Summary
S&P 500 dividend aristocrats possess pretty safe dividends. All 65 of them have paid out higher disbursements for at least 25 straight years.
We decided to put together our Buy list for the top six to purchase right now.
Ben Graham once said, “The defensive investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition.”
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Michael Burrell/iStock via Getty Images In a recent Barron’s article , Lawrence C. Strauss explained: “One would think that the S&P 500 dividend aristocrats possess pretty safe dividends, considering that all 65 of the companies have paid out higher disbursements for at least 25 years.” From Strauss’ list of “aristocrats,” he selected six that he considered the overall safest: Johnson & Johnson ( JNJ )
Medtronic ( MDT )
Now, I’m a big fan of Strauss’ Income Investing column in general and his six-pack above in particular. Plus, they’re screened for dividend safety, with each one scoring 99 on Simply Safe Dividends’ list.
Then again, most all of the 65 aristocrats are safe. They have, after all, paid and increased their dividends for at least 25 years in a row now.
That’s why I wanted to take this analysis to another level. In today’s article, I’m providing readers with the best aristocrats to buy based on valuation.
Whenever the financial markets fail to fully incorporate fundamental values into securities prices, an investor’s margin of safety is high. As Benjamin Graham defined it, the margin of safety constitutes a “favorable difference between price on the one hand and indicated or appraised value on the other.” So I used the Dividend Kings toolkit to screen for the top six dividend aristocrats to buy today. That gives us: (Source: Dividend Kings) iREIT Expects VF Corp to Return 20% Annually
Founded in 1899, V.F. Corp ( VFC ) is one of the world’s largest apparel, footwear, and accessories companies. Its diverse portfolio includes apparel, backpack, and luggage categories as well.
VFC’s largest brands are Vans, The North Face, Timberland, and Dickies.
In a recent article , I explained that it has strong liquidity. “S&P and Moody’s estimate a less than 4% chance of going bankrupt in the next three decades.” In other words, “the fundamental risk of losing all your money buying VFC today is about (one) in 26.7.”
In addition: “VFC could soon be getting credit rating upgrades because its safe balance sheet is expected to get steadily safer over time. The company’s average borrowing costs are 1.95% and are expected to average 1.8% to 1.9% in the coming years.” VFC’s retained earnings are expected to be $1.7 billion in the coming years. That’s enough to pay down 29% of its debt or buy back 14% of stock, potentially up to 4% per year.
The way I see it, this company is one of the best fast-growing aristocrats you can buy today. And as shown below using analyst growth estimates, we’re modeling annual total returns of 20%. (Source: FAST Graphs) We Expect MMM to Return 16% Annually
3M ( MMM ) was incorporated in 1929. The company is a diversified technology business with a global presence in the following fields: Safety and industrial
Transportation and electronics
Healthcare Consumer 3M is a leading manufacturer for many of the markets it serves. As my associate Dividend Sensei explains : “If management de-leverages as expected, then 3M might end up an AA-rated company with just 0.55% long-term bankruptcy risk. The company’s debt isn’t actually expected to fall much. But rather its cash position and cash flows are expected to rise steadily in the coming years.” 3M’s average borrowing costs are 2.54% today, and analysts expect it to remain about 2.6% over time. Plus, its historical profitability is in the top 20% of industrials. And in the past year, despite pandemic supply chain disruption, it’s been in the top 7%.This company’s modest 2% dividend growth is expected to last for about three more years. But after that, growth should return to match its earnings and cash flows.Speaking of such, cash flows should grow at nearly 20% annually through 2024. Right now, in Dividend Sensei’s words again: “3M is a potentially good buy and very close to the potential strong buy price…” (Source: FAST Graphs) We Expect ABBV to Return 25% Annually AbbVie ( ABBV ) […]
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