Investing

Not All Dividend Aristocrats Are Created Alike. Here Are the 3 You Should Buy

Rich Duprey

Published: September 12, 2024 10:32 am

Dividend investing has proved to be a reliable source of income for investors while allowing for long-term generational wealth accumulation. 

Historically, dividend-paying stocks have generated far greater returns than non-payers, and done so with less volatility and risk. Moreover, they exhibit greater resilience during market downturns stemming from their strong fundamentals, long history of operation, profitability, and solid cash flows. The power of compounding and time is a combination that is difficult to beat. 

One of the best areas to mine for dividend stocks is amongst Dividend Aristocrats, or companies that have increased their payouts for 25 years or more. But not all Dividend Aristocrats are the same. 

As investors discovered several times in the past two years, an Aristocrat’s dividend may not be secure. AT&T (NYSE:T), 3M (NYSE:MMM), and Walgreens Boots Alliance (NASDAQ:WBA) all slashed their payouts in half. Although there are various reasons for the cuts, investors are cautioned not to buy a dividend stock simply because it is a Dividend Aristocrat.

Still, dividend stocks provide investors with immediate income while positioning them for sustained growth and financial security in the long run. The three Dividend Aristocrats below are those that can best help investors achieve their financial goals.

Key Points About This Article:

• Dividend-paying stocks have a history of outperformance compared to non-payers making them a preferred investment strategy for investors. 
• With at least 25 consecutive years of raising their payouts, Dividend Aristocrats offer investors long-term growth opportunities, though care in selecting the ones to buy is essential.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Cardinal Health (CAH)

Medical supplies and services distributor Cardinal Health (NYSE:CAH) has a 35-year track record of raising its dividend and it remains on a solid financial footing. There is no risk of a dividend cut here. The payout, which was recently raised to $2.02 per share, yields 1.8% annually.

Fiscal fourth-quarter results handily beat analyst expectations as sales jumped 12% year-over-year to almost $60 billion. Driving that growth has been the popularity of weight-loss drugs like Wegovy and Zepbound. Distribution of these therapies contributed strongly to Cardinal’s pharmaceuticals’ segment sales growth though they offer very little in the way of profitability. 

The potential for biosimilar drugs, however, offers substantial growth possibilities. As a result, Cardinal formed a joint venture with CVS Health (NYSE:CVS) called Averon that will begin biosimilar distribution.

In general, Cardinal benefits from the increasing demand for healthcare services and products. Driven by an aging population and advancements in medical technology, Cardinal Health isn’t impervious to downturns, but as one of the three biggest distributors in the country, it is resistant to economic upheavals.

Realty Income (O)

Real estate investment trust Realty Income (NYSE:O) is the second Dividend Aristocrat investors should have at the top of their buy list. Unlike most income stocks, the REIT makes its payout monthly. It pioneered the monthly dividend payment and even bills itself as The Monthly Dividend Company.

Since getting listed on the NYSE in 1994, the REIT has made 650 consecutive monthly dividend payments. It has raised the payout for 30 straight years and has raised the dividend at a 16% compound annual growth rate for the past decade. 

Over the past three months, real estate has become the best-performing sector on the market with the S&P Real Estate Sector index up more than 14%. In comparison, tech stocks are down more than 3% over the same period. Realty Income’s stock has followed that wave and shares are up 17% over the past quarter and are just below their 52-week high.

Because its tenants tend to be quality retailers like Walmart (NYSE:WMT), 7-Eleven, and Dollar General (NYSE:DG), risk to its portfolio is minimized. Grocery stores, convenience stores, and dollar stores represent more than a quarter of its total tenants.

Sysco (SYY)

The last Dividend Aristocrat to consider is food distributor Sysco (NYSE:SYY). It is the industry leader with a 17% share of the highly fragmented $370 billion U.S. distribution market. Sysco has hundreds of distribution centers and serves over 700,000 customers. 

In its just-completed fiscal year, Sysco generated $2 billion in annual profits on $78.8 billion in sales, a 3% year-over-year increase. It has increased its dividend for more than 50 years running with the payout yielding a healthy 2.7% annually.

Sysco is a giant in the space, with 27% greater sales than Performance Food Group (NYSE:PFGC) and double the sales of U.S. Foods (NYSE:USFD). That scale offers Sysco significant purchasing power and gives it a competitive edge with customers looking for options on price, quality, and service.

While Sysco has just a 5.7% 10-year CAGR for dividend increases, it has a 48% free cash flow payout ratio indicating the payout’s safety and potential for future hikes.