5 Dividend Aristocrats With The Fastest Dividend Growth

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Includes: GWW, LOW, MCD, TGT, WBA
by: Dividendinvestr

Dividend aristocrats are constituent companies of the S&P500 Dividend Aristocrats Index. These companies have raised their dividends for more than 25 years in a row. Since 1989, dividend aristocrats, as a group, have outperformed the broad S&P500 index, based on average risk-adjusted returns. The group boasts some of the fastest growing dividend stocks among all dividend paying stocks. Moreover, these companies boast low dividend payout ratios, suggesting that there is plenty of room to boost dividends in the future. Here is a quick glance at five dividend aristocrats with the fastest dividend growth rates in the overall index.

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Walgreen Co. (WAG) is a $28 billion company that operates a chain of drugstores in the United States. It pays a dividend yield of 2.8%, almost on par with the average yield for the S&P500 Dividend Aristocrats index. Its payout ratio is 31%. The company's peers CVS Caremark Corporation (NYSE:CVS) and Wal-Mart (NYSE:WMT) pay yields of 1.4% and 2.3%, respectively, while competitor Rite Aid Corp. (NYSE:RAD) does not pay any dividends. Walgreen Co. has increased dividends at an average rate of 23.8% a year over the past five years. At that pace, the company could double its dividend within 3.3 years.

Analysts forecast that the company will grow its EPS at a healthy 10.6% annual rate for the next five years, slightly below the average annual growth rate of 11.3% achieved over the past five years. The company's stock is trading at $31.96 a share, down 3.3% year-to-date. Billionaire George Soros initiated a small position in the stock in the quarter ended March 31.

Lowe's Companies (NYSE:LOW) is a $33.5 billion home improvement goods retailer. This company pays a dividend yield of 2.3%, some 55 basis points below the average yield for the S&P500 Dividend Aristocrats index. Lowe's Companies has a payout ratio of 42%. The company's largest direct competitor Home Depot (NYSE:HD) pays a dividend yield of 2.2%. Lowe's Companies has increased dividends at an average rate of 22.9% a year over the past five years. At the same pace of growth in the future, the company could double its dividend within 3.4 years.

It is relevant to note that the company has increased dividends at a robust pace, despite its EPS contracting, on average, over the past five years. With an expected rebound in the housing sector, analysts forecast that the company will boost its EPS at an average rate of 16% a year for the next five years. The stock is currently changing hands at $28.43 a share, up 11.4% from the beginning of the year. Among fund managers, the stock is popular with John Griffin (Blue Ridge Capital - see top picks) and Jean-Marie Eveillard, who initiated a position in the stock in the past quarter.

McDonald's Corp. (NYSE:MCD) is the world's largest fast-food hamburger restaurant chain. It has a market capitalization of $92 billion. The company pays a dividend yield of 3.1%, some 25 basis points above the average yield on the S&P500 Dividend Aristocrats index. McDonald's has a dividend payout ratio of 52%. Its peers Darden Restaurants (NYSE:DRI) and YUM! Brands (NYSE:YUM) pay yields of 3.3% and 1.8%, respectively. McDonald's Corp. has increased dividends at a rate of 22% per year over the past five years. At that rate, the company could double its dividend within 3.5 years.

However, it is more likely that the company will moderate dividend growth in the coming years. The fast-food chain has seen its EPS grow at an average rate of 18.1% a year over the past five years. Analysts forecast that the company will boost its EPS at a more modest 9.8% average annual rate for the next five years. The stock is currently trading at $90.24, down 8.7% year-to-date. Recently, the stock has performed poorly due to its high exposure to Europe, slowing sales in Asia, and a negative effect on EPS from the strengthening greenback. Bill Gates' foundation has a large stake in the company. As regards fund managers, Ken Heebner closed out of his stake in the company in the quarter ended March 31.

Target Corp. (NYSE:TGT) is a U.S. general merchandise store operator with market capitalization of $39 billion. The company pays a dividend yield of 2.5%, about 35 basis points below the average for the S&P500 Dividend Aristocrats index. Target's dividend payout ratio is 33%. The company's competitors Wal-Mart and Costco Wholesale Corporation (NASDAQ:COST) pay dividend yields of 2.3% and 1.2%, respectively. Target has increased dividends at a 20.1% average annual rate over the past five years. At this pace of dividend growth, the company could double its payout within 3.8 years.

Analysts forecast that the company's EPS will grow at an average annual rate of 11.9% for the next five years, double the growth rate over the past five years. The stock is currently trading at $58.47 a share, up 14.4% year-to-date and close to its 52-week high. Fund manager Wallace Weitz is bullish about the stock.

W.W. Grainger (NYSE:GWW) is a $12.7 billion supplier of industrial maintenance, repair and operating products. The company pays a dividend yield of 1.8%, more than a percentage point below the average yield on the S&P500 Dividend Aristocrats index. Its payout ratio is at a low 34%. The company's peer MSC Industrial Direct Company (NYSE:MSM) pays a dividend yield of 1.5%, while rival WESCO International Inc. (NYSE:WCC) does not pay dividends. The company has been raising dividends at an average annual rate of 17.9% over the past five years. At that rate, the company's dividend would double within 4.3 years.

Analysts forecast that the W.W. Grainger's EPS will grow at an average rate of 14% a year for the next five years. The stock is trading at $181.38 a share, down 2.3% year-to-date. Fund manager Ken Heebner sold out of his stake in the company in the previous quarter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.