3 Stable Dividend Aristocrats For Dividends During Uncertain Times

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We are living in uncertain times. Investors have the following issues top of mind:

  • Lingering COVID-19 fears 
  • A war in Europe
  • 40-Year high inflation
  • Rising interest rates

The investing landscape is seeing a flight to safety in these uncertain times. The S&P 500 has declined nearly 20% off of its previous highs. Investors in the aggregate are selling more speculative investments and pre-profit high-growth startups in favor of more robust businesses.

The Dividend Aristocrats are noteworthy when discussing quality businesses likely to survive through turbulent times. A stock must meet the following criteria to qualify as a Dividend Aristocrat:

  • S&P 500 inclusion
  • 25+ years of rising dividends
  • Minimum size and liquidity requirements

A stock must have a durable competitive advantage to increase its dividend payments for 25 consecutive years. A long dividend increase streak indicates a company can thrive in multiple economic environments.

Dividend Aristocrats are generally quality businesses. This article analyses 3 of the most stable Dividend Aristocrats for rising dividend potential in uncertain times.

Stable Dividend Aristocrat #1: Lowe's Companies (LOW)

Lowe’s Companies is the second-largest U.S. home improvement retailer. The company has a $125 billion market cap. Only Home Depot (HD) is larger based on its $304 billion market cap.

Lowe's has a 100+ year corporate history. L.S. Lowe founded Lowe’s North Wilkesboro Hardware in 1921. 

The company also has an impressive dividend history. Lowe's has increased its dividend payments for an incredible 59 consecutive years.

Lowe's longevity underscores its ability to grow through recessions. The company increased its adjusted earnings-per-share from $5.74 in 2019 to $8.86 in 2020. COVID-19 did not disrupt the company's growth. Fiscal 2021 adjusted earnings-per-share grew to $12.04.

Management's guidance calls for earnings-per-share of $13.35 at the median for fiscal 2022. Lowe's generated rapid growth over the last decade. Adjusted earnings-per-share have surged more than 10x from $1.75 in 2012 to $12.04 in 2021.

We expect moderated 6% annualized earnings-per-share growth over the next five years from Lowe's. This growth will come from share repurchases, potential small comparable store sales increases, and possible margin improvements.

Lowe's stock currently has a dividend yield of 1.7%. This yield compares favorably to the S&P 500's dividend yield of 1.5%. The company's stock does not offer a big dividend, but its safety and high likelihood of growth make up for the mediocre starting yield.

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Lowe's stock currently trades for $196 per share. This indicates a price-to-earnings ratio of under 15 using the expected current fiscal year earnings-per-share of $13.35. The company's 5-year average price-to-earnings ratio is above 19. Lowe's looks undervalued. We believe a fair price-to-earnings ratio for this high-quality home improvement retailer is ~20.5.

Stable Dividend Aristocrat #2: 3M (MMM)

3M's current corporate stats are impressive:

  • 60,000+ Products 
  •  ~95,000 employees 
  • Serves customers in 200+ countries 
  • $85 billion market cap
  • $35 billion in sales over the last four quarters

The company's longevity is equally as impressive. 3M traces its routes back to 1902 when its five founders formed the company. The company has been operating for 120 years.

3M has an incredible dividend streak of 64 consecutive years, making it a Dividend King. Dividend Kings have 50+ years of consecutive dividend increases.

The company's long dividend streak shows its safety during difficult operating environments. The company's earnings-per-share declined just 19% from 2007 through 2009 during the Great Recession. Earnings-per-share fell just 4% in 2020 during the COVID-19 crisis.

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3M's growth over the last decade was driven primarily by profit margin gains and share repurchases. Research and development spending helps push the company forward as well. New product development is the long-term growth engine that has driven 3M to these great heights.

We are forecasting earnings-per-share growth of 5% annually over the next five years for 3M. This growth combined with the company's current dividend yield of 4.1% provides expected total returns of ~9% annually before valuation multiple changes.

3M is facing several lawsuits, including almost 300,000 claims that its earplugs used by U.S. combat troops were defective. We do not believe this materially affects 3M as an ongoing concern. We view legal issues as a temporary headwind.

3M's stock price is depressed. Legal fears are a potential reason why. 3M is currently trading for a price-to-earnings ratio of under 14 based on its current share price of $148 and expected current fiscal year earnings-per-share of $11.00.

A price-to-earnings ratio of under 14 seems far too low for such a high-quality company. The company's average price-to-earnings ratio over the last decade is around 19. We believe this is a more appropriate valuation multiple for 3M. As a result, we view 3M as currently undervalued.

Stable Dividend Aristocrat #3: Walgreens Boots Alliance (WBA)

Walgreens Boots Alliance is the largest retail pharmacy in the U.S. and Europe. The company sports a $36 billion market cap, has more than 13,000 stores and employs more than 315,000 people.

Walgreens has an impressive corporate history just like Lowe's and 3M. Charles Walgreen founded the company in Chicago back in 1901.

Walgreens grew into its current size over the last ~120 years. The company now boasts an impressive 46 consecutive years of dividend increases. This long dividend streak is evidence of a durable competitive advantage.

The company's competitive advantage lies in its vast scale and network in the necessary pharmacy industry. Walgreens' strength shows during recessions. The company's earnings-per-share fell just 6.9% in 2009 during the worst of the Great Recession.

The company fared worse in 2020 during the COVID-19 crisis. Earnings-per-share declined 20.9% in 2020. The company remained profitable, however, and managed to continue increasing its dividend.

Walgreens' difficult times appear to be coming to an end. The company posted strong 15% U.S. comparable retail stores growth in its most recent quarter. Adjusted earnings-per-share surged 26% for high bottom-line growth.

Walgreens grew earnings-per-share by 7.2% annually from 2011 through 2021. Earnings-per-share growth came from:

  • Top-line revenue growth 
  • Profit margin gains
  • Share repurchases

We expect annual earnings-per-share growth of around 5% ahead. Long-term growth will be aided by the demographic tailwind of an aging population.

Walgreens stock has traded with an average price-to-earnings ratio of ~15 over the last decade. With relatively slower growth ahead, we have reduced our fair value multiple for Walgreens to 10. Such a low price-to-earnings ratio may prove too conservative based on the company's history.

Walgreens stock currently trades for $43 per share. We expect $5.35 in earnings-per-share this fiscal year. The stock trades for a price-to-earnings ratio of just over 8. We view Walgreens as undervalued at current prices.

In addition, the stock's dividend yield is currently a healthy 4.5%. Walgreens offers investors a relatively high yield, safety, and decent growth prospects.

Ben Reynolds

Ben Reynolds founded Sure Dividend in 2014.  Reynolds has long held a passion for business in general and investing in particular.  He graduated Summa Cum Laude with a bachelor’s degree in Finance and a minor in Chinese studies from The University of Houston.