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Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. The Dividend Aristocrats are S&P 500 constituents that have increased their dividend payouts for 25 consecutive years.

I tried to determine if the five stocks that have the highest dividend growth record among the stocks included in the S&P 500 Dividend Aristocrats index are currently a bargain

In this article, I will give the corresponding fundamental parameters for these five companies and my own opinion about them. Nonetheless, these data and my opinion should only serve as a basis for further research. All the data for this article were taken from Yahoo Finance and finviz.com on February 08, before the market open.

The table and the chart below present the top five highest dividend growers, their forward annual dividend rate, the forward yield, the payout ratio and the dividend rate of growth for the past five years.

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Walgreen Co. (NYSE:WAG)

Walgreen Co., together with its subsidiaries, operates a network of drugstores in the United States. It provides consumer goods and services, pharmacy, and health and wellness services through drugstores, as well as through mail, and by telephone and online.

Walgreen has low debt (total debt to equity is only 0.35), a trailing P/E of 18.52, and a very low forward P/E of 11.23. The price to free cash flow for the trailing 12 months is 20.43, and the price-to-sales ratio is very low at 0.55. The forward annual dividend yield is at 2.66%, and the payout ratio is 44.8%. The annual rate of dividend growth over the past five years was very high at 23.7%.

The stock price is 4.11% above its 20-day simple moving average, 9.99% above its 50-day simple moving average and 20.1% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

WAG has a total cash per share of $1.96 and it is expected to post a profit of $3.26 a share in the current year and $3.69 in the next year, which should be more than enough to sustain dividend payments of $1.10.

The table below presents the compound annual growth rate (OTCPK:CAGR) of holding the stock for the last five years, ten years and twenty years. The returns without dividends (capital gains) and with dividends are shown separately, in order to emphasize the importance of the dividend yield.

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Holding the WAG stock during the last five years has given an average annual return of 4.5%, without the dividends the average annual return would be 3.3%. Holding the WAG stock during the last ten years has given an average annual return of 5.2%, and during the last twenty years a very nice average annual return of 12.5%.

The quite cheap valuation metrics, the rich dividend, the long history of steadily increasing dividend, and the fact that the stock is in an uptrend are all factors that make WAG stock quite attractive.

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Data: Yahoo Finance

WAG Dividend Yield Chart

WAG Dividend Yield data by YCharts

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Chart: finviz.com

Target Corp. (NYSE:TGT)

Target Corporation operates general merchandise stores in the United States.

Target has a very low trailing P/E of 13.81 and an even lower forward P/E of 12.87. The price to free cash flow for the trailing 12 months is at 20.12, and the price-to-sales ratio is very low at 0.56. The average annual earnings growth estimates for the next 5 years is at 11.7%. The forward annual dividend yield is at 2.31%, and the payout ratio is only 29.3%. The annual rate of dividend growth over the past five years was very high at 20.7%.

The stock price is 1.86% above its 20-day simple moving average, 1.94% above its 50-day simple moving average and 3.0% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

TGT stock is trading 4.77% below its 52-week high, and has 12.5% upside potential based on the consensus mean target price of $70.06.

TGT has a total cash per share of $2.27, and it is expected to post a profit of $4.39 a share in the current year and $4.84 in the next year, which should be more than enough to sustain dividend payments of $1.44.

TGT will report its latest quarterly financial results on February 27. TGT is expected to post a profit of $1.48 a share, a 3.5% rise from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

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Holding the TGT stock during the last five years has given an average annual return of 5.2%, without the dividends the average annual return would be only 2.4%. Holding the TGT stock during the last ten years has given an average annual return of 9.4%, and during the last twenty years a very nice average annual return of 13.5%.

The cheap valuation metrics, the rich dividend, the long history of steadily increasing dividend, the 12.5% upside potential based on the consensus mean target price of $70.06, and the fact that the stock is in an uptrend, make TGT stock quite attractive.

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Data: Yahoo Finance

TGT Dividend Yield Chart

TGT Dividend Yield data by YCharts

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Chart: finviz.com

W.W. Grainger, Inc. (NYSE:GWW)

W.W. Grainger, Inc. engages in the distribution of maintenance, repair, and operating supplies, as well as other related products and services for businesses and institutions primarily in the United States and Canada.

W.W. Grainger has a very low debt (total debt to equity is only 0.18), and the forward P/E is at 16.29. The forward annual dividend yield is at 1.48%, and the payout ratio is only 33.7%. The annual rate of dividend growth over the past five years was very high at 18%.

The GWW stock is trading 1.49% above its 20-day simple moving average, 6.36% above its 50-day simple moving average and 8.31% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

GWW has a total cash per share of $6.51 and it is expected to post a profit of $11.72 a share in the current year and $13.31 in the next year, which should be more than enough to sustain dividend payments of $3.20.

On January 24, W.W. Grainger reported its results for the fourth quarter and full year of 2012, which missed EPS expectations by $0.19 and were in-line on revenue. In the report, Jim Ryan, Chairman, President and Chief Executive Officer, said:

It was a record year for Grainger. Despite a slowing of business activity in the back half of the year, particularly in late December when uncertainty surrounding the economy and the fiscal cliff virtually paralyzed many businesses and government institutions, we achieved solid results while continuing to invest for future growth. For the full year, we invested an additional $70 million in expanding our product line and sales force, enhancing eCommerce capabilities, increasing inventory management services and expanding our international presence.

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Holding the GWW stock during the last five years has given an extremely high average annual return of 26%, without the dividends the average annual return would be 22%. Holding the GWW stock during the last ten years has given a very high average annual return of 18.6%, and during the last twenty years a very nice average annual return of 13.1%.

In my opinion, the GWW stock is a bit expensive right now.

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Data: Yahoo Finance

GWW Dividend Yield Chart

GWW Dividend Yield data by YCharts

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Chart: finviz.com

McDonald's Corp. (NYSE:MCD)

McDonald's Corporation franchises and operates McDonald's restaurants in the global restaurant industry.

McDonald's has a trailing P/E of 17.65 and a low forward P/E of 14.86. The average annual earnings growth for the past 5 years was very high at 22.69%, and the average annual earnings growth estimates for the next 5 years is at 8.71%. The forward annual dividend yield is quite high at 3.25%, and the payout ratio is at 53.5%. The annual rate of dividend growth over the past five years was very high at 16.3%.

The MCD stock is trading 1.46% above its 20-day simple moving average, 4.57% above its 50-day simple moving average and 6.15% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

MCD has a total cash per share of $2.18 and it is expected to post a profit of $5.80 a share in the current year and $6.37 in the next year, which is enough to sustain dividend payments of $3.08.

On January 24, McDonald's reported its results for the fourth quarter and full year of 2012, which beat EPS expectations by $0.05.

Full year 2012 highlights included:

  • Global comparable sales increased 3.1%, with the U.S. up 3.3%, Europe up 2.4% and Asia/Pacific, Middle East and Africa (APMEA) up 1.4%
  • Consolidated revenues up 2% (5% in constant currencies)
  • Consolidated operating income increase of 1% (4% in constant currencies), with the U.S. up 2%, Europe down 1% (up 6% in constant currencies) and APMEA up 3% (3% in constant currencies)
  • Diluted earnings per share of $5.36, up 2% (5% in constant currencies)
  • Returned $5.5 billion to shareholders through dividends and share repurchases

Fourth Quarter highlights included:

  • Global comparable sales increased 0.1%
  • Consolidated revenues increased 2% (2% in constant currencies)
  • Consolidated operating income increase of 4% (4% in constant currencies)
  • Diluted earnings per share of $1.38, up 4% (5% in constant currencies)

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Holding the MCD stock during the last five years has given a very high average annual return of 15.2%, without the dividends the average annual return would be 12%. Holding the MCD stock during the last ten years has given an extremely high average annual return of 24.6%, and during the last twenty years a very nice average annual return of 12.4%.

The cheap valuation, the rich dividend, the long history of steadily increasing dividend and the fact that the stock is in an uptrend are all factors that make MCD stock quite attractive.

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Data: Yahoo Finance

MCD Dividend Yield Chart

MCD Dividend Yield data by YCharts

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Chart: finviz.com

Medtronic, Inc. (NYSE:MDT)

Medtronic, Inc. manufactures and sells device-based medical therapies worldwide.

Medtronic has a trailing P/E of 15.04 and a very low forward P/E of 12.1. The price to free cash flow is quite low at 16.48. The forward annual dividend yield is at 2.22%, and the payout ratio is only 32.8%. The annual rate of dividend growth over the past five years was very high at 15.1%.

The MDT stock is trading 2.47% above its 20-day simple moving average, 7.47% above its 50-day simple moving average and 15.64% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

MDT has a total cash per share of $2.65 and it is expected to post a profit of $3.68 a share in the current year and $3.86 in the next year, which should be more than enough to sustain dividend payments of $1.04.

MDT will report its latest quarterly financial results on January 21. MDT is expected to post a profit of $0.91 a share, a 4.6% rise from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

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Holding the MDT stock during the last five years has given a low average annual return of 1.2%, without the dividends the average annual return would be only 0.1%. Holding the MDT stock during the last ten years has given an annual return of 2.0%, and during the last twenty years a nice average annual return of 13.4%.

The quite cheap valuation metrics, the solid dividend, the long history of steadily increasing dividend and the fact that the stock is in an uptrend are all factors that make MDT stock quite attractive.

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Data: Yahoo Finance MDT Dividend Yield Chart

MDT Dividend Yield data by YCharts

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Chart: finviz.com

Conclusion

The five Dividend Aristocrats best dividend growers are all quite attractive, but I cannot say that they are bargain stocks now.

Source: 5 Dividend Aristocrats Top Dividend Growers; Are They Bargain Stocks Now?