Income investors looking for high yields and sustainable dividend growth should inspect the list of Dividend Aristocrats, as it contains many strong dividend stocks. The Dividend Aristocrats are a group of just 57 companies within the S&P 500 Index, that have raised their dividends annually for at least 25 years in a row.
The Dividend Aristocrats have outperformed the broader market for the past decade. In the past 10 years through November 29th, the Dividend Aristocrats generated total returns of 13.8% per year, compared with 12.7% annual returns for the S&P 500 Index.
The Dividend Aristocrats also provide higher levels of investment income, which is particularly important for investors in or nearing retirement. The following 3 Dividend Aristocrats each have long histories of dividend growth, plus current dividend yields of at least 4%. And, these 3 stocks are highly likely to continue raising their dividends for many years to come.
Dividend Aristocrat #1: AT&T Inc. (T)
AT&T (NYSE:T) is a giant telecommunications company with a market capitalization above $280 billion. AT&T is a large telecommunications company with over 100 million customers in the U.S., as well as a significant presence in Latin America. The company provides a wide range of telecom services, including wireless, broadband, and television through its cable operations and its DIRECTV satellite business.
AT&T generates more than $180 billion in annual revenue. It has increased its dividend for 36 consecutive years, including a recent 2% increase on December 13th. AT&T’s primary competitive advantage is its scale. The U.S. telecom industry is dominated by AT&T and rival telecom Verizon (NYSE:VZ).
In addition, AT&T has highly valuable media properties, the result of its $81 billion acquisition of Time Warner. While AT&T’s telecom businesses provide the company with strong cash flow and steady growth, its content assets will help drive its future growth. AT&T now owns multiple media brands, including TNT, TBS, CNN, and HBO, as well as the Warner Brothers movie studio and sports rights across the NFL, NBA, MLB, and NCAA.
AT&T reported solid third-quarter financial results. Revenue came in 3% lower year-over-year but higher profit margins resulted in 4% growth in adjusted earnings-per-share. The company also said it expects 2022 adjusted earnings-per-share in the range of $4.50 to $4.80, which at the midpoint would represent roughly 10% annual growth. It also expects revenue to climb between 1% and 2% each year. We expect 4% annual EPS growth for AT&T over the next five years. AT&T is a cash machine. The company expects free cash flow of $30 billion to $32 billion by 2022. This will allow it to steadily pay down debt and continue to reward shareholders with high dividend payouts.
AT&T is an undervalued dividend stock, with a price-to-earnings ratio of just 10.5. In addition to earnings growth and the 5.4% current dividend yield, we view AT&T as a blue-chip dividend stock.
Dividend Aristocrat #2: AbbVie Inc.
AbbVie (NYSE:ABBV) is a pharmaceutical company that was spun off by Abbott Laboratories (NYSE:ABT) in 2013. AbbVie currently has a market capitalization of $133 billion. AbbVie has generated strong growth in recent years, but investors are concerned that growth could slow down moving forward. Its flagship product Humira—which by itself represents approximately 60% of AbbVie’s total revenue—has lost patent exclusivity in Europe. Complicating matters further is that AbbVie will lose patent exclusivity for Humira starting in 2023.
Fortunately, the company has a well-stocked pipeline to help replace any declines in Humira sales. For example, in the most recent quarter AbbVie generated 3.5% revenue growth. New products like Imbruvica led the way with 29% sales growth. Overall, AbbVie reported 9% adjusted earnings-per-share growth, a very satisfactory result.
Along with its quarterly results, the company raised its full-year guidance. AbbVie now expects 2019 adjusted EPS in a range of $8.90 to $8.92, up from $8.82 to $8.92 previously. The new guidance range represents full-year adjusted EPS growth of 12% to 13%, at the midpoint. In addition, AbbVie raised its quarterly dividend by 10%.
AbbVie has multiple organic growth opportunities to replace Humira declines. In addition, acquisitions are a major catalyst for AbbVie —it recently acquired Allergan (NYSE:AGN) for $63 billion. This acquisition will meaningfully boost AbbVie’s growth, and further diversify its product portfolio. The combined company will have annual revenues of nearly $50 billion. AbbVie expects the transaction to be 10% accretive to adjusted EPS over the first full year following the close of the transaction, with peak accretion of greater than 20%.
Based on expected 2019 earnings-per-share of ~$8.91, AbbVie stock trades for a price-to-earnings ratio of just 10.1. We view AbbVie (NYSE:ABBV) as significantly undervalued, considering its growth potential. The stock has a high current dividend yield of 5.2%, making it an attractive dividend stock for value and income.
Dividend Aristocrat #3: People’s United Financial (PBCT)
People’s United Financial (NASDAQ:PBCT) is one of the lesser-known Dividend Aristocrats. With a market capitalization of just $7.4 billion, it flies under the radar relative to the many large-cap stocks on the list of Dividend Aristocrats. But People’s United Financial has a strong business model, as a leading regional bank and financial services company.
It provides various services including real estate and mortgage lending, equipment financing, consumer loans, life insurance, brokerage services, wealth management, and traditional banking. The company has a network of 400+ branches, with total assets of $52 billion.
People’s United Financial reported strong results last quarter. While net interest margin remained flat year-over-year, due to falling interest rates throughout 2019, operating earnings-per-share increased 3%. The company grew non-interest income rose 15% for the quarter.
Continued growth is likely for this Dividend Aristocrat, due to its recent $759 million acquisition of United Financial Bancorp. This acquisition will enhance the presence of the company in central Connecticut and western Massachusetts.Earlier in 2019 it also acquired VAR Technology Finance, which focuses on serving the technological sector, and BSB Bancorp. The company should be able to continue growing earnings per share at a mid-single digit pace going forward, as it will benefit from stable growth of the U.S. economy.
People’s United is a rare stock, as it is the only bank stock on the list of Dividend Aristocrats. It has maintained steady dividend growth, even during recessions, which are typically very damaging to banks. For example, from 2007-2010, earnings-per-share declined 54% as the Great Recession took its toll. With that said, it remained profitable throughout, and continued to increase its dividend through the Great Recession.
We believe the dividend remains secure, with room for continued growth. The company is expected to maintain a dividend payout ratio of 52% for 2019, which indicates a sustainable distribution.And, the stock is valued at just 13 times this year’s earnings per share. People’s United stock is trading for a reasonable valuation, along with a high dividend yield of 4.2%.