Meet the Newest Dividend Aristocrats
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Only 51 public companies in the United States have increased their dividend payments for at least 25 consecutive years and earned a spot on the 2012 dividend aristocrat list. 25 years of consecutive dividend increases is a testament to the consistency and success of a business and its management. For investors, this track record of reliable performance can provide a unique combination of minimal risk and solid returns. As a result, you’ll find dividend aristocrats such as Coca-Cola, Johnson & Johnson and Procter & Gamble at the heart of many retirement portfolios.
Of the 51 dividend aristocrats, 10 are new additions to the list in 2012. Let’s take a look at some of the new members of this exclusive list to see if they warrant a place in your income-producing portfolio or within the conservative portion of a more growth-oriented portfolio.
Colgate-Palmolive (NYSE: CL) owns a portfolio of consumer brands that are recognized worldwide. As you might guess, the company has a wide range of Colgate-branded oral health products as well as a series of home care products led by the Palmolive and Murphys brands. In addition, the company features a line of personal care products lead by the Speed Stick brand and pet nutrition products including Science Diet.
Medtronic (NYSE: MDT) designs and manufacturers a variety of medical devices, led by its flagship cardiac rhythm disease management business unit. Translated into plain English, this unit manufacturers implantable pacemakers and defibrillators and makes monitoring systems and other equipment. Medtronic’s spinal products unit provides minimally invasive solutions to a range of spinal issues facing patients. These units provide about half of Medrontic’s revenues, while the remaining revenue is generated from a diverse group of other medical device technologies.
Nucor (NYSE: NUE) is the United States’ largest manufacturer of steel. Through its innovative mini-mill designs, efficient organizational structure and top-notch management, Nucor has managed to generate consistent dividend increases despite numerous swings in the manufacturing and construction cycles. Despite these pressures, Nucor has remained profitable and has had the financial stability to make strategic acquisitions, such as the recent $605 million acquisition of Skyline Steel.
Sysco (NYSE: SYY) provides foodservice solutions to restaurants, hospitals, schools, businesses and other customers. Sysco provides a range of food services, which can include the provision of frozen, canned and dried foods, fresh produce, fully prepared meals, non-food products such as china and silverware, and consulting and other advisory services. Chances are you’ve seen Sysco trucks en route to one of the company’s 400,000 customers.
With that brief overview of a selection of the new dividend aristocrats, here’s a look at how each company’s financials compare:
|CAPS Rating||5 stars||5 stars||5 stars||5 stars|
|Market Cap (in billions)||$50.73||$40.49||$12.46||$17.20|
|TTM Dividend Yield||2.3%||2.7%||3.8%||3.7%|
|TTM Payout Ratio||46%||30%||81%||41%|
|10-year Dividends Per Share||$15.38||$5.84||$12.15||$7.78|
|YTD Stock Performance||17.6%||2.1%||-3.1%||-0.3%|
|10-year Stock Performance||104.7%||1.4%||202.6%||7.9%|
|TTM Revenues (in billions)||$17.02||$16.18||$20.26||$41.76|
|TTM Operating Margin||23.0%||28.7%||5.7%||4.6%|
|TTM Price / Earnings||21.18||11.58||21.72||15.06|
|Forward Price / Earnings||18.22||10.26||11.84||14.69|
|TTM Price / Sales||2.99||2.46||0.60||0.41|
|TTM Free Cash Flow Yield||4.8%||9.8%||5.5%||3.0%|
|Price / Book Ratio||22.10||2.35||1.62||3.52|
|Debt / Equity Ratio||2.14||0.62||0.55||0.59|
|Source: Yahoo! Finance on July 31, 2012|
While this is by no means a comprehensive list of valuation metrics and ways to analyze these companies, this provides a good foundation for a discussion.
Four Solid Companies
The four companies discussed above have a strong history of growth in both profits and dividends and are currently trading at reasonable prices. As evidenced by the 5-star rating that each company has earned in CAPS (as of July 31, 2012), this strong backdrop makes each of these companies a viable candidate for an income portfolio. The answer to the inevitable question of “which one is right for you?” should be based on a personal evaluation of risk profile, investment objectives and portfolio diversification.
Which Dividend Aristocrat to Buy?
When looking at dividend aristocrats as candidates for income portfolios, it is important to focus on companies with a reasonable valuation, stable business and solid free cash flow to support future dividend increases. Without factoring in the personal variables mentioned above, the stock that jumps out of the table above is Medtronic. Based on recent earnings and cash flow data, Medtronic appears to be trading at a discount to its peers as well as the overall market. Additionally, for those focused on income, the current $0.26 per share quarterly dividend payment has significant room to grow based on the company’s current 30% payout ratio.
Before declaring Medtronic the “best” of the companies above, it is important to understand why the company is trading at a discount to its peers -- analysts expect Medtronic’s revenue to grow just 1.7% during the current fiscal year and are forecasting earnings growth of only 5% over the next 5 years. If accurate, this anemic growth could certainly lead to a continuation of Medtronic’s relatively flat share price over the past 10 years. Despite this very real growth concern, Medtronic can easily continue to increase its dividend payment going forward, making it a strong candidate for anyone looking to add a solid dividend payer to a portfolio.
BrewCrewFool owns shares of The Coca-Cola Company. The Motley Fool owns shares of The Coca-Cola Company, Johnson & Johnson and Medtronic. Motley Fool newsletter services recommend The Coca-Cola Company, Johnson & Johnson, The Procter & Gamble Company, Nucor and Sysco . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.