A Quartet Of Aristocrats

Money, Profit, Finance, Business, Return, Yield

If we assembled a group of blue-chip stocks for income investors, it would likely resemble the Dividend Aristocrats, which are S&P 500 Index stocks that have raised their dividends for at least 25 straight years.

Membership in the aristocrats signals a company has proven it can weave a path through the booms and busts of the business cycle while maintaining dividend growth.

But aristocrats do tend to have less flexibility for dividend growth than the typical stock. On average, the dividend consumes 62% of trailing earnings for the aristocrats, versus 51% for all S&P 500 dividend stocks.

3M (MMM) offers consistent, though not spectacular, dividend growth. A 1% dividend increase in the March quarter marked the 63rd straight year of higher cash distributions. 3M has grown its dividend at a 7% annualized rate over the past five years and 11% rate over the past decade.

3M’s payout ratio of 63% is higher than most dividend stocks we recommend, a potential constraint on future dividend hikes. But free cash flow surged 64% to $3.71 billion for the 12 months ended March.

Dividend growth remains management’s second priority for excess cash after capital investment; acquisitions and share repurchases rank third and fourth.

With the uneven global recovery, 3M said in April that supply-chain problems could reduce full-year earnings per share, yet the 2021 consensus has increased since 3M’s earnings report, now targeting 12% growth on 8% higher revenue. 3M is a Focus List Buy.

AbbVie (ABBV) has raised its dividend in 48 consecutive years, which includes years before the company split off from Abbott Laboratories (ABT) at the beginning of 2013. Since splitting from Abbott, AbbVie has grown its dividend at an annualized rate of 16%.

The stock yields 4.5%, above the average of 1.5% for the S&P 500 healthcare sector. AbbVie shares rose on a solid March-quarter report that saw earnings per share climb 22% on revenue growth of 51%; both metrics topped consensus estimates.

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Roger Keats 3 weeks ago Member's comment

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