodology:
For our list, we first scanned a list of the best dividend aristocrat stocks, which are the companies that have raised their dividends for 25 consecutive years or more. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of May 26. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 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).
1. West Pharmaceutical Services, Inc. (NYSE:WST)
Upside Potential as of May 26: 29.6%
West Pharmaceutical Services, Inc. (NYSE:WST) is a global healthcare products packaging and delivery systems company. It tops our list of the best dividend aristocrat stocks on our list as analysts see a nearly 30% upside potential in the stock. The company has been growing its dividends consistently for the past 31 years and offers a quarterly dividend of $0.20 per share. The stock’s dividend yield on May 26 came in at 0.24%.
The products of West Pharmaceutical Services, Inc. (NYSE:WST) are crucial for the pharmaceutical industry which helps the company to maintain its earnings growth. The company’s core business of delivering injectables has the ability to remain resilient during periods of economic downturns. The stock’s valuation is very high with a P/E multiple of 43.10, especially with a dividend yield of 0.24%. Israel Englander has adopted a comprehensive strategy for his healthcare portfolio. His hedge fund increased its stake in WST by 1,864% during the first quarter of 2024.
ClearBridge Investments solidified the company’s position as the market leader in its Q1 2024 investor letter. Here is what the firm has to say:
“We also added a new position in West Pharmaceutical Services, Inc. (NYSE:WST), in the health care sector, which designs, manufactures and sells containment and delivery systems for injectable drugs and health care products. The company commands a substantial market share for stopper caps for intravenously (‘IV’) administered drugs, biologics and gene therapies, which are regulated by FDA mandates, and which we believe give it very strong competitive dynamics within the industry and a wide moat around its core businesses. As the outlook and proliferation of IV-administered drugs and therapies continues to grow, driven by the blockbuster market for GLP-1 diabetes and obesity treatments, we believe the company’s attractive cash flows and impressive margins can sustain its growth trajectory.”
As of the end of Q1 2024, 46 hedge funds in Insider Monkey’s database owned stakes in West Pharmaceutical Services, Inc. (NYSE:WST), up from 42 in the previous quarter. These stakes have a total value of nearly $2 billion.
Overall WST ranks 1st among the best dividend aristocrat stocks according to analysts. You can visit 25 Best Dividend Aristocrats Stocks According to Analysts to see other dividend aristocrats that are on analysts’ radar. While we acknowledge the potential of dividend growth stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA or Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.