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The Dividend Aristocrats are widely considered to be blue-chip dividend growth stocks. The Dividend Aristocrats are members of the S&P 500 Index that have increased their dividends for over 25 consecutive years.

Maintaining such a long history of dividend increases requires competitive advantages and long-term growth, even during recessions.

The following 3 dividend stocks are all Dividend Aristocrats, and could generate total shareholder returns above 10% per year over the next five years.

Target Corporation (TGT)

Target is a big-box retailer with about 1,850 retail stores, that also serve as distribution points for the company’s burgeoning e-commerce business. The company generates annual sales above $100 billion. Target posted second quarter earnings on August 16th, 2023. Adjusted earnings-per-share came in well ahead of estimates at $1.80, which was 38 cents better than expected. Revenue was $24.8 billion, down 4.9% year-over-year.

The company said it was seeing continued growth in consumables such as essentials, beauty, food, and beverages. However, weakness in discretionary categories weighed on results. Same-day services grew about 4%, led by 7% growth in Drive-Up.

Target has grown its earnings-per-share at an average annual rate of nearly 13% during the last decade. Turnaround efforts have worked and as a result, Target has significantly improved its performance in recent quarters. Buybacks will also boost future earnings-per-share growth as the company has also reduced its share count by about -4.8% per year in the last six years. Overall, we expect 10% annualized EPS growth for Target.

TGT stock yields 3.6%. Total returns could exceed 12% per year over the next five years.

Automatic Data Processing (ADP)

Automatic Data Processing is one of the largest business services outsourcing companies in the world. The company provides payroll services, human resources technology, and other business operations to more than 700,000 corporate customers. Automatic Data Processing generates annual revenue of about $18 billion. With 48 years of consecutive dividend increases, it is also a member of the Dividend Aristocrats.

ADP posted fourth quarter and full-year earnings on July 26th, 2023, and results were better than expected on both the top and bottom lines. Adjusted earnings-per-share came to $1.89, which was six cents ahead of estimates. Revenue was up 8% to $4.5 billion, which was $110 million ahead of expectations. The company expects full-year revenue growth of 6% to 7%.

We expect 8% annual EPS growth over the next five years. Much of this growth is likely to be driven by the company’s Professional Employer Organization (PEO) Services segment, which continues to deliver very impressive revenue growth. Importantly, this revenue growth has been accompanied by meaningful margin expansion, which means that the segment’s growth has had an outsized impact on the firm’s bottom line. In addition, the company’s buyback has been a low single-digit tailwind annually for earnings-per-share growth.

ADP stock trades below our fair value P/E estimate of 29. The stock has a 2% dividend yield, leading to expected returns above 11% per year over the next five years.

Stanley Black & Decker (SWK)

Stanley Black & Decker is a world leader in power tools, hand tools, and related items. The company holds the top global position in tools and storage sales. Stanley Black & Decker is second in the world in the areas of commercial electronic security and engineered fastening.

For the 2023 second quarter, revenue fell 5.3% to $4.2 billion, but this was $70 million more than expected. Adjusted earnings-per-share of -$0.11 compared very unfavorably to $1.77 in the prior year, but was $0.25 above expectations.

We expect Stanley Black & Decker to grow its earnings-per-share by 8% per year over the next five years. The company should return to growth once supply chain constraints and high inflationary pressures ease.

The company’s low payout ratio of approximately 39% for 2023 makes it likely that dividends will continue rising even through an economic downturn. Stanley Black & Decker’s key competitive advantage is that its products are well-known and respected by customers.

SWK has increased its dividend for 56 consecutive years. The stock yields 3.6%, and also appears undervalued with a 2023 P/E of 10.4, compared with our fair estimate of 12. Total returns could exceed 12% per year over the next five years.

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