If you are currently retired or getting close to retirement age, building a portfolio that generates stable income is probably your primary focus right now. In our opinion, one of the best ways to generate stable income is through dividend growth investing. Thankfully, this strategy is not rocket science and it is fairly simple for anyone to implement. Ideally, you want to build a portfolio of dividend paying stocks that have a track record of increasing their dividends every year. This way, not only are you generating stable income, but you are also able to maintain the purchasing power of your dollar (as long as your dividends are at least rising at the rate of inflation).
What Is A Dividend Aristocrat?
Each year, Standard & Poor's publishes its list of Dividend Aristocrats. According to S&P:
Since 1926, dividends have contributed nearly a third of total equity return while capital gains have contributed two-thirds. Sustainable dividend income and capital appreciation potential are both important in determining total return expectations.
The S&P 500 Dividend Aristocrats is designed to measure the performance of large cap, blue chip companies within the S&P 500 that have followed a managed-dividends policy of consistently increasing dividends every year for at least 25 years.
Companies included in the S&P 500 Dividend Aristocrats come from a broad spectrum of industries. Unlike indices that focus only on high dividend yields, which are typically from the Financials and Utilities sectors, the "Dividend Aristocrats" are well diversified across all sectors.
All Dividend Aristocrats Are Not Created Equal
While we believe that the S&P's list of Dividend Aristocrats is a great place to start your search, not all Aristocrats are created equal.
That said, we ran the entire list of Dividend Aristocrats through our rating system and came up with our "All-Aristocrat" team. This team is made up of the 20 Dividend Aristocrats with the highest Parsimony Ratings. We will highlight each of these stocks over the course of a 4-part series. Below is a schedule of the entire series.
- Part 1: Honorable Mention (stocks #16-20)
- Part 2: Third Team (stocks #11-15)
- Part 3: Second Team (stocks #6-10)
- Part 4: First Team (stocks #1-5)
The All Aristocrat Team: Third Team
The vast majority of the roughly 50 S&P Dividend Aristocrats rank very highly in our system, but we only picked the top 20 for our All-Aristocrat Team. This article highlights the 5 stocks that made our Third Team (stocks ranked #11-15). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.
#15 Genuine Parts Company (GPC)
Genuine Parts has paid a dividend every year since going public in 1948. Over the past 5 years the company has delivered shareholders a total return of 66% and it has grown its dividend at a compound annual rate of 6.2%. In addition, GPC has a high Financial Stability Rating (86) and a strong balance sheet. The company has almost $400 million of cash on its books and a very low debt-to-EBITDA ratio (0.46x).
#14 PPG Industries (PPG)
Despite a low dividend yield (1.7%), PPG has been great dividend stock to own. The company has delivered shareholders a total return of 126% of the past 5 years and it has a very long track record of increasing its dividend above the rate of inflation. In addition, PPG has a modest payout ratio of 38% and there is plenty of room for future dividend growth. The company has paid uninterrupted annual dividends since 1899, equating to 457 consecutive quarterly dividend payments.
#13 Dover Corporation (DOV)
In 2012, Dover increased its dividend for the 57th consecutive year, giving it one of the longest records of consecutive annual dividend increases of all listed companies. In addition, the company has a high Financial Stability Rating (85) and very low payout ratio (25.5%). We expect that Dover will continue increasing its annual dividend to shareholders by at least 10% for the foreseeable future.
#12 Aflac Inc. (AFL)
Aflac has been one of the strongest performing Aristocrats over the past 12 months with a total return of 26.4%. In addition, the company is one of only a handful of stocks that has a sub-rating over 90 in 4 of our 5 sub-rating categories. Aflac has grown dividends at a compound annual rate of almost 20% over the past 10 years and it still has a very low payout ratio of 20.8%. The company recently announced a 6.1% increase in the quarterly cash dividend, which marks the 30th consecutive year in which the dividend has been increased.
#11 Lowe's Companies (LOW)
Lowe's carries our highest Dividend Track Record Rating (99) as the company has paid a cash dividend each quarter since becoming a public company in 1961 and it has increased its dividend at a compound annual rate of 31.1% over the past 10 years. In addition, Lowe's has also been one of the strongest performing Aristocrats over the past 12 months with a total return of 42.9%. Needless to say, despite a current dividend yield under 2.0%, we think that Lowe's is a great long-term dividend stock to consider for your portfolio.
If you are looking to generate stable income, dividend growth investing is a great way to accomplish this goal and any one of these dividend Aristocrats make a nice addition to your portfolio.
Please make sure to "follow" us as we continue this series and unveil the dividend stocks that made our first and second "All-Aristocrat" Teams.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.