3 Dividend Aristocrats With AAA Credit Ratings

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Includes: ADP, JNJ, XOM
by: Avi Morris

These are unusual times in the stock market. Investors seeking safety are buying Treasuries and gold, driving those prices to record or near record levels (for some Treasuries). At the same time stocks are generally higher this year because other investors are pursuing risk for capital gains. Both risk and risk averse are being rewarded. However, it's possible to find stocks which combine a high level of safety and growth potential.

The AAA credit rating is the elite rating for American companies.In the 1980s, many, perhaps 10-20%, earned this rating. Since then increased borrowings along with uneven earnings caused the vast majority to be taken off the list. General Electric (NYSE:GE), Pfizer (NYSE:PFE) and Berkshire Hathaway (NYSE:BRK.A) were dropped from the group in the last year or so. By my count, only 3 non-financial companies remain and all are Dividend Aristocrats (shown with their yields):

  1. Automatic Data Processing (NASDAQ:ADP) -- 3.2%
  2. Exxon Mobil (NYSE:XOM) ------------------------ 2.9%
  3. Johnson & Johnson (NYSE:JNJ) ---------------- 3.5%

ADP provides HR, payroll, tax and benefits administration for 550,000 companies around the world. After a sluggish time getting through the recession, ADP is resuming its growth trend needed to extend the streak of higher annual dividends. XOM is huge, and has the the largest market cap in the world. It's so large that it could help bail out secondary countries where it operates. JNJ is one of the largest health care companies in the world with an excellent record of growing earnings and has raised its annual dividends for almost half a century.

These companies were able to retain AAA credit status after a severe recession giving them risk haven qualities comparable to Treasury debt (which is increasing annually by $1+ trillion). These stocks have a high level of security, earn higher yields than 2½% on the 10 year Treasury bond, are committed to growing dividends and have a federal tax rate below marginal rates (assuming tax cuts are extended at least for the lower 98%). It's not necessary to settle for minimal yields on bank CDs or Treasuries when more attractive yields are available from AAA companies.

Disclosure: No positions