Investing

 5 Dividend Aristocrat Stocks Quietly Offering Huge Total Return Potential

Lee Jackson

Published: February 27, 2024 10:25 am

Investors love dividend stocks because they provide dependable income and give investors a great opportunity for solid total return. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation.

At 247 Wall St., we always like to remind our readers about the impact total return has on portfolios because it is one of the best ways to help improve the chances for overall investing success. Again, total return is the combined increase in a stock’s value plus dividends.

For instance, if you buy a stock at $20 that pays a 3% dividend, and it goes up to $22 in a year, your total return is 13%—10% for the increase in stock price and 3% for the dividends paid.

Often, when income investors look for defensive companies paying big dividends, they are drawn to the Dividend Aristocrats, and with good reason. The 68 companies that made the cut for the 2024 S&P 500 Dividend Aristocrats list have increased dividends (not just remained the same) for 25 years straight. But the requirements go even further, with the following attributes also mandatory for membership on the dividend aristocrats list:

• Companies must be worth at least $3 billion each quarterly rebalancing
• Average daily volume of at least $5 million transactions for every trailing three-month period at every quarterly rebalancing date
• Be a member of the S&P 500

We screened the Dividend Aristocrats looking for the stocks offering investors the best total return potential now, and five top companies look like great ideas. They pay among the highest dividends in the group and have significant upside potential for gains in their stock price.

AbbVie

This stock is one of the top pharmaceutical stock picks across Wall Street and pays a dependable 3.83% dividend. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories.

The company develops and markets drugs in areas such as:

• Immunology
• Virology
• Renal disease
• Dyslipidemia
• Neuroscience

One of the biggest concerns with AbbVie is what might eventually happen with the anti-inflammatory therapy Humira, which has some of the most significant sales for a drug ever recorded.

The company was concerned, so in June of 2019, they announced they had agreed to pay $63 billion for rival drugmaker Allergan Plc, the latest merger in an industry where some of the biggest companies have been willing to spend a high price to resolve questions about their future growth.

AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market. This is a problem Allergan is already grappling with as more alternatives to Botox emerge.

Exxon Mobil

The integrated energy giant trades almost 20% below a 52-week high and offers a stout 3.66% dividend. Exxon Mobil Corporation (NYSE: XOM) explores and produces crude oil and natural gas in the United States and internationally.

It operates through four segments:

• Upstream
• Energy Products
• Chemical Products
• Specialty Products 

The Upstream segment explores and produces crude oil and natural gas.

The Energy Products segment offers fuels, aromatics, catalysts, and licensing services.

The Chemical Products segment manufactures and markets petrochemicals, including olefins, polyolefins, and intermediates.

The Specialty Products segment offers performance products, including lubricants, basestocks, waxes, synthetics, elastomers, and resins.

Exxon Mobil and Pioneer Natural Resources (NYSE: PXD) announced a definitive agreement for ExxonMobil to acquire Pioneer last fall. The merger is an all-stock transaction valued at $59.5 billion, or $253 per share, based on ExxonMobil’s closing price on October 5, 2023. Under the terms of the agreement, Pioneer shareholders will receive 2.3234 shares of ExxonMobil for each Pioneer share at closing. The implied total enterprise value of the transaction, which is expected to close in June, including net debt, is approximately $64.5 billion.

Leggett & Platt

While somewhat off-the-radar, this stock has been cut in half over the last year, offering massive upside potential and a fat 8.83% dividend. Leggett & Platt Incorporated (NYSE: LEG) designs, manufactures, and markets engineered components and products worldwide.

It operates through three segments:

• Bedding Products
• Specialized Products; and Furniture
• Flooring & Textile Products

The company offers:

• Steel rods, drawn wires, foam chemicals, and additives
• Innersprings, specialty foams
• Private label finished mattresses, mattress foundations, wire forms for mattress foundations
• Adjustable beds, industrial sewing and quilting machines
• Mattress packaging and glue drying equipment
• Machines to produce innerspring for industrial users of steel rods and wires, manufacturers of finished bedding, big box and e-commerce retailers, bedding brands and mattress retailers, department stores, and home improvement centers

Leggett & Platt also provides:

• Mechanical and pneumatic lumbar support and massage systems for automotive seating
• Seat suspension systems, motors and actuators, and cables;
• Titanium, nickel, and stainless steel tubing, formed tubes, tube assemblies, and flexible joint components for fluid conveyance systems
• Engineered hydraulic cylinders to automobile OEMs and suppliers, aerospace OEMs and suppliers, and mobile equipment OEMs.

In addition, the company offers:

• Steel mechanisms and motion hardware
• Springs and seat suspensions
• Components and private label finished goods for soft seating; bases, columns, back rests, casters, and frames for office chairs; control devices for chairs; and carpet cushion and hard surface flooring underlayment,
• Structural fabrics and geo components to manufacturers of upholstered and office furniture, flooring retailers and distributors, contractors, landscapers, road construction companies, retailers, government agencies, and mattress and furniture producers, as well as manufacturers of packaging, filtration, and draperies

PepsiCo

This top consumer staples stock will supply the goods for Final Four parties, pays a solid 2.98% dividend, and is $30 below the 52-week high. PepsiCo, Inc. (NYSE: PEP) is a worldwide food and beverage company.

Its Frito-Lay North America segment offers

• Lays and Ruffles potato chips
• Doritos, Tostitos, and Santitas tortilla chips
• Cheetos cheese-flavored snacks, branded dips
• Fritos corn chips

The company’s Quaker Foods North America segment provides:

• Quaker oatmeal
• Grits
• Rice cakes
• Natural granola and oat squares
• Pearl Milling mixes and syrups
• Quaker Chewy granola bars
• Cap’n Crunch cereal
• Life cereal
• Rice-A-Roni side dishes

Pepsico’s North America Beverages segment offers beverage concentrates, fountain syrups, and finished goods under these brands:

• Pepsi
• Gatorade
• Mountain Dew
• Diet Pepsi
• Aquafina
• Diet Mountain Dew
• Tropicana Pure Premium
• Sierra Mist
• Mug brands

T. Rowe Price Group

This is another top mutual fund company with tremendous assets under management and pays a 4.61% dividend. T. Rowe Price Group, Inc. (NASDAQ: TROW) is a publicly owned investment manager.

The firm provides services to:

• Individuals
• Institutional investors
• Retirement plans,
• Financial intermediaries and Institutions

It launches and manages equity and fixed-income mutual funds.

T. Rowe Price invests in public equity and fixed-income markets across the globe. It employs fundamental and quantitative analysis with a bottom-up approach.

The firm utilizes in-house and external research to make its investments. It employs socially responsible investing focusing on environmental, social, and governance issues.

It also invests in late-stage venture capital transactions and usually invests between $3 million and $5 million.