Dividend aristocrats are companies in the S&P 500 Index that have increased their dividend payments for at least 25 consecutive years. We identified 10 of these high quality companies that offer investors a starting dividend yield of 3%. Some have paid dividends for more than 100 years.
Not surprisingly, dividend aristocrats are mostly large cap, blue chip stocks that have proven to be some of the most durable businesses that money can buy. That’s one reason why we own some of them in our Top 20 Dividend Stocks portfolio.
Consistent dividend increases are often signs of a strong business that is enjoying steady earnings growth. Paying out dividends to shareholders also signals management’s confidence in the future profitability of the company.
For these reasons and more, the S&P Dividend Aristocrats Index has outperformed the S&P 500 Index by 2.9% per year over the last 10 years. It’s no wonder why many income investors prefer to invest in dividend aristocrats that can reliably pay them more and more income each year.
However, not all dividend aristocrats offer an attractive dividend yield. Of the 51 companies that comprise the complete list of dividend aristocrats today, only 12 have a dividend yield of at least 3%.
We sorted through these companies to pick the 10 dividend aristocrats that appear to offer some of the safest dividend yields in excess of 3%.
1. Walmart (WMT)
Walmart’s stock has a dividend yield of 3.2% and trades at about 13x forward earnings estimates.
While the stock has been weak due to rising labor costs and intense competition from e-commerce rivals such as Amazon AMZN, Walmart’s core advantages remain largely intact. The company generated over $480 billion in sales during fiscal 2015. Such massive scale allows the company to squeeze suppliers and maintain its position as the everyday low-price leader in the brick-and-mortar retail market.
Walmart’s sales mix is also very durable. It generates over half of its revenue from grocery items, which are more resistant to swings in the economy than many other types of products and provide the company with predictable cash flow.
The company’s dividend is also very secure. Over the trailing twelve months, Walmart’s earnings payout ratio was a healthy 42%, leaving plenty of cushion and room for future dividend growth regardless of trends in earnings.
From a dividend growth perspective, Walmart’s dividend compounded at a 13% annualized rate over the last decade. However, the company’s increases slowed to 2% in each of the last two years.
2. Consolidated Edison (ED)
Consolidated Edison, known by consumers as ConEd, has a dividend yield of 4.1% and trade at about 16x forward earnings estimates.
The company is an electric and gas utility holding company with major operations in New York, New Jersey, and Pennsylvania. Regulated utilities typically offer some of the safest dividends that income investors can find because their cash flows are so predictable.
