Many stocks pay dividends, but only 65 are dividend aristocrats. To achieve this elite status, a stock must be included in the S&P 500 index and have 25 consecutive years of pay increases on its curriculum. Now, a history of increasing dividends is not enough to make a stock a purchase. But there are many reasons to add these three Dividend Aristocrats to your portfolio and keep them forever.
1. Lowe’s
In addition to being a dividend aristocrat, Lowe’s (NYSE: LOW) it is also one of only 27 stocks that earned a place on the Dividend Kings list by recording 50 or more uninterrupted years of pay increases. In the case of Lowe, he has distributed dividends every year since 1961, when he went public, and has increased his pay for 58 consecutive years. After its last 9% increase, at the current stock price, it is yielding 1.47%.
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By the time that many companies achieve a record of decades of dividend growth, their days of high growth have passed. What makes Lowe’s an exciting dividend stock, however, is that it can still generate strong stock price gains for investors. Both Lowe’s and its rival Home Depot (NYSE: HD) it just went through an exceptional year, as customers stayed at home and spent more money available on renovation projects than on vacation or dinner out. Home Depot is even more profitable, but Lowe’s shares performed better in 2020, with total year-to-date returns of 38.37% at the end of December, compared to 25.63% for Home Depot.
Obviously, the chances of any retailer sustaining its recent growth levels when life returns to something close to normal are slim. But Lowe’s still has a lot of room to grow, due to its recent improvements in e-commerce and its keen focus on increasing its sales to professional contractors. This strategy can pay off once the 2020 DIYers return to their pre-pandemic routines, especially if home sales remain strong. Analysts predict that Lowe’s profits will grow at an average rate of 20% per year for the next five years, making his dividends just the icing on the cake.
2. Real estate income
Real estate income (NYSE: O) is a newcomer in 2020 to the Dividend Aristocrats list. It is a real estate investment fund (REIT), and these tend to be the favorites of income investors because they are required by law to distribute 90% of their taxable income to shareholders. Realty Income is also known to pay dividends monthly instead of quarterly – in fact, it even called itself The Monthly Dividend Company. With a yield of 4.56% at current stock prices, it has achieved 605 consecutive monthly dividend payments and 4.4% average annual dividend growth since going public in 1994.
While 2020 has been a bad year for many REITs, particularly those with offices and retail properties, Real Estate Income has been relatively isolated from the consequences of the pandemic. Although its buildings are mostly occupied by retailers, its four largest categories of tenants are convenience stores, drugstores, grocery stores and securities stores – all of which tend to withstand recessions. Although it has some gym and movie theater renters, it collected 93% of rentals in the third quarter. Although its shares have fallen about 16% in the year, Realty Income remains a solid bet for any investor who wants to obtain monthly revenue from his portfolio.
3. Colgate-Palmolive
Colgate-Palmolive (NYSE: CL) is another King of Dividends, with 57 consecutive years of increased payments and a current income of 2.06%. Your product catalog – toothbrushes and toothpaste, soap, washing powder, deodorant, pet products, etc. – is quite diverse, but not exactly exciting. However, this is part of what makes Colgate-Palmolive a great defensive action to take forever: your brushing and bathing habits are unlikely to have a zero correlation with the health of the economy.
With 41.1% of the global toothpaste market and 31.6% of the global manual toothbrush market in 2019, this company is clearly positioned to survive in the toughest times. In addition, it is known for maintaining a strong free cash flow, which ensures that its dividend increases are sustainable.
Colgate-Palmolive can be a tedious business. It is unlikely to deliver huge returns. But when the market is volatile, you’ll be happy to have those tedious defensive stocks in your portfolio.