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3 Dividend Aristocrats That Income Investors Can't Ignore

·5 min read

Investing for income is a popular strategy that market participants use while constructing a portfolio.

After all, who doesn’t enjoy getting paid? During times of overall market weakness, an income stream helps alleviate drawdowns within positions.

A vast majority of companies residing within the S&P 500 distribute dividends, reflecting that they are well-established with solid financials and successful business models.

Dividend Aristocrats are companies that not only consistently pay a dividend to investors but also increase the size of their payout annually.

To be ranked as a Dividend Aristocrat, a company must increase its dividend for 25 consecutive years. Additionally, the company must also be a member of the S&P 500.

Dividend Aristocrats are generally large companies that are no longer seeing accelerated growth, and many enjoy steady profits in the face of good and bad economic situations.

Three Dividend Aristocrats – Caterpillar CAT, Nucor Corp. NUE, and Archer Daniels Midland Company ADM – have all enjoyed solid share performances year-to-date. The chart below illustrates the year-to-date performance of all three companies while blending in the S&P 500 as a benchmark.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

All three companies’ shares have displayed a valuable level of defense throughout 2022, further nailing in the fact that these companies can weather nearly any storm. Let’s get into why these companies are stellar bets for income investors.

Caterpillar

Caterpillar CAT is the world’s largest construction-equipment manufacturer. The company designs, develops, engineers, manufactures, markets, and sells machinery, engines, financial products, and insurance to customers.

Caterpillar is currently a Zacks Rank #3 (Hold).

Undoubtedly to the likes of investors, the company has increased its dividend for 28 consecutive years, meeting the demanding requirements to become a Dividend Aristocrat.

CAT’s dividend yield sits enticingly at 2.39%, with a sustainable payout ratio sitting at 41% of earnings. The company has increased its dividend five times in the previous five years and has a five-year annualized dividend growth rate of a substantial 9.2%.

Additionally, the yield is notably higher than the S&P 500’s.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company also sports enticing valuation metrics. CAT’s 14.7X forward earnings multiple is well below its five-year median of 17.6X and nowhere near 2020 highs of 33.6X. Additionally, the value represents an attractive 16% discount relative to the S&P 500’s forward P/E ratio of 17.5X.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Nucor

Nucor Corporation NUE is a leading producer of structural steel, steel bars, steel joists, steel deck, and cold-finished bars in the United States.

The company sports the highly-coveted Zacks Rank #1 (Strong Buy).

NUE has increased its dividend for a jaw-dropping 49 consecutive years, making it one year away from becoming a Dividend King – Dividend Kings are classified as companies that have increased dividend payouts for 50 straight years.

Nucor’s annual dividend yield sits at 1.8%, with a payout ratio sitting more than sustainably at 7% of earnings. The company has increased its dividend in each of the last five years and has a five-year annualized dividend growth rate sitting respectably at 4.1%.

The yield is slightly higher than that of the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition to robust dividend metrics, the company also has attractive valuation levels. Its 3.7X forward earnings multiple is a fraction of its 27.7X high in 2020 and nowhere near its five-year median value of 10.6X.

Additionally, shares trade at a deep 79% discount relative to the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Archer Daniels Midland Company

Archer Daniels Midland Company ADM is one of the leading producers of food and beverage ingredients and goods made from various agricultural products. The company processes oilseeds, corn, wheat, cocoa, and other feedstuffs.

Like Nucor, ADM boasts the highly-coveted Zacks Rank #1 (Strong Buy).

ADM has chained together 49 consecutive years of dividend increases, making it just one year away from joining the elite Dividend King group.

ADM sports a notable 2.15% annual dividend yield, with a payout ratio sitting at 28% of earnings. The yield is much higher than that of the S&P 500, and the company has a robust 3.8% five-year annualized dividend growth rate.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

ADM’s valuation metrics are more than sound. The company sports an 11.8X forward earnings multiple, well below its five-year median of 14.5X and not even close to its 18.9X high just earlier this year. Additionally, shares trade at a deep 33% discount relative to the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

Investing for a stream of income is a stellar way to alleviate drawdowns in other positions. Additionally, companies that continuously increase their dividend payouts are classified as well-established companies with sound financial health.

With volatility being the market’s headline year-to-date, a reliable income stream appears even more enticing.

All three companies above are classified as Dividend Aristocrats – companies residing within the S&P 500 that have increased their dividend payouts for at least 25 consecutive years.

All three companies above would be great places to start for investors looking to add a stream of income into their portfolios.


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Caterpillar Inc. (CAT) : Free Stock Analysis Report
 
Nucor Corporation (NUE) : Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
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