Investors are getting another education on volatility. It’s been a white-knuckle roller coaster ride since the pandemic hit. Stocks crashed, then soared, then crashed again. Then for most of this year, the market roared higher, only to pull back again. Particularly during down markets, investors turn to dividend aristocrats to buy. That’s because stocks that pay dividends tend to be proven, profitable winners.
Dividend Aristocrats are among the elite of dividend stocks. These are companies that are part of the S&P 500 index that have raised their payouts for at least 25 consecutive years. Out of the thousands of companies that populate the market, only 67 of them make the list.
These battle-tested stocks might be the cream of the crop, but should you buy them? Below are the seven highest-yielding Dividend Aristocrats and a look at whether any or all of them deserve a spot in your portfolio.
Dividend Aristocrats: Federal Realty Investment Trust (FRT)
Federal Realty Investment Trust (NYSE:FRT) is one of the oldest real estate investment trusts ( ) in the U.S. Founded in 1962, it focuses on top-tier suburbs with retail properties ranging from shopping centers anchored by supermarkets to large-scale mixed-use neighborhoods. It’s also one of top dividend aristocrats to consider.
It owns 102 properties with approximately 3,300 tenants, with 26 million square feet. It also has 3,100 residential units. Its properties are concentrated in nine major markets that have high barriers to entry but feature significant demand. Among them are New York, Boston, and Silicon Valley.
The success of its investments helps Federal Realty Trust sport the longest record of annual dividend increases of any U.S. REIT. It has 56 straight years of increases under its belt and counting.
Yet the REIT’s stock is down 15% in 2023 and is off 25% over the last 12 months. While there are concerns about real estate in a high-interest rate environment, 10% of Federal Realty Trust properties feature grocery and pharmacy stores, making them a defensive investment. Only 10% of its residential properties have tenants with under $75,000 in annual income. Its demographics mean it can absorb a recession without negatively impacting its business.
Its dividend of $4.36 per share yields 5.1% annually. With the stock offering a discount, Federal Realty Trust is a Dividend Aristocrat you can buy with confidence.
T. Rowe Price (TROW)
Investment management firm T. Rowe Price (NASDAQ:TROW) offers a number of investment products like mutual funds and exchange-traded funds (ETFs), along with a well-regarded wealth advisory service. The global financial company has $1.36 trillion in assets under management (AUM), which generated $1.43 billion in investment advisory fees in the latest quarter.
That’s an increase of 6.4% year over year, but T. Rowe Price continues to see continuous equity outflows. The dicey economy has investors pulling money from the market. As a result, the investment management firm’s stock suffers. Shares are down 14% year to date and 30% from recent highs. That boosted its dividend yield to 5.2%. T. Rowe Price has paid and raised the dividend for 37 consecutive years. Over the past three years it’s increased the payout by an average of 16% annually.
The company has stellar financials to underpin the dividend. It’s generated $1.3 billion in free cash flow over the last 12 months and has zero debt. Its business fluctuates with the push and pull of the market, but like stocks themselves, T. Rowe Price’s trajectory has always been higher.
Trading at just 13 times earnings and a bargain basement 11 times FCF, the investment company’s discounted valuation makes it dividend royalty you can safely buy into as well.
Dividend Aristocrats: Franklin Resources (BEN)
Another investment house is Franklin Resources (NYSE:BEN) that possesses some $1.4 trillion in AUM. It realized $1.6 billion in investment advisory fees in the second quarter, down 1% from the same period last year. Yet where T. Rowe Price saw net outflows of AUM, Franklin Resources saw an increase in long-term net flows.
Better known as the owner of Franklin Templeton, the investment management firm is subject to many of the same market forces as its peer. Thus a rising market will see AUM increase and a declining one will put them on a downward slope. Yet bull markets always follow bear markets, so the same long-term outlook for Franklin Resources applies.
It continues pursuing the acquisition of Putnam Investments which will bring in $136 billion in additional AUM. But Franklin’s balance sheet is also solid with $6.9 billion in cash and short-term investments giving the investment firm great flexibility in supporting its dividend, which it has raised for 41 years. The payout yields 5.4% annually and will support investors during any down period in its shares, making the stock worth buying as well.
Food and beverage packaging isn’t what many investors describe as a sexy business, but Amcor (NYSE:AMCR) is a leading player in the space. Its products span numerous industries including pharmaceuticals, personal care products, medical devices, and more. They are used every day by people around the world.
The Amcor of today is the result of a merger between Australia’s Amcor and the U.S.-based Bemis, which is where the stock’s Aristocrat status derives (Bemis had paid a dividend since 1922 and had been an Aristocrat since 2008).
Struck down by inflation, Amcor is poised for a rebound. Consumers are also pinched by higher prices, which makes them go downmarket to shop. That has them buying smaller-sized items rather than making bulk purchases, which uses more packaging materials.
That’s not the more direct line between sales and earnings growth that investors prefer to see so Amcor’s stock is down 27% year to date and 32% below its year-ago price. However, at 11 times next year’s earnings estimates and a fraction of its sales, Amcor is cheap. Its trailing PE ratio of 12 is the lowest ever since the merged company began trading on the NYSE. Its dividend yields an enticing 5.6% annually.
With new end markets opening due to acquisitions made and expansion opportunities in Latin America and China, Amcor has growth potential. Yet because that will be slow and unsteady in the current environment, investors might find better opportunities elsewhere.
Dividend Aristocrats: Realty Income (O)
Real estate investment trust (REIT) Realty Income (NYSE:O) is a continuation of the beaten-down dividend stock story we’ve been telling. Inflation, high-interest rates, and a dicey economy all conspired against the REIT to send its shares lower. The stock is down more than 20% in 2023. Yet this is a case of throwing the baby out with the bathwater.
Realty Income’s properties primarily carry only top-tier retailers such as 7-Eleven, Walmart (NYSE:WMT), and Dollar General (NYSE:DG). These are largely thriving retailers not at risk of going under or missing their rent payments. In fact, the REIT has a 99% occupancy rate and it collected 99% of its contractual rent last quarter.
Realty Income is a solid choice because it is also a triple-net lease landlord. That means tenants pay taxes, insurance, and maintenance on the property in addition to the rent. The REIT is simply managing the properties, which all tend to be single-tenant occupied.
What investors like most about Realty Income is it pays its dividends monthly. It bills itself as “the Monthly Dividend company.” With a yield of 6.1%, the REIT has made 640 consecutive monthly payments and increased the payout 122 times since going public. This beaten down stock is one to buy at this low point.
Industrial conglomerate 3M (NYSE:MMM) is beset by legal troubles, though it is slowly squaring them away. The owner of Scotch brand tape, Post-It notes, and Nexcare brand bandages really came to prominence during the pandemic because it is also a major manufacturer of N95 masks.
Yet it is because of earplugs it makes for the military and contamination from so-called “forever chemicals” that 3M faces substantial liabilities. It’s settled some issues, but in a game of whack-a-mole, new ones pop up. European governments are now also suing it over those “forever chemicals.” The conglomerate lost a third of its value over the past year as a result.
The stock bounced off 11-year lows after reporting profits that handily beat analyst expectations. It also raised guidance for the full year, though GAAP losses were huge because they included a $4.2 billion charge related to settling the earplug issue. That helps reduce the legal risk associated with 3M’s stock, but it is still looking at slow growth over time. Wall Street forecasts earnings will expand less than 2% annually over the next five years.
The legal liabilities have called into question by some analysts the sustainability of 3M’s dividend. Nearly three-quarters of its free cash flow is paid out as dividends. With earnings growth limited, more legal settlements likely coming, and a rich dividend yielding 6.9%, many see a cut coming. That’s not guaranteed, but investors might want to look elsewhere for sustained growth.
Walgreens Boots Alliance (WBA)
At 9.1% annually, pharmacy chain Walgreens Boots Alliance (NASDAQ:WBA) is the highest-yielding Dividend Aristocrat. That’s a result of a stock price that’s down 42% in just 10 months withg 71% of its value evaporating over the past five years.
Much of that is due to the calamity of the pandemic. Pharmacies tend to hold up well during recessions because medication is a must-have product. Yet lockdowns killed customer foot traffic even though Walgreens was deemed an essential business. It forced Walgreens to reconsider previously abandoned digital options like curbside pickup. Online ordering is now fully integrated into its operations.
Walgreens also planned to sell off its U.K.-based Boots pharmacy chain and the beauty care products company No7 Beauty. The decision not to move forward with the sales didn’t sit well with investors.
Fortunately, these are still profitable, well-run businesses. Keeping them in the fold shouldn’t interfere with Walgreens’ turnaround. Investors, though, hoped for a simpler, U.S.-focused healthcare company and these two businesses are a distraction. The pharmacy, though, is expanding in the U.S., further enhancing its reach into primary, specialty care, and urgent care.
Walgreens’ dividend doesn’t seem at risk. It has made a payment every year for 91 years. With the stock offered at fire-sale prices, Walgreens is an easy stock to buy today, and looking back 10 years from now, be happy that you did.
On the date of publication, Rich Duprey held a LONG position in BEN, AMCR, O, MMM, and WBA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.