Many stocks pay out dividends, but only 65 are Dividend Aristocrats. To achieve this elite status, a share in the S&P 500 index must be included and mastered 25 consecutive year’s payout increases. A history of growing dividends is not enough to buy a stock. But there are many reasons to add these three Dividend Aristocrats to your portfolio and stick to it forever.
1. Lowe’s
Besides being a dividend aristocrat, Lowe’s (NYSE: LOW) is also one of just 27 stocks to gain a spot on the Dividend Kings list by paying out 50 or more uninterrupted raises. In the case of Lowe’s, he has been distributing a dividend every year since 1961, when it became public, increasing his payout for 58 consecutive years. After its latest rise of 9%, at the current share price, it yields 1.47%.
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By the time many companies achieve a decade-long record of dividend increases, their high growth is days behind them. However, what makes Lowe’s an exciting dividend stock is that it can still deliver strong stock price gains for investors. Both Lowe’s and his rival Home Depot (NYSE: HD) only experienced a banner year when customers went to take out at home and spend more of their disposable cash on home improvement projects than on holidays or eating out. Home Depot is still more profitable, but Lowe’s share performed better in 2020, with an annual return of 38.37% at the end of December compared to 25.63% for Home Depot.
Of course, the chances that one of the retailers will maintain their recent growth levels once life is back to normal are slim. But Lowe’s still has plenty of room to grow, given the recent improvements in e-commerce and the sharpest focus on increasing its sales to professional contractors. This strategy can bear fruit as soon as the 2020 DIY entrepreneurs return to their pre-pandemic routines, especially if home sales remain strong. Analysts predict that Lowe’s earnings will grow by an average of 20% annually over the next five years, making the dividend just a cherry on the cake.
2. fixed income
Fixed income (NYSE: O) is a newcomer to the 2020 Dividend Aristocrats list. It is a real estate trust (REIT), and it tends to be a favorite of investors who earn income, because by law they have to distribute 90% of their taxable income to shareholders. Real estate income is also known for paying out monthly dividends instead of quarterly – it even called the monthly dividend company. With a return of 4.56% over current stock prices, it has carved 605 consecutive monthly dividend payments and a compound average annual dividend growth of 4.4% since it became known in 1994.
While 2020 has been a horrible year for many REITs, especially those who own office and retail properties, Realty Income is relatively isolated from the pandemic outage. Although the buildings are mostly occupied by retailers, the four largest categories of tenants are convenience stores, drug stores, grocery stores and dollar stores – which usually withstand the recession fairly well. Although there are tenants in gyms and movie theaters, it collected 93% of the rent during the third quarter. Although the stock has been down about 16% so far, Realty Income remains a good bet for any investor who wants monthly income from their portfolio.
Colgate-Palmolive
Colgate-Palmolive (NYSE: CL) is another Dividend King, with 57 consecutive year’s payout increases and a current return of 2.06%. His catalog of products – toothbrushes and toothpaste, soap, detergent, deodorant, pet products, etc. – is fairly diversified, but not exactly exciting. Yet this is part of what makes Colgate-Palmolive an excellent defense stock to own forever: your toothbrushing and showering habits probably have no correlation with the health of the economy.
With a world share of 41.1% for toothpaste and a world share of 31.6% for hand toothbrushes in 2019, this business is clearly in the toughest times. In addition, it is known for maintaining a strong free cash flow, which ensures that the dividend increases will be sustainable.
Colgate-Palmolive can be a tedious business. It is unlikely to yield large returns. But if the market is volatile, you’ll be glad you have this boring defensive stock in your portfolio.