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Income-oriented investors do their best to identify companies that offer attractive dividends and are likely to grow their dividends for several years. Dividend Aristocrats are great candidates for the portfolios of income-oriented investors. Dividend Aristocrats are the companies of the S&P 500 which have grown their dividends for at least 25 consecutive years. Most of these companies enjoy significant competitive advantages and have proved resilient to recessions. Otherwise, they would not have grown their dividends for so many years. In this article, we will discuss the prospects of the three most attractive Dividend Aristocrats right now, namely 3M Company (MMM), Albemarle (ALB), and V.F. Corporation (VFC).
 

3M Company

3M Company operates as a diversified technology company worldwide, with a presence in more than 200 countries. It sells more than 60,000 products, which are used every day in homes, hospitals, office buildings, and schools.

The primary competitive advantage of 3M is its unique Research & Development (R&D) department. The company has clearly stated that it aims to invest 5%-6% of its sales in R&D every year and has proved its commitment to this goal for more than a decade. As a result, 3M has created a portfolio of more than 100,000 patents.

As an industrial manufacturer, 3M is not immune to recessions. Nevertheless, it has proved fairly resilient to recessions, primary thanks to its dominant business position and the essential nature of many of its products. Thanks to these characteristics, the company has managed to grow its dividend for 64 consecutive years, and thus it is a Dividend King. It is also offering a nearly 10-year high dividend yield of 5.2%.

Unfortunately, 3M is facing two strong headwinds right now. First of all, the surge of inflation to a 40-year high has significantly increased the operating costs of all the industrial manufacturers, including 3M. However, thanks to its dominant business position, 3M has implemented material price hikes and thus it has passed most of its incremental costs to its customers.

The resilience of 3M in the highly inflationary environment prevailing right now is clearly reflected in its outstanding performance in 2022. While most companies incurred a significant decrease in their earnings, 3M posted earnings per share of $10.10, which marked a nearly all-time high for the company.

3M is also facing another strong headwind, namely the numerous pending lawsuits that are related to the defective earplugs manufactured by Aearo Technologies, a subsidiary of 3M. There are nearly 300,000 claims that those earplugs were defective. Aearo Technologies filed for bankruptcy but a U.S. judge ruled that this bankruptcy is not adequate to prevent lawsuits from burdening 3M. Consequently, it is extremely hard to forecast the final amount of liabilities that 3M will have to pay for this case.

However, 3M has a strong balance sheet, with an interest coverage ratio of 12.4 and net debt to a market cap of only 35%. As a result, it is likely to be able to pay for its liabilities without facing liquidity issues. Given also its healthy payout ratio of 58% and its reliable business model, 3M is likely to continue raising its dividend for many more years.
 

Albemarle

Albemarle is the largest producer of lithium and the second-largest producer of bromine in the world, with a presence in nearly 100 countries. The two products account for approximately three-quarters of the revenues of the company. Albemarle produces lithium from its salt brine deposits in the U.S. and Chile as well as from two joint ventures in Australia. The assets in Chile are especially important, as they have an exceptionally low production cost of lithium.

As a commodity producer, it is only natural that Albemarle has exhibited a volatile performance record. The company has incurred a decline in its earnings per share in 4 of the last 9 years and has grown its earnings per share by only 1.7% per year on average during this period. In addition, as commodity prices usually plunge during adverse economic periods, Albemarle is vulnerable to recessions.

On the bright side, Albemarle has a key difference from most commodity producers. Albemarle greatly benefits from the breathtaking growth of electric vehicles, as lithium is a major component of these vehicles. Thanks to the fast growth of the sales of electric vehicles, the price of lithium has skyrocketed to an all-time high. This is clearly reflected in the blowout earnings of Albemarle.

The company is expected to post a more than 5-fold increase in its earnings per share for 2022, from $4.05 in 2021 to an all-time high of about $21.00. Notably, the previous 10-year high profit per share of Albemarle was $6.04, in 2019. Even better, the company recently provided guidance for earnings per share of $28.00-$33.00 in 2023. At the mid-point, this guidance implies 45% growth in 2023 vs. the blowout level in 2022.

Moreover, the sales of electric vehicles are expected to continue growing at a relentless pace for many more years. This trend will provide a strong tailwind to the business of Albemarle. Furthermore, Albemarle is currently trading at a 10-year low price-to-earnings ratio of 8.7, which is much lower than the 10-year average price-to-earnings ratio of 13.7 of the stock. Thanks to its cheap valuation and its promising growth prospects, Albemarle is likely to highly reward investors in the upcoming years.
 

V.F. Corporation

V.F. Corporation is one of the largest apparel, footwear, and accessories companies in the world. Its brands include The North Face, Vans, Timberland, and Dickies.

Thanks to the popularity of its premium brands, V.F. Corporation has always enjoyed strong pricing power and has proved resilient to recessions. In the Great Recession, while other retailers incurred a plunge in their earnings, V.F. Corporation posted just a 9% decrease in its earnings per share. Thanks to its strong brands and its resilience to recessions, V.F. Corporation has raised its dividend for 50 consecutive years. It has thus joined the best-of-breed group of Dividend Kings.

On the other hand, V.F. Corporation is facing a perfect storm right now due to the surge of inflation to a nearly 40-year high. High inflation has greatly increased the cost of raw materials, freight costs, and labor costs of the company. As a result, the operating margins of the retailer have come under extreme pressure.

In addition, excessive inflation has put numerous households under pressure and thus it has taken its toll on consumer spending. Due to this effect of inflation, the inventories of V.F. Corporation have jumped 88% over the prior year. Consequently, the retailer has resorted to deep discounts in order to reduce its inventory levels, thus pressuring further its operating margins.

Due to these effects of inflation on the business of V.F. Corporation, the company has revised its guidance downwards several times in recent quarters. As per the latest guidance, V.F. Corporation expects earnings per share of $2.00-$2.20 in fiscal 2023. At the mid-point, this guidance implies a 33% decrease over the prior year.

On the other hand, V.F. Corporation has an essentially debt-free balance sheet and thus it can easily endure the ongoing downturn. In addition, the Fed has adopted a markedly aggressive policy and hence it is likely to restore inflation to its long-term target of about 2% in the upcoming years. When that happens, V.F. Corporation is likely to enjoy a strong recovery of its business. Given also its nearly 10-year high dividend yield of 6.7% and its nearly 10-year low price-to-earnings ratio of 15.1, the stock is likely to highly reward patient investors, who can ignore the temporary headwinds and remain focused on the long term.
 

Final Thoughts

Dividend Aristocrats provide a reliable and growing income stream to their shareholders and thus they are great candidates for the portfolios of income-oriented investors. The above three Dividend Aristocrats are especially attractive right now thanks to the temporary headwinds they are facing (3M and V.F. Corporation) and exceptionally high growth and cheap valuation (Albemarle). Those who purchase these stocks around their current prices are likely to be highly rewarded in the upcoming years.

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