When searching for great dividend stocks to buy, there are many places one could start. However, we prefer the strategy of buying those that have demonstrated histories of raising their dividends. Stocks that have longevity have stood the test of time, competitive threats, recessions and technological changes to continue raising their cash distributions to shareholders every year.
One of the best places to find stocks with dividend longevity is within the list of Dividend Aristocrats. This is a group of just 65 stocks that are S&P 500 components and have raised their dividends for at least 25 consecutive years. Better still, we can narrow this list of excellent dividend stocks to just those with yields above 4%.
In this article, we’ll take a look at three of the highest-yielding Dividend Aristocrats with safe dividends.
|International Business Machines
Dividend Aristocrats: V.F. Corporation (VFC)
Our first stock is V.F. Corporation (NYSE:VFC), which is a fully integrated maker and distributor of apparel and accessories. The company designs, markets and sells branded lifestyle apparel, footwear and other products for men, women and children across the world. V.F. has three segments: outdoor, active and work. Through these segments it offers a wide variety of brands that fit every budget, including popular brands like Vans, Dickies, Supreme, Timberland and The North Face.
V.F. was founded in 1899 and produces about $12 billion in annual revenue. It trades with a market capitalization of just under $17 billion.
V.F. has an exemplary dividend increase streak of 49 years, nearly doubling the requirement to be a Dividend Aristocrat. This streak is impressive in its own right. But it’s even more impressive considering that consumer discretionary retail stocks tend to struggle during recessions. That means long dividend increase streaks can be hard to come by, but V.F. stands above the rest of the pack on this measure.
Despite the company’s tremendously long history of increasing dividends, it has also been an outstanding dividend growth stock. In the past decade, its average increase has been just over 10%, meaning that investors get not only a nearly half-century of consecutive increases, but double-digit annual growth as well.
We see more muted 4% growth ahead given that the company’s payout ratio has risen to almost 78%, which is elevated by its own historical standards. However, we see 7% earnings growth annually, so this below-trend dividend growth may be temporary until the payout ratio resets lower.
Finally, investors get a 4.6% yield today with V.F., which is roughly triple that of the S&P 500. We like V.F. for its combination of its very long dividend increase streak, its high yield and its dividend growth potential.
Franklin Resources (BEN)
Our next Dividend Aristocrat is Franklin Resources (NYSE:BEN), which is a publicly owned asset management holding company. The firm provides investment services to individuals, institutions, pension plans, trust and partnerships worldwide. The company invests in public equities, fixed income and alternative markets to achieve its investment goals.
Franklin was founded in 1947, generates about $8.2 billion in annual revenue, and trades today with a market cap of $13.5 billion.
Franklin has a dividend increase streak that is nearly as impressive as V.F. Corp, as it stands at 42 years. Like V.F., Franklin operates in a cyclical industry that sees sizable ebbs and flows in profits, as Franklin is highly reliant upon equity market strength for both investor inflows and market appreciation to generate fees. That makes its four decades-plus of dividend increases even more remarkable.
Franklin’s average increase in the past decade has been in excess of 12%, so it has also been quite the dividend growth story in recent years. We’re looking for about 4% growth in the years ahead, as we see 3% earnings growth from today’s elevated levels.
Franklin has typically operated with an extremely low payout ratio of under 15%, but in recent years, has returned more of its earnings to shareholders. Today, the payout ratio stands at just over 34% of earnings, so its dividend is extremely safe.
Finally, Franklin’s yield is 4.2% today, putting it firmly in the high-yield category in today’s low-rate environment.
Dividend Aristocrats: International Business Machines (IBM)
Our final Dividend Aristocrat is IBM (NYSE:IBM), which is a provider of integrated software and consulting solutions globally. The company offers various products such as cloud and hybrid could platforms, business automation software, data and artificial intelligence solutions, security software, cloud infrastructure, and financing.
IBM was founded in 1911 and generates roughly $60 billion in annual revenue. It trades with a market cap of $120 billion. IBM recently spun off its former hardware and infrastructure business into a publicly traded, independent company called Kyndryl Holdings, Inc. (NYSE:KD).
IBM’s dividend streak is 27 years today, and while that’s not as long as the other two stocks on this list, it is very long in the technology sector. IBM is a rare technology company with a very long dividend increase streak. We see many more years of increases ahead.
The company’s dividend has doubled in the past decade, for a 7%-plus average annual increase in that timeframe. We don’t believe that kind of boost is sustainable given 4% forecasted earnings growth, but we do think the company can raised the dividend indefinitely.
The payout ratio this year is about two-thirds of earnings, and we think it will fall in the coming years as earnings growth outstrips dividend growth. Finally, IBM yields a very robust 5% today, putting it in rare company on the yield alone, irrespective of its long dividend increase streak and decades of strong dividend growth.
Investors faced with the choice of what dividend stocks to buy have many potential strategies to employ. However, we believe keeping it simple and sticking with proven winners is the best path to long-term wealth creation. Furthermore, we see the highest-yielding Dividend Aristocrats as a terrific place to start.
V.F. Corp, Franklin Resources, and IBM all have very long dividend increase streaks, yields well in excess of 4%, and what we believe are safe dividends. These stocks should continue to grow their payouts for many years to come, while offering investors a high yield right now.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.