S 3 High-Yield Dividend Aristocrats

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Dividend Aristocrats are ideal candidates for the portfolios of income-oriented investors. These stocks have grown their dividends for at least 25 consecutive years and hence they obviously enjoy meaningful competitive advantages, including a wide business moat. In this article, we will analyze the prospects of three high-yield Dividend Aristocrats, which are offering above-average dividend yields with a wide margin of safety.

V.F. Corporation (VFC)

V.F. Corporation is one of the largest companies of apparel, footwear and accessories in the world. It was founded in 1899 and has grown to a company with a market capitalization of $23 billion. Its brand portfolio includes The North Face, Vans, Timberland and Dickies.

V.F. Corporation was severely hurt by the coronavirus crisis in 2020. Due to the unprecedented lockdowns and the fierce recession caused by the pandemic, the company saw its earnings per share plunge 51% in that year.

However, thanks to the massive distribution of vaccines worldwide and the immense fiscal stimulus packages offered by most governments, V.F. Corporation has begun to recover strongly from the pandemic. In the third quarter of 2021, the company grew its revenue and its organic revenue by 22% and 15%, respectively, over the prior year’s quarter, primarily thanks to strong growth in the EMEA (Europe, Middle East and Africa) and North American regions.

Thanks to economies of scale, the company enhanced its margins and thus grew its adjusted earnings per share by 45%, from $0.93 to $1.35, and hence it beat the analysts’ consensus by $0.13. Management slightly lowered its guidance for the total revenue in 2021, from $12.0 billion to $11.85 billion, but the new guidance still reflects 28% growth over the prior year. In addition, management stated that it expects the annual earnings per share to jump from $1.31 to $3.20, which is 19% above the pre-pandemic level.

Thanks to the strength of its brands, V.F. Corporation has proved resilient to recessions and thus it has grown its dividend for 49 consecutive years. In the last five years, the company has raised its dividend at a 5.5% average annual rate. Moreover, the stock is offering a 3.2% dividend yield, which is a nearly 10-year high yield. Given also its healthy payout ratio of 63% and its solid balance sheet, the company is likely to continue raising its dividend meaningfully for many more years. Therefore, the stock is attractive for income-oriented investors.

Kimberly-Clark Corporation (KMB)

Kimberly-Clark is a global consumer products company that operates in 175 countries and sells disposable consumer goods, including paper towels, diapers, and tissues. It operates in two segments, which include many popular brands: The Personal Care Segment (Huggies, Pull-Ups, Kotex, Depend, Poise) and the Consumer Tissue segment (Kleenex, Scott, Cottonelle, Viva).

As a classic consumer staples giant, Kimberly-Clark has proved one of the most resilient companies to recessions. This has proved to be the case throughout the coronavirus crisis as well. In 2020, while many companies came under great pressure amid a fierce recession, Kimberly-Clark grew its earnings per share 12%, from $6.89 to a record level of $7.74. The impressive performance resulted from the fact that people paid great attention on their hygiene measures while they also spent more time than ever at home.

Unfortunately, as the world began to recover from the pandemic last year, Kimberly-Clark did not manage to repeat its record performance. Its revenue grew 2% in 2021 but its earnings per share dipped 20% and thus returned to a normal pre-pandemic level. Management provided guidance for 4% organic revenue growth in 2022.

Thanks to its strong brands and its dominant position in its markets, Kimberly-Clark has grown its dividend for 50 consecutive years and hence it has become a Dividend King. It is also offering a 3.5% dividend yield, which is a nearly 10-year high yield for this stock. The payout ratio is somewhat elevated, at 77%, but the dividend is safe thanks to the resilient business model of the company and its rock-solid balance sheet. We expect the company to continue raising its dividend for many more years, albeit at a low single-digit rate.

Federal Realty Investment Trust (FRT)

Federal Realty Investment Trust is one of the largest real estate investment trusts (REITs) in the U.S. The trust was founded in 1962 and is focused on high-income, densely populated coastal markets in the U.S. As a result, it charges higher rent per square foot than most REITs.

Just like most REITs, Federal Realty was hurt by the pandemic in 2020, when it saw its funds from operations (FFO) per share decline 29%. However, thanks to the ongoing recovery of the economy from the pandemic, the trust has begun to recover.

In the third quarter, Federal Realty grew its revenue 19% and its FFO per share 35% over the prior year’s quarter. It also returned to strong investment mode, acquiring 8 properties for $441 million. In addition, the trust raised its dividend by 1% and thus it has now raised its dividend for 54 consecutive years.

It is also important to note that Federal Realty has one of the most consistent growth records in the REIT universe. The trust has grown its FFO per share every single year in the last decade, with the exception of 2020 due to the pandemic. It has grown its FFO per share by only 2.7% per year on average over the last decade. However, this growth rate is somewhat misleading due to the low earnings in 2020 and 2021 amid the pandemic. Given the reliable growth record of Federal Realty and its solid business momentum, we expect it to grow its bottom line by 5.0% per year on average over the next five years.

Moreover, Federal Realty is offering an attractive 3.6% dividend yield. Given its exceptional dividend growth streak, its promising growth prospects and its healthy payout ratio of 25%, we expect the REIT to continue raising its dividend for many more years.

Final Thoughts

Volatility has greatly increased in the stock market this year, mostly due to the surge of inflation to a multi-decade high level. It is thus natural that many investors wonder how they can protect themselves from the surrounding volatility and inflation. The above three Dividend Aristocrats offer above-average dividend yields with a wide margin of safety.

Disclosure: The author does not own any of the stocks mentioned in the article.

Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling ...

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