15 Dividend Aristocrats You Can Buy at a Discount
Stock valuations are in the clouds, but several Dividend Aristocrats can be had at cheaper prices than their blue-chip peers.
A flood of dividend cuts and suspensions last year drove home the importance (and difficulty) of finding reliable dividend payers. Fortunately, investors can look to the Dividend Aristocrats for dependable income – and better still, they can get some of these elite income plays on the cheap.
That latter point is especially attractive given just how lofty stock prices have become.
The S&P 500, for instance, currently trades at a rich price-to-earnings ratio of 37 – one of its highest P/Es ever. That's not the only evidence that the index is frothy. According to Multpl.com data going back to 2001, the S&P 500 also is trading at its highest price-to-sales (P/S) ratio and second-highest price-to-book (P/S) ratio in three decades. And the index's Shiller P/E, or cyclically adjusted P/E ratio (CAPE) – based on average inflation adjusted earnings over the past decade – is at its second-highest level on record.
Fortunately, several of the S&P 500 Dividend Aristocrats trade at much more reasonable valuations.
For the uninitiated: The Dividend Aristocrats are a group of 65 S&P 500 dividend stocks that have increased their cash distributions for at least 25 years in a row. These companies have proven their strength and resiliency by hiking dividends through good times and bad, including during the COVID-19 pandemic and the Great Recession.
Here are 15 Dividend Aristocrats that trade at a discount to the S&P 500. Importantly, most also trade at lower multiples than industry peers and their own five-year average P/E.
Data is as of May 25. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. P/E ratio is based on earnings reported over the trailing 12 months (TTM). Stocks listed in reverse order of valuation.
- Market value: $19.2 billion
- Dividend yield: 2.1%
- Consecutive years of dividend increases: 61
- P/E ratio: 31.3
Cincinnati Financial (CINF, $119.25) offers property and casualty, reinsurance, life and disability insurance through a network of 1,800 independent agencies across the U.S. The company ranks among the top 25 property and casualty insurers nationally, and it enjoys an "A+ Superior" rating from AM Best – a provider of financial data and ratings for the insurance industry.
Let's be clear: While Cincinnati Financial is among the Dividend Aristocrats that are cheaper than the S&P 500 right now, it's hardly dirt-cheap.
CINF shares trade at a P/E of more than 30, and at 27 times future earnings estimates. But shares do appear cheap based on one important measure: enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization), which takes into account cash and debt in addition to share price. On that front, Cincinnati Financial trades at an EV-to-EBITDA ratio of 5, which is 55% below its insurance-industry peers, and 73% below its own five-year average ratio.
Quite a bit more impressive is CINF's dividend situation.
Cincinnati Financial is one of a handful of Dividend Kings that have logged at least 50 consecutive years of dividend growth – specifically, it has paid a higher dividend for 61 consecutive years, including a 5% hike approved earlier this year.
CINF has delivered 16.5% annual "value creation" (growth in book value plus dividends) since 2016 and targets at least 10% to 13% annual increases in that metric over the next five years. Book value gains are fueled by 6% annual growth in premiums and the company's 96% combined ratio – an insurance-industry measure of operational performance that adds up incurred losses and expenses, then divides them by earned premium. (Anything below 100% suggests the company's underwriting operations are profitable.)
The company recently posted an outstanding March quarter, with book value up 38% year-over-year and adjusted profits up 62%.
Expeditors International of Washington
- Market value: $20.8 billion
- Dividend yield: 0.9%
- Consecutive years of dividend increases: 27
- P/E ratio: 24.2
Expeditors International of Washington (EXPD, $112.97) provides air freight and ocean freight services worldwide that include air freight consolidation and forwarding, customs brokerage, temperature-controlled transit, time-definite transportation and other services. The company operates from 331 offices in 109 countries.
Capacity constraints in both air and ocean shipping have spiked freight prices in 2021 while disrupting supply chains. Thanks to strong carrier relationships, Expeditors was able to deliver robust growth in shipping volume and a 135% jump in earnings per share (EPS) during the March quarter.
Bank of America economists noted in early May that freight demand reached the third-highest level in its biweekly survey's history. And generally speaking, EXPD is among transportation stocks that should benefit from an industrial economy rebound.
In addition to its below-market trailing P/E, EXPD shares also trade at just 20 times forward earnings estimates – that's lower than the industry average, and a 10% discount to the Dividend Aristocrat's five-year average.
Expeditors has grown its semi-annual dividend by nearly 10% annually over the past decade. Meanwhile, it maintains an ultra-low 20% earnings payout ratio, reserving plenty of capacity for future hikes.
- Market value: $117.7 billion
- Dividend yield: 2.9%
- Consecutive years of dividend increases: 63
- P/E ratio: 21.6
3M (MMM, $201.71) is a global manufacturer of adhesives, cleaning supplies, home improvement products, filtration products, personal protective equipment and healthcare supplies. The company owns top brands like Scotch tape, Post-it notes, Ace wraps and Nexcare bandages.
The Dividend Aristocrat performed well during the pandemic. While 2020 revenues were up marginally year-over-year due to pandemic effects, the company still managed to grow its profits by 18%. Results for the first quarter of 2021 were also impressive, with EPS up 27% and all four segments delivering solid growth.
Despite a market-beating 15% gain in 2021, shares trade more cheaply than the S&P 500. That's based both on trailing earnings, as well as forward-looking estimates; MMM's forward P/E of 20.5 is below the S&P 500's 22.4, and a 4% discount to its industrial peers.
"On valuation, the shares are down almost 25% from their all-time highs and multiples are relatively low," says Argus Research analyst John Eade, who rates shares at Buy. "Our target price of $220 implies a P/E ratio of 20-times next year's earnings, near the midpoint of the historical range."
3M is a Dividend King that has produced 63 consecutive years of dividend growth and annual gains averaging 7% over the last five years. 3M's payout ratio is a manageable 60% of earnings; better still, payout from cash flow – another measure of dividend sustainability – is 45%.
Stanley Black & Decker
- Market value: $34.4 billion
- Dividend yield: 1.3%
- Consecutive years of dividend increases: 53
- P/E ratio: 19.5
Stanley Black & Decker (SWK, $212.19) owns the world's largest tools and storage business and household brands, including Craftsman, Dewalt, MTD, Flexvolt, Stanley and Black & Decker.
Strong home sales and consumer do-it-yourself spending are driving 2021 growth, and the company sees sustainable longer-term opportunities from e-commerce and electrification trends. Other catalysts may come from acquiring the remaining stake in MTD in July and a restructuring program expected to trim $300 million to $500 million from annual costs over three years.
Morgan Stanley analyst Josh Pokryzwinski raised his price target and ranked SWK shares Overweight (equivalent of Buy) in May, citing upside associated with ecommerce, outdoor and battery/tool growth.
The company's adjusted EPS rose by 161% per share in the March quarter, easily beating analyst estimates. And Stanley Black & Decker is guiding for 20% EPS growth this year, accompanied by free cash flow roughly equal to net income.
Stanley Black & Decker is among the Dividend Aristocrats that have managed more than five decades of uninterrupted dividend growth. The payout has expanded by roughly 5% on average over the past five years. And SWK maintains a modest 25% payout ratio that speaks to dividend safety.
On the value side, SWK shares trade at a trailing P/E of less than 20, and are priced at 19 times forward earnings estimates – an 11% discount to its industrial-sector peers.
- Market value: $12.8 billion
- Dividend yield: 2.5%
- Consecutive years of dividend increases: 37
- P/E ratio: 18.4
Atmos Energy (ATO, $98.29) is the largest natural gas-only distributor in the U.S., supplying natural gas to more than 3 million customers across eight Southern states. The company invests over $1 billion each year to upgrade its pipeline and storage facilities and owns a major intrastate natural gas pipeline system in Texas.
The company's income from natural gas distribution operations rose 20% during the March quarter as the result of rates increases and customer growth. EPS improved by 18%. Atmos Energy is guiding for 2021 earnings growth of 6% at the midpoint of its guidance, and dividend growth of nearly 9%. That latter figure is right in line with its five-year average payout growth of roughly 8%.
ATO shares fell in February during a winter storm freeze in the South, but rebounded a bit in March when Mizuho analyst Gabriel Moreen said $2.5 billion of extra gas costs incurred during the freeze were unlikely to hurt EPS. Texas and some surrounding Southern states have regulatory processes in place that allow Atmos Energy to recover its costs.
Atmos's current P/E ratio of around 18 is well below the S&P 500, and the Dividend Aristocrat's forward P/E of 20 is a 12% discount to its five-year average.
- Market value: $26.7 billion
- Dividend yield: 4.0%
- Consecutive years of dividend increases: 47
- P/E ratio: 18.2
Consolidated Edison (ED, $77.81) is a utility that supplies electricity to approximately 3.5 million customers in New York City and surrounding areas and natural gas to approximately 1.1 million customers. The company is also making big investments in renewable energy and ranks as the second largest producer of solar energy in North America. Approximately 56% of Consolidated Edison's generating portfolio is renewables.
The company's March-quarter earnings rose 9% thanks to recent rate hikes and reduced pension costs, and beat analyst estimates. In addition, Consolidated Edison reaffirmed 2021 EPS guidance of $4.15 to $4.35, up 2% at the midpoint, and the utility stock is targeting 4% to 6% annual adjusted EPS growth over the next five years.
Dividend growth has been modest at 3% a year – a common feature among Dividend Aristocrats – but ED shares yield a full 4%, and future hikes should be easily supported given the company's five-year EPS forecast.
ED stock is modestly valued at forward P/E of 18 and at just nine times its cash flow estimates. The payout is also about 18% higher than its utility sector peers.
- Market value: $44.6 billion
- Dividend yield: 3.4%
- Consecutive annual dividend increases: 49
- P/E ratio: 17.8
Kimberly-Clark (KMB, $132.10) makes household products that 25% of the world uses on a daily basis. The company offers 175 brands, including five that each generate more than $1 billion in annual sales, with familiar names such as Huggies and Pull-Ups diapers, Kleenex and Scott tissue, and Kotex feminine products.
The company grew adjusted EPS 12% in 2020 and rewarded investors with a 7% dividend hike, its 49th consecutive annual dividend increase. It also added $5 billion to its existing $5 billion share repurchase program.
However, EPS fell 15% during the March quarter due to rising material costs and the absence of COVID-related tailwinds. That has weighed on KMB shares, which in turn are trading at a decent price. Kimberly-Clark's trailing P/E is around 18. So is its forward P/E, which represents a 16% discount to household goods peers.
In addition, the 3.4% yield on KMB shares is 50% higher than its peers.
Despite 2021's inflationary setbacks, Kimberly Clark has a solid track record including 17% annual EPS growth and 4% annual dividend gains over the past five years.
- Market value: $53.4 billion
- Dividend yield: 2.5%
- Consecutive annual dividend increases: 28
- P/E ratio: 17.1
General Dynamics (GD, $188.91) is a leading aerospace and defense contractor that builds nuclear-powered submarines, marine vessels, combat vehicles and communication systems for the U.S. military. The company's commercial business also supplies Gulfstream jets and oil tankers to businesses and benefits from a rebounding economy and rising aviation orders in 2021.
That Gulfstream product line has provided an updraft to GD of late. "We are upgrading the GD stock to Outperform as order growth has returned at Gulfstream, providing a cyclical kicker to a defense business that continues to quench budget concerns," writes Baird analyst Peter Arment.
The company beat earnings estimates by a wide margin during the March quarter thanks to better-than-10% sales growth in its Aerospace and Marine Systems businesses. Backlog, a measure of future sales, rose 4.5% to a record $89.6 billion.
General Dynamics was awarded significant new military contracts during the quarter that included $12.6 billion for IT services to multiple government agencies, $1.9 billion from the U.S. Navy for a new submarine and various U.S. Army contracts totaling $1.08 billion.
Despite a 27% price gain in 2021, GD shares are 22% undervalued relative to defense industry peers at a forward P/E of 17. GD is also a great dividend growth stock, delivering average annual dividend growth of about 10% over the past five years, including an 8% hike in March.
"We are encouraged by the recent progress in the Aerospace segment, as order rates are improving," says Argus Research's Eade, who rates shares at Buy. "Over the long term, GD management is focused on driving growth through modest sales increases, margin improvement, and share buybacks. The company also aggressively returns cash to shareholders through increased dividends."
International Business Machines
- Market value: $128.7 billion
- Dividend yield: 4.6%
- Consecutive annual dividend increases: 26
- P/E ratio: 16.7
International Business Machines (IBM, $143.79) was built on computer hardware, but hopes to return to topline growth this year through its hybrid cloud, software and consulting operations. Cloud revenues rose 21% during the March quarter and helped IBM generate $2.2 billion of adjusted free cash flow. The company returned $1.5 billion of this to shareholders via dividends.
Acquisitions are another catalyst for topline growth. IBM closed the purchase of software firm Turbonomic in April, which Reuters valued at $1.5 billion to $2.0 billion, making this IBM's largest acquisition since Red Hat in 2019.
Evercore ISI ranked IBM among the stocks most likely to benefit from increased IT spending in 2021; 80% of companies Evercore ISI surveyed plan to up IT investments this year.
While IBM isn't the growth stock it once was, its dividend growth – and recent inclusion in the Dividend Aristocrats – has made the stock popular among income investors. A generous yield and 4% annual dividend growth over five years has made IBM popular with income investors.
Valuation is attractive, too. Shares' forward P/E of 13.1 translates into a massive 48% discount to IBM's IT peers.
- Market value: $18.2 billion
- Dividend yield: 4.0%
- Consecutive annual dividend increases: 38
- P/E ratio: 16.5
Switzerland-based Amcor (AMCR, $11.72) is one of the world's leading manufacturers of packaging for foods, beverages, pharmaceuticals and other products. Its packaging customers include Fortune 500 names such as Coca-Cola (KO), PepsiCo (PEP), Procter & Gamble (PG) and the aforementioned Kimberly-Clark, among many others.
Over the past decade, Amcor has produced 8% annual adjusted EPS growth and more than 15% annual shareholder returns. Momentum remained strong in the first nine months of the company's fiscal 2021, with EPS up 16% year-over-year on a comparable constant-currency basis. In fact, its Q3 earnings were so impressive, the company was able to upgrade its full-year EPS growth forecasts from a range of 10% to 14% to a range of 14% to 15%.
Amcor yields an attractive 4% on a dividend that has grown by 6% annually over the past 10 years. AMCR also is one of the most attractively priced Dividend Aristocrats at 16.5 times trailing earnings, and 16 times forward earnings estimates – also a modest 2% cheaper than its sector peers.
Archer Daniels Midland
- Market value: $37.5 billion
- Dividend yield: 2.2%
- Consecutive years of dividend increases: 47
- P/E ratio: 15.3
Archer Daniels Midland (ADM, $66.59) is a global leader in agricultural commodities. The company is the world's largest processor of corn and oilseeds and a major player in high-growth specialty areas such as human and animal nutrition ingredients, and health and wellness ingredients. ADM operates from 800 production facilities and 321 food processing locations worldwide and makes sales in over 200 countries.
Rising ag prices propelled Archer Daniels Midland to its best quarter ever in its traditional crop-trading business, with sales up 26% in the March quarter and adjusted EPS jumping 117%. The company anticipates significant earnings growth for all three of its businesses this year.
Bank of America analyst Luke Washer gave ADM a Buy rating in April, citing a renewed agricultural cycle driving operating profits and the company's undervalued nutrition business as reasons to own the stock.
"Our bullish outlook for ADM shares is based on the company's strong performance and our expectations for further growth in the Oilseeds business and improvement in the Origination and Nutrition divisions," adds Argus Research analyst Fegbawe Tawlessi, who rates the stock at Buy. "We continue to have a favorable view of the company's long-term strategy, which includes expansion through bolt-on acquisitions and joint ventures, the sale of underperforming businesses, and cost-cutting initiatives."
ADM is one of the cheapest Dividend Aristocrats by virtue of a roughly 15 trailing P/E. Better still, its 14.8 forward P/E represents a 30% discount to its consumer staples peers, and a slight 1% discount to its own five-year average.
The company has paid dividends for nearly 90 years, and it has raised them without interruption for nearly a half-century. Over the past five years, those payouts have grown by about 5% annually on average. A conservative 33% payout ratio provides plenty of ammunition for future hikes.
- Market value: $76.9 billion
- Dividend yield: 0.8%
- Consecutive annual dividend increases: 42
- P/E ratio: 12.7
Sherwin-Williams (SHW, $285.59) sells paints, coatings, varnishes and related products in over 120 countries. Its prominent brands, which include Valspar, HGTV Home, Minwax, Krylon and Thompson's WaterSeal, are sold from 4,750 company-owned stores, as well as big-box retailers and hardware stores.
The company topped earnings estimates by a wide margin during the March quarter – and in fact, it has "beat the Street" for 20 consecutive quarters. Adjusted EPS grew 52%, reflecting improving industrial markets and pricing increases that more than offset higher material costs.
Evercore analyst Greg Melich recently said he sees plenty of upside left in the home improvement sector as a result of rising home sales and home prices, and recommended SHW as a strong play on this home improvement cycle.
Sherwin-Williams has delivered nearly 15% average annual dividend growth over the past five years, and maintains a modest 24% payout ratio that gives it plenty of room for additional hikes.
The one knock on SHW is that it's not quite the value stock its trailing P/E would indicate. While that price is low compared to the S&P 500, most of its other valuation metrics, including forward P/E, are much higher than the category average. But much of the analyst community seems to be looking the other way, with 17 pros calling Sherwin-Williams a Buy or Strong Buy, versus nine Holds, one Sell and one Strong Sell.
- Market value: $16.7 billion
- Dividend yield: 3.4%
- Consecutive years of dividend increases: 39
- P/E ratio: 11.9
Franklin Resources (BEN, $33.08) is a leading global investment manager with more than $1.5 trillion of assets under management, approximately 1,300 investment professionals and clients in over 160 countries. The company provides services through its Franklin Templeton subsidiary and through Legg Mason, which was acquired last year.
The Legg Mason purchase gives Franklin Resources additional strength in fixed income, equites and alternative assets, broadens its geographic footprint and balances the mix of institutional versus retail clients. In addition, Franklin Resources says the deal will be accretive to 2021 EPS in 2021, and it's targeting $200 million in annual cost synergies.
More than 68% of the company's funds outperformed benchmarks during the March quarter, and more than 140 of its funds earned four- or five-star rankings from Morningstar. Franklin's adjusted EPS rose 20%, assets under management grew 158% (thanks to the Legg Mason acquisition) and fund inflows to the firm rose 142% to $101.7 billion.
Bank of America analyst Michael Carrier recently recommended BEN as one of the financial stocks he believes will benefit most from rising inflation this year.
BEN shares are among the most modestly priced Dividend Aristocrats at just 11 times forward earnings – a 12% discount to financial industry peers, and 10% below the company's five-year average forward P/E.
Dividend growth has been robust over the past half-decade, at 11% annually. And it can keep its foot on the pedal given a low 35% payout ratio.
- Market value: $37.9 billion
- Dividend yield: 2.4%
- Consecutive annual dividend increases: 39
- P/E ratio: 10.7
Aflac (AFL, $55.76) provides supplemental life, health and disability insurance to more than 50 million customers across the U.S. and Japan. The company is Japan's leading provider of cancer and medical insurance and the largest provider of supplemental worksite insurance in the U.S. Aflac anticipates adding more than $1.8 billion to U.S. sales over the next four years by offering more worksite insurance products and forming new digital partnerships.
The company began 2021 on a strong note by delivering 20% adjusted EPS gains during the March quarter and results exceeding analyst estimates, driven by lower-than-expected benefit ratios and favorable tax rates. Even better, AFLAC expects improving sales as businesses reopen this year, allowing for more face-to-face interactions with new customers. In addition, new products like dental and vision insurance are fueling sales growth.
And yet, shares have been mostly lifeless in 2021. Shares are up by just 4%, easily trailing the S&P 500. The upside for new money is that AFL stock trades at a reasonable 11 times forward estimates as a result – an 11% discount to its industry peers.
Aflac has produced nearly four consecutive decades of uninterrupted dividend growth, and has raised payouts at an average 8% annual clip over the past five years. It has plenty of room in the tank for more given a modest 25% payout ratio.
Morgan Stanley analyst Nigel Dally recognized Aflac as the insurance industry's most undervalued "cash flow return stock" in January and lauded its resilient cash flow and consistent outperformance of expectations.
- Market value: $16.1 billion
- Dividend yield: 3.5%
- Consecutive annual dividend increases: 35 years
- P/E ratio: 9.6
Cardinal Health (CAH, $55.62) is a leading U.S. distributor of pharmaceuticals, medical and laboratory products. The company serves nearly 90% of American hospitals, more than 29,000 pharmacies and 10,000 specialty clinics. In addition, Cardinal supplies home healthcare products to more than 3.4 million patients.
It's also the most attractively priced Dividend Aristocrat on the market, with a trailing P/E of less than 10. Its forward P/E is even lower, at 9.2, which represents a staggering 61% discount to its pharmaceutical distributor peers, and a 17% discount to its own five-year average valuation.
Cardinal aims to grow by building its generic drug program, home health solutions and nuclear medicine businesses. However, analysts downgraded CAH shares in May after a weak March quarter showing COVID-related reductions in generic drug sales and declining adjusted EPS. Still the company is guiding for 8% to 11% adjusted EPS growth this year and also hiked its dividend, punching its Aristocrat card for yet another year.
CAH oversees a conservative dividend that has grown by nearly 5% annually over the past five years, at a payout ratio of just 33%. The balance sheet currently features $3.5 billion in cash, though the company will add another $1 billion to that sometime in 2022 thanks to the pending sale of its Cordis business.