The reason why we are such big fans of the Dividend Aristocrats is simple. Thanks to their strong brands, durable competitive advantages, and steady growth, they have significantly outperformed the broader stock market.
Source: Standard & Poor's
Dividend growth stocks are typically viewed as safe, “widow-and-orphan” stocks that should be held for steady dividend income instead of high share price appreciation. But as the above image shows, the Dividend Aristocrats have actually outperformed the broader S&P 500 Index since the Great Recession ended.
In the past 10 years, the Dividend Aristocrats generated total returns of 12% per year, compared with 9% for the S&P 500 Index.
Top Dividend Aristocrat #10: S&P Global Inc. (SPGI)
S&P Global has a very impressive dividend track record. It has paid a dividend each year since 1937, and has increased its dividend for 45 years, including a 22% hike in February.
S&P Global offers financial services, including credit ratings, benchmarks, analytics, and data, to the global capital and commodity markets. For example, the S&P 500 is arguably the most widely-known stock market index in the world.
S&P Global has a long track record of growth. 2017 was another strong year, with 13% organic revenue growth, and 29% adjusted earnings-per-share growth for the year.
Source: 2018 Annual Shareholders Meeting, page 12
S&P Global has significant catalysts for future growth. S&P Global recently announced it will acquire Kensho, to bolster its capabilities in artificial intelligence and data analytics, both of which are growth categories.
And, S&P Global enjoys multiple competitive advantages. It operates in a highly concentrated industry. It is one of only three major credit ratings agencies in the U.S., along with Moody's (MCO) and Fitch Ratings.
Put together, these three companies control over 90% of the global financial debt rating industry, with S&P Global on top.
In terms of valuation, S&P Global is richly valued. We estimate fair value for S&P Global stock to be $178 per share. As a result, we see the stock as slightly overvalued. A declining price-to-earnings ratio could reduce annual returns by approximately 1.7% per year.
However, the company can still generate strong total returns, through earnings growth and dividends. With expectations of 10% earnings growth per year, including a 1% dividend yield, total returns would reach approximately 10% annually, including impact of valuation changes.
Top Dividend Aristocrat #9: Exxon Mobil (XOM)
Exxon Mobil is one of only two energy stocks on the list of Dividend Aristocrats, the other being Chevron. Exxon Mobil is the largest oil and gas company in the U.S., with a market capitalization of $330 billion. Exxon Mobil also has an attractive dividend yield of 4.2%, and the company has increased its dividends for over 30 consecutive years.
Going forward, 2018 will likely be another year of growth for Exxon Mobil. Growth will be fueled by new projects set to come on line or ramp up.
With a more favorable pricing environment, this could accelerate upstream earnings growth in 2018. Exxon Mobil's revenue and earnings-per-share increased 6% and 16%, respectively, in the first quarter.
Exxon Mobil's most significant new project could be offshore Guyana.
Source: Earnings Presentation, page 20
Discoveries from offshore Guyana are now estimated to total more than 3.2 billion recoverable oil-equivalent barrels. In addition, the resources discovered can be drilled and produced very profitably. For example, Exxon Mobil's deep-water discoveries have breakeven costs, including taxes, of just $26 per barrel, while Brent oil currently trades for $75 per barrel.
Guyana will be a major driver of Exxon's future production growth. At its 2017 Analyst Meeting presentation, Exxon gave guidance for annual production to rise to 4.0-4.4 million barrels per day by 2020.
Despite operating in a cyclical, and often highly volatile industry, Exxon Mobil has a stable dividend payout. As an integrated major, Exxon Mobil has large businesses across the upstream and downstream sides of the industry, which helps its generate cash flow even when oil and gas prices decline.
Including Exxon Mobil's 4.2% dividend yield and expectations of 8%-9% annual earnings growth, we estimate total returns to be 12%+ per year.
Top Dividend Aristocrat #8: PPG Industries, Inc. (PPG)
PPG Industries was originally founded all the way back in 1883. Today, it is the largest paint company in the world. It is also one of the most reliable dividend stocks. PPG has paid dividends every quarter since 1899, and it has increased its dividend for 46 years in a row.
PPG dominates the paints industry, along with Sherwin-Williams (SHW). PPG has grown into an industry giant, thanks to a history of innovation. The company has approximately 3,500 technical employees located in more than 70 countries at 100 unique locations. The company's research and development focus is a key competitive advantage for PPG.
PPG is repositioning its product portfolio, divesting itself of slower-growth businesses and reinvesting more heavily in products that will lead the company's future.
