Finding High Yield in Dividend Aristocrats
I’m not completely bearish right now, since I’m always bullish on our dividend strategy. But I’m definitely nervous about some signals I’m seeing in the market. I don’t think we’re in for a year of rational market movements.
In a market climate like that, it makes sense to consider stocks such as the Dividend Aristocrats. To earn that title a company must:
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Be a member of the S&P 500
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Have a market capitalization of at least $3 billion
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Maintain average daily trading volume of $5 million for 3 months before acceptance
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Have raised its dividend for at least 25 consecutive years
In recent years, the list has hovered around 67–69 companies. Although making this list doesn’t guarantee future dividend payments, Dividend Aristocrats are good candidates to hold for years or decades to come. They are also great stocks for reinvesting dividends to supercharge your wealth building.
Aristocrats are generally big and boring companies, and boring isn’t always a bad thing. Exciting companies often need to reinvest profits back into their business to grow and stay ahead of rivals. The big and boring club can use profits to reward shareholders with dividends.
Over the past few years, these companies have been overlooked by most investors. This has allowed us to lock in some great yields.
Use Price Swings to Your Advantage
Many big and boring companies sell essential things like toothpaste and dish soap, and their stocks ran-up in 2021 and 2022. This included consumer staples stocks as consumers cooked at home and stocked up on their favorite items due to the pandemic. Certain consumer discretionary stocks—such as fitness equipment, electronics, and entertainment companies—saw this bump as well.
Share price is incredibly important to dividend investors. A rising dividend from a stable company is a good thing. But if a stock price rises too rapidly, we can find ourselves locking in a terrible yield. Remember that price and yield have an inverse relationship.
On the flipside, when prices go down and dividends remain the same, we can lock in a higher yield.
For the discretionary and staple stocks mentioned above, prices have declined or stayed flat while the dividends increased, which is even better.
There are currently 17 Dividend Aristocrats that yield at least 3.5%, and three pay over 5%. The J. M. Smucker Company (SJM), Target Corp. (TGT), and Hormel Foods (HRL) are all worth watching as they don’t always meet my 3.5% minimum yield requirement.
SJM is down 10.5% and TGT down 15% over the past year. HRL is down 28% over the past five years. This has resulted in yields of 3.8%, 3.5%, and 3.9%, respectively.
These are great yields, but they’re not the best opportunities out there.
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The Current High Yielders
My minimum yield target might be 3.5%, but I am always looking for the highest yield with the lowest risk. I was excited to see that three Aristocrats pay over 5% right now.
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Franklin Resources (BEN): 6.2% Yield
Better known as Franklin Templeton, BEN is one of the world’s largest investment managers. It has clients in over 150 countries and $1.58 trillion in assets under management.
Source: Franklin Templeton (Click to enlarge)
The company has raised its dividend for 45 straight years and currently pays $0.32 per quarter. Its high yield is a result of a 25.7% slide in share price over the past year. I tend to steer clear of financial companies due to most of their money being generated by fees.
There is a vast amount of information on the internet about investing and a wide selection of online brokers. To know if BEN is a good investment, we’d want to ensure its assets under management are growing and can continue to do so. We should also look for an advantage that protects the company from competitors.
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Realty Income Corp. (O): 5.6% Yield
O is a REIT (real estate investment trust) that has raised its distribution for the past 30 years. The majority of its portfolio is non-discretionary, low price point, or service-oriented retail businesses.
Two things set it apart from other REITs. First, it has properties in 8 countries. Most of the REITs I’ve researched and recommended focus on the US and occasionally Canada. Second, it pays monthly dividends. This is an attractive feature if you’re looking for income to pay your monthly expenses.
Shares of O are down 30.9% over the past five years, but up 6% over the past year. I’m not sold on retail real estate right now, and this would be a hard pass for me. But if you’re bullish on retail real estate, this is a great yield.
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Amcor plc (AMCR): 5.6% Yield
AMCR is a global leader in responsible packaging for food, beverage, pharmaceutical, medical, and other products. I’m really bullish on this industry. That’s why plastics recycling company LYB is still one of my favorites. LYB makes the resin that companies such as AMCR use for their packaging.
AMCR is easy to overlook because it technically only has five years of dividend increases. AMCR was grandfathered into the Aristocrat title following the merger of Amcor and Berry Global.
Unlike the other companies I’ve mentioned today, AMCR is up 12% over the past year and 6% over the past 5 years. Despite the higher share price, it still pays over 5%.
None of these are official recommendations. But I do recommend that you keep an eye on opportunities in the Dividend Aristocrats as we move through 2025.
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For more income, now and in the future,
Kelly Green
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