3 Dividend Aristocrats For Dividend Growth In Turbulent Times

3 Dividend Aristocrats For Dividend Growth In Turbulent Times

Times of financial turmoil can cause stress for investors but with a long-term plan, these times can be terrific buying opportunities.

This piece was originally written by Josh Arnold for Sure Dividend

Times of turmoil in the financial markets can cause great emotional stress on investors. However, with a plan that is focused on long-term wealth compounding, these times can prove to be terrific buying opportunities.

Dividend stocks tend to hold up better during market downturns than stocks that do not pay dividends. But even quality dividend stocks can get caught up in a market sell-off. That can create buying opportunities that not only afford investors a lower share price, and therefore, better valuation, but higher dividend yields as well. During times of turmoil, it is more important than ever to focus on high-quality dividend names.

The logical place to look for great dividend stocks to buy is the Dividend Aristocrats, a group of 65 stocks that are all components of the S&P 500, and have all raised their dividends for at least 25 consecutive years. These companies offer investors the highest of quality when it comes to dividend stocks. This article will take a look at three Dividend Aristocrats that also excel at dividend growth.

S&P Global Inc.

Our first Dividend Aristocrat is S&P Global (NYSE: SPGI), a company that offers a wide variety of services to the financial industry, as well as a suite of non-financial services. These include credit ratings for debt issuances, benchmarks and indices, data analytics products, engineering services, and more.

The company was founded in 1860, and is a leader in investment data services and credit ratings. S&P should produce about $12.7 billion in revenue this year, and trades with a market cap of $114 billion.

We see very strong growth prospects ahead for S&P Global, a company that has produced outstanding earnings growth in the past. In fact, the company has averaged almost 18% earnings growth annually in the past nine years, a track record that is difficult to match for any stock in the market. That has provided shareholders with tremendous capital returns, but also the ability for management to raise the dividend.

Continued growth is likely, accruing from the company’s combination of organic revenue growth, steady pace of acquisitions, and a measure of margin expansion. In particular, the company’s PitchBook product and others like it continue to attract strong growth rates in subscription revenue, in addition to the ratings business.

Because of the company’s strong growth, it has been able to raise the payout by about 12% annually in the past nine years. Even so, the current payout ratio is just 21%, meaning S&P has exemplary dividend safety. Even in the event of a severe, prolonged recession, we believe the company would be able to continue to raise its dividend. Indeed, it has raised the payout for nearly half a century, so S&P’s dividend safety is unquestioned.

Lowe’s Companies, Inc.

Our next stock is Lowe’s Companies (NYSE: LOW), the ubiquitous hardware and home improvement retailer that operates in what is essentially a duopoly with Home Depot (NYSE: HD). Lowe’s has about 2,000 stores across the US that offer tens of thousands of products for all kinds of construction, remodeling, lawn and garden, home maintenance, and countless other applications.

Lowe’s was founded in 1921, generates about $98 billion in annual revenue, and trades with a market cap of $128 billion.

Lowe’s continued growth will largely be driven by the combination of share repurchases, as well as organic revenue growth. Lowe’s doesn’t open a material number of stores, so that is not a revenue tailwind. However, it has a long history of strong comparable-store sales gains, and it has very low capital expenditures. That leads to strong cash flows, which it uses to retire shares from the float. Both of these tailwinds have proven substantial for Lowe’s growth in past years.

Lowe’s has an extremely impressive dividend growth rate of ~18% for the past decade, making it one of the best pure dividend growth stocks in the market today. Despite this, the payout ratio is still just 24% of earnings, owed to Lowe’s history of robust earnings growth. We see many more years of strong dividend increases ahead, and the ability for the company to weather any recessionary environments.

Stanley Black & Decker, Inc.

Our final stock is Stanley Black & Decker (NYSE: SWK), a maker of tools and storage equipment based in the US. The company owns a variety of popular brands, including BLACK+DECKER, Porter Cable, Stanley, DeWalt, Craftsman, and more. Stanley Black & Decker, through these brands, makes thousands of different products that serve homeowners, to mechanics, to construction and security professionals.

The company was founded in 1843, and through a long list of mergers, has grown into one of the premier tool brands in the world. It produces about $19 billion in annual revenue, and trades with a market cap of $18 billion.

Earnings growth is likely to continue in the years ahead for Stanley Black & Decker, as the company has a long history of acquisitions, but also organic revenue growth. These lead to a higher top line, and prudent expense control means this incremental revenue boosts margins, increasing profitability. The company recently began buying back its own stock as well, which is a further tailwind.

The company has raised its dividend for more than half a century, and the average increase in the past decade is nearly 6%. The current payout ratio is 32% of earnings, so like the others on this list, dividend safety is of the utmost quality. We see many more years of increases for Stanley Black & Decker in the area of 6% annually.

Final Thoughts

When it comes to dividend growth investing, we believe the best place to start is with the highest quality names. The Dividend Aristocrats are the best-of-the-best when it comes to high-quality dividend stocks, and we like S&P Global, Lowe’s, and Stanley Black & Decker for long-term dividend growth. In these times of market turmoil, investors would do well to take advantage of lower prices and higher yields for these dividend names we believe will thrive for decades to come.

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