Little Black Dress Stocks: The Sequel

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Dividend Aristocrats (companies consistently raising yield for 25-plus years) are like the perfect little black dress (or LBD in fashionista shorthand) in a wardrobe. An LBD stock is a core holding that you don't have to touch, except maybe to add onto on pullbacks. You can count on increasing dividend income every year and it is always in fashion, yet not faddish.

The do-it-yourself LBD

One Dividend Aristocrat is Sherwin-Williams (NYSE: SHW) which has performed very well in the last two years based on a housing recovery along with stellar housing cohort Home Depot. The stock has run big over the last year, up 43.46%, but is down from its 52-week high of $194.55, which was reached in mid-May.

Its trailing P/E is extended historically, now at 30.66, and price/book at 10.40 is also elevated as you can see in the chart, but look at the dividend almost keeping pace with the other two metrics.

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SHW PE Ratio TTM data by YCharts

The yield at 1.10% (at a 27% payout ratio) was raised 28% in February. The company also bought back 0.5 million shares in Q1 with another 15.95 million shares to go in its authorization. On that same Q1 call, CEO Chris Connor guided full year EPS guidance at $7.45-$7.55 per share compared to 2012's full year EPS of $6.02. Gross margin is strong at Sherwin-Williams at 46.58%.

The 147-year-old company based in Cleveland, OH, manufactures paints, sealants, and finishes. It sells them through its own 4,000 company stores as well as to mass-retailers and industrial customers in the Americas, Europe, Asia, and the Caribbean.

Although the stock is close to its median price target of $191.00, the forward P/E comes down to 18.74, and analysts still like it with Robert W. Baird upgrading from Neutral to Outperform in May. Mostly, analysts say Hold, but why wouldn't they after such share price appreciation.

The company is involved in several strategies to differentiate itself from competition, mainly Valspar. One brand new strategy is partnering up with several home decor divisions owned by Williams-Sonoma: West Elm, Pottery Barn, Pottery Barn Kids, and PB Teen, with color coordinated palettes to the home goods and furniture. Sherwin-Williams also has an ongoing partnership with HGTV, the home and garden network.

Between these two partnerships, the company should get real traction among the home-decor challenged. A trip to Pottery Barn and Sherwin-Williams and the kids' bedroom is done.

The company also recently purchased a Mexican architectural paint company, Consorcio Comex, and also plans to open another 70 to 80 Paint stores by year end.

Headwinds include currency concerns, which CEO Connor mentioned on the Q1 call and debt associated with the Comex purchase. However, the company is shareholder-friendly and these acquisitions, partnerships, and store expansions are very much in its favor. And by the way, the company was named one of Ethisphere's Worlds Most Ethical Companies in 2013.

Dividend Aristocrat -- Charm City style

Baltimore-based T. Rowe Price Group (NASDAQ: TROW) has been doing business since 1937 and is one of the larger no-load mutual fund companies around.

T. Rowe Price offers a 2.00% yield at a 68% payout ratio. It trades at a 22.00 trailing P/E with a forward P/E of 18.01. The stock is up 25.16% this last year. The company had a record $617.4 billion under management as of Q1 and is debt-free.

Q1 results were strong with a gain from 2012 Q1 EPS of $0.75 to $0.91. CEO James A.C. Kennedy said, "Overall, the aggregate market appreciation, combined with net cash inflows, boosted the firm's ending and quarterly average assets under management to record highs."

The company's dividend and total return have marched almost in lockstep as seen in the chart. The PEG is at 1.38 and Evercore initiated coverage at Outperform on July 11. Like Sherwin-Williams, analysts are neutral to bullish with 13 Holds, six Strong Buys, and five Buys, and the stock is pennies away from its median price target of $78.00.

Full disclosure: I used to have investment accounts with T. Rowe Price and found them nice as a pie and well versed in money management.

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TROW Dividend data by YCharts

Spice up that portfolio

This Dividend Aristocrat you can easily find in your pantry -- McCormick (NYSE: MKC) -- is one of the most famous spice and flavoring companies around. Its brand loyalty is based on generations of home cooks cooking with the familiar red white and blue tins since 1889. The company is not just a consumer flavor company, but also has industrial foodservice divisions, making up almost a third of sales.

Headquartered in Maryland, it is a global company scouring the world for spices and acquisitions, especially in emerging markets like eastern Europe and India. In 2011, it bought an 85% stake in the Koh-I-Noor Indian food company and Kamis' entire line of Polish sauces and seasonings. It also bought Thai Kitchen and Zatarain's to accommodate more adventurous palates.

Emerging markets should comprise 20% of sales by 2015. One strong advantage McCormick has is its sterling reputation for safety and cleanliness, so important in countries like China where it has received the highly coveted designation of famous brand status given by the Chinese government to 105 brands.

Major customer Yum! Brands' troubles in China have been widely chronicled and caused McCormick to take a minor hit to its industrial segment earnings, but consumer sales saw an increase of 5%.

The company plans to buy out producers in its global supply chain to offset price volatility and ensure dependable sourcing and the safety and security of raw materials.

Analysts see growth at 8.58%, but the global trend toward spicier food isn't baked into their spice cake. The P/E is higher at 23.61 than one would like, and the company has debt it has taken on to acquire accretive brands. The yield is only 1.90%, but this company has a stable and bright future.

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MKC Retained Earnings data by YCharts

The Foolish takeaway

All three Dividend Aristocrats would flatter any portfolio with timeless businesses and attractively growing yield. Depending on your portfolio's makeup, one is sure to fit in as its Little Black Dress whether you need a housing play, a financial, or a consumer goods company.

If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends McCormick and Sherwin-Williams. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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