5 Attractive Dividend Aristocrats For Yield And Growth

by: Avi Morris

In April 2011, I wrote an article "The 5 Best High-Yielding Dividend Aristocrats Remain Appealing," which presented high-yielding Dividend Aristocrats (all raised annual dividends for at least the prior 25 years) for income with yields of at least 3½% and growth. Since then, the Dow Jones Industrials is up 17%. The five stocks are listed below:





Pitney Bowes (NYSE:PBI)




Leggett Platt (NYSE:LEG)




Johnson & Johnson (NYSE:JNJ)




Kimberly-Clark (NYSE:KMB)




Abbott Labs (NYSE:AMT)








1) PBI has had a tough two years for obvious reasons. It is the leader in providing postal services and machines around the world. The mail business has been challenging. This week, earnings for Q1 were soft and the dividend was cut in half. As a result S&P will remove PBI from the Dividend Aristocrat list in December.

In its defense, last year there was an army of short sellers that tried to bury the company. But it is alive with more mail, computer, Internet and encryption services. Very brave investors are buying this stock with a 5% yield. After sinking $2.53 on the day of the dividend cut, the stock has rebounded $1.72 in 3 days. Speculators willing to accept a 5% yield are interested.

2) LEG produces engineered components and products found in homes, offices, automobiles and retail stores. The stock had been slumbering above $20 with a yield of 5-6% and received little attention with 4¢ annual dividend raises after 2007. In the last year, the stock shot up when investors were searching for high yields.

Management has set a growth target of 4-5% annually (half from GDP and half from efficiency) going forward. EPS from continuing ops was a record $1.46 (before adjustments) in 2012 and guidance is for $1.55-$1.75 in 2013 on sales of $3.80-$3.95 billion (2-6% growth). The dividend payout target is 50-60% and the dividend has been raised for the last 42 years.

(3) KMB manufactures products largely made from natural or synthetic fibers in fibers, nonwovens and absorbency. The company is organized into four operating segments: Personal Care, Consumer Tissue, K-C Professional and Healthcare. The best known products are Kleenex, Scott and Huggies

This has been a $60 stock with a 4% yield for many years. But buyers were attracted to the stock in the last year, taking the stock to $105. The annual dividend was raised to $3.24 this year, up from $2.12 in 2007, and the dividend has been increased for the last 41 years. After a strong Q1, management raised 2013 guidance for adjusted EPS in 2013 of $5.60-$5.75, compared witho adjusted EPS of $5.25 in 2012. The previous management target was $5.50 to $5.65.

4) JNJ is one of the largest healthcare companies in the world and has been able to keep its coveted AAA credit rating. Its three divisions with 2012 sales are: Consumers ($14 billion), Medical Devices & Diagnostics ($27 billion) and Pharmaceutical ($25 billion). 44% of global sales are in the U.S. Popular brand names include: Band-Aid, Listerine, Johnson baby products.

The stock has been held back by flattish sales and product recalls for key brands, such as Tylenol and Motrin, which cost the company $1 billion in lost sales. Problems are being corrected. Following Q1 results, JNJ confirmed its earnings guidance for 2013 EPS of $5.35-$5.45 (excluding the impact of special items). The dividend is $2.64, up from $1.50 six years ago and the dividend has been raised for the last 51 years.

5) ABT began 2013 by splitting into two companies, ABT and AbbVIE with the objective of enhancing investment value for shareholders. A special distribution of 1 AbbVie share was paid for every share of Abbott.

The new ABT is in its 125th year with $22 billion in revenues and sales in 150 countries. The company has four businesses: diagnostics, medical devices, nutritionals and branded generic pharmaceuticals. These businesses develop science-based products to meet the needs of patients and consumers in the global healthcare environment. ABT confirmed ongoing EPS guidance for 2013 of $1.98-$2.04.

ABBV is a research-based company with medicines, immunology and a pipeline of new therapies with sales of $18 billion. The company develops and markets advanced therapies for complex and serious diseases, selling medicines in more than 170 countries. ABBV is guiding 2013 adjusted EPS of $3.03-$3.13.

The dividend ABT paid last year was $2.04, up from $1.18 at the start of 2007. This year, ABT is paying a 56¢ dividend and ABBV is paying $1.60. Combined, $2.16 in dividends is 12¢ more than last year for ABT, which extends its streak of higher dividends to 41 years. It's unclear how S&P will treat these two companies as Dividend Aristocrats. Even if they are dropped from the list, stockholders are financially better off this year.

The stocks have done well and have become five stocks for investors who are looking for value stocks with long streaks of growing dividends. These companies are committed to reward stockholders with growing income.

The big picture for the first article and this one is that companies raising annual dividends for decades provide winning investment opportunities for value investors. Exactly 14 years ago the Dow went over 11,000 for the first time. Today it touched 15,000, before settling back, resulting in a 36% gain (when some famous companies have declined). LEG, KMB, JNJ, ABT and ABBV are attractive with generous yields. Over time continued higher income brings capital appreciation, which is the objective for successful investing.

Disclosure: I am long PBI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.