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All Contents © 2018The Kiplinger Washington Editors
By Brian Bollinger, Simply Safe Dividends
| May 17, 2017
The year 2016 was marked by geopolitical unrest, volatile commodity prices and strong currency fluctuations, which resulted in many companies underperforming the S&P 500 over the past year. However, a number of Dividend Aristocrats that trailed the market over the past year are still excellent businesses that are only temporarily out of favor.
Dividend Aristocrats are S&P 500 companies that have raised their dividends for at least 25 years. (You can view information on all 51 dividend aristocrats here.)
Today, we’re looking at 10 Dividend Aristocrats that have a favorable long-term outlook despite trailing the S&P 500’s return by at least 10% over the past year. In fact, nine of these 10 stocks have seen their stock prices decline while the S&P 500 has gained more than 15%. But we believe this recent underperformance and declines have made them “buy the dip” opportunities for long-term dividend growth investors.
Some of these companies are in our list of the best high dividend stocks, and all of them still have a lot of fundamental strength to offer. We expect each one of these to flip from underperformance to outperformance over the next year.
Prices and data are from the original InvestorPlace story published on May 11, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Aude via Wikimedia via Flickr
Dividend yield: 3%
Federal Realty Investment Trust (FRT) is an equity real estate investment trust. Federal Realty owns 97 retail properties with more than 2,800 tenants, located in attractive Northeast and Mid-Atlantic regions of the U.S., as well as in California and South Florida market locations.
The success of a retail REIT is heavily dependent upon its location. Fortunately, Federal Realty’s key markets account for 37% of U.S. retail expenditure. FRT’s properties are located primarily in densely populated and affluent communities with 77% exposure to the top 20 U.S. markets. These properties are operated as retail real estate projects, with more than 94% of its properties being currently leased out.
Federal Realty can leverage its 55 years of experience in the real estate sector to make strategic decisions for redevelopment, property management and acquisition of properties. FRT has used its expertise to develop a high quality portfolio of assets so far. No individual property accounts for more than 10% of Federal Realty’s revenues which means that the assets are well-diversified.
Federal Realty has paid quarterly dividends to its shareholders continuously since its founding in 1962 and has increased its dividend rate for decades, including 8.3% annual growth over the last three years.
The REIT last increased its dividend by 4% and grew its funds from operations by 6.2% in 2016. It has also guided 2017 FFO growth of about 4%.
Given its FFO growth, Federal Realty should comfortably increase dividends at a similar pace going forward.
Mike Mozart via Wikimedia
Dividend yield: 2%
Hormel Foods Corp (HRL) is one of the largest U.S. consumer-branded food and meat manufacturers and distributors. The company operates in 50 U.S. states through popular brands like Skippy peanut butter, Spam meat, Dinty Moore stew, and Muscle Milk protein drinks.
Refrigerated food is the company’s largest selling segment, accounting for 47% of the company’s 2016 revenues. Other major segments are Jennie-O Turkey (21%), Grocery Products (19%), Specialty Foods (8%), and International Food (5%).
Hormel Foods has been in business for 126 years and has earned a reputation of being a trusted food supplier. Its products have become popular among families and trusted in the food industry everywhere. Hormel Foods also spends large amounts of time and money on research to identify customer preferences and incorporate them in its future offerings.
Some of its brands are more than 50 year old, and more than 30 of its brands occupy the No. 1 or No. 2 positions in their markets. Its key competitive advantages are an extensive product portfolio, economies of scale, strong brand recognition and a global distribution network.
Although HRL has underperformed the S&P 500 by a wide margin over the past year, its future looks bright thanks to innovative new products and eventual improvement in market conditions across the pork, grain, turkey and beef industries.
With 51 consecutive annual dividend increases, Hormel Foods is a Dividend King. The company has grown its payouts at an impressive 15.3% CAGR over the last decade. 2017 dividends increased by 17%, and a low payout ratio below 40% indicates scope for future growth.
Courtesy VF Corporation
Dividend yield: 3.1%
VF Corp. (VFC) is a leader in branded lifestyle apparel, footwear and accessories, owning a number of global iconic brands, including Wrangler and Lee jeans, JanSpor, Vans and The North Face.
Founded in 1899, VF Corporation has come a long way from just being a glove and mitten manufacturing company to one of the world’s largest consumer fashion companies today.
VFC has a wide distribution network of over 1,400 owned retail stores and e-commerce businesses in more than 170 countries (about 38% of its 2016 revenues came from markets outside the U.S.). The company’s key segments are Outdoor & Action Sports (63% of 2016 sales), Jeanswear (23%), Imagewear (9%), and Sportswear (4%).
With over a century’s worth of experience, the company has a deep understanding of its customer choices. This along with VF Corp’s highly diversified structure across brands, products, distribution channels and geographies position VFC to address the needs of a fast-changing global marketplace and remain safeguarded from regional downturns.
VF Corp’s shares are off 10% over the past 52 weeks versus a 15% gain for the S&P 500 over the same time. VFC has been facing retail headwinds from e-commerce competitors, with department stores sales declining. However, with growing international business and rising direct-to-consumer sales, the company has a positive outlook for the future.
VFC has paid 44 consecutive years of higher dividend payments to shareholders, growing them by a very impressive 18.7% annual rate over the last five years. Its payout ratio also looks reasonable at 65%, indicating sufficient room for dividend growth.
With 2017 EPS expected to increase by mid-single digits, dividends should keep growing, albeit at a more moderate pace.
Mike Mozart via Flickr
Dividend yield: 3.7%
Exxon Mobil Corporation (XOM) is one of the largest oil and gas companies in the world and a popular income investment for retirees living on dividends. The company is present in all parts of the oil supply chain, such as exploration, refining, marketing as well as petrochemical production.
Exxon has exceptional project execution capabilities and benefits from its economies of scale, strategically located pipelines, and extensive global distribution channels. XOM’s integrated business model mitigates sector risk and grants the flexibility to capture new opportunities.
Financial results for the last year were negatively impacted by the prolonged downturn in oil prices and an impairment charge. However, the company’s global portfolio and integrated business model should ensure shareholder returns in the future.
Its attractive project pipeline will grow in value through 2018-20, and Exxon should also benefit from rising worldwide energy demand.
Exxon Mobil last increased its payout by 2.7% in 2017 and has grown its dividend by 8.8% per year over the last decade. While low oil prices remain a headwind, investors can expect Exxon to continue delivering reliable dividend raises over the coming years.
Courtesy Genuine Parts Company
Dividend yield: 2.9%
Genuine Parts Company (GPC) distributes automotive and industrial replacement parts, office products and electrical materials, across U.S., Canada, and Australia, as well as China, Mexico and other emerging markets.
GPC’s largest market is the U.S., which accounted for 83% of total 2016 sales. The company’s business operations can be segmented into automotive (NAPA – 53% of 2016 revenue), industrial (Motion Industries – 30%), office products (S.P Richards Co – 13%) and electrical materials (EIS -4%).
Genuine Parts has been in business for nearly a century and developed a large inventory of 459,000 automotive products and more than 5.9 million industrial replacement parts. This diversified product portfolio serves multiple industries through the company’s global distribution network.
GPC has built a reputable brand name and a loyal customer base which is hard to be replicated by others. The company has developed regional expertise which further grants it the ability to adapt products and services to the changing needs of its customers.
Despite its underperformance over the past year, Genuine Parts has paid dividends every year since its inception, and 2017 marks the 61st year of consecutive dividend increases. It has hiked its dividends by 8% per year over the past five years.
With a payout ratio below 60% and a large and fragmented market it can continue consolidating, GPC seems likely to continue growing its dividend at a low to mid-single-digit annual clip.
Son of Groucho via Flickr
Dividend yield: 3.4%
The Coca-Cola Company (KO) is the No. 1 provider of both sparkling and still beverages globally and is a core holding in Warren Buffett’s dividend portfolio. It is also America’s largest consumer goods company and one of the most valuable brands in the world.
Coca-Cola has a huge product portfolio of 3,900 beverages and more than 500 brands, including 21 multi-billion dollar brands such as Sprite, Fanta, Minute Maid, Diet Coke and more. Its vast distribution network reaches out to all corners of the globe in over 200 countries through 24 million outlets. Its extensive distribution and brand equity form a large moat around the business.
The company has continually evolved, however, keeping in mind changing consumer tastes and buying habits. With increasing health awareness, the company’s reformulated Coca-Cola Zero will encourage no sugar habits in its customers. In fact, about one-third of KO’s product portfolio is now low- to zero-calorie, and the company continues transitioning into more of a total beverage company.
Last year, Coca-Cola faced headwinds from foreign exchange effects and stagnant soda consumption in domestic markets. Going forward, the company is focusing on a leaner enterprise model that will result in an even more consumer-centric portfolio.
The company has paid dividends for almost a century now and has increased them for 55 years in a row. It has clocked an impressive 9% dividend CAGR over the past two decades, and last increased its dividend by 6%.
The latest dividend increase reflects the board’s confidence in the company’s long-term cash flow. Coca-Cola expects 3% revenue growth in 2017, which suggests that investors can expect dividends to increase in the low- to mid-single-digit range going forward.
Ken Lund via Flickr
Dividend yield: 2.2%
Colgate-Palmolive Company (CL) is a leading global household and consumer products company. It provides Oral Care, Personal Care, Home Care and Pet Nutrition products worldwide (75% of its sales come from outside of the U.S.).
Colgate-Palmolive has leading market share in the global toothpaste and toothbrush markets, accounting for 44% and 33% of the global markets, respectively. The company is also a leader in many product categories of the Personal Care market with global leadership in liquid hand soap.
Colgate-Palmolive owns popular brands such as like Colgate, Palmolive, Speed Stick, Softsoap, Irish Spring, Protex and Soupline. An extensive sales network, a loyal customer base and strong brand name are the company’s strong competitive advantages.
Not years, but centuries of experience have enabled the company build a deep level of trust and confidence in its products. Thus, Colgate-Palmolive is diversified geographically and along its product lines, which insulates it from slowdown in a particular country. The company’s business is also recession-proof as most of its products are daily necessity items.
Colgate’s stock performance was poor over the past year due to weak sales growth in the face of continued challenging macroeconomic conditions and foreign currency headwinds. This should be a temporary blip for this consumer powerhouse, however, as its competitive strengths remain undiminished.
Colgate-Palmolive has paid consecutive dividends since 1895 and last increased its payout by 3% in 2017. CL has improved its dividends by a respectable 9.4% annual rate over the past decade and has a reasonable payout ratio below 60%, which signifies plenty of room for future dividend expansion.
Dividend yield: 5.1%
AT&T Inc. (T) is a multinational telecommunications company providing mobile and fixed telephone services, broadband internet, and television services through DirecTV. AT&T is the second largest wireless solution provider and the largest pay TV provider in the U.S. with more than 25 million video subscribers.
AT&T has a strong competitive advantage in the form of its large communications network and costly spectrum infrastructure. Its massive customer base provides the cash flow it needs to maintain its network and the capital-intensive nature of the industry keeps out new entrants.
AT&T has meaningfully underperformed the market this year as subscriber growth has slowed. However, AT&T is positioning itself to generate substantial synergies as it evolves more into a media and entertainment giant. The potential $85 billion acquisition of Time Warner Inc (TWX), the 2014 deal with DirecTV and plans to roll out 5G wireless this year are all moves to make the company stronger going forward.
AT&T Inc. has been increasing dividends for 33 consecutive years in a row, making it the only dividend aristocrat in the telecom sector. T grew dividends at an annual rate of 3.7% over the past decade, and low-single-digit dividend growth seems most likely going forward.
Dividend yield: 1.5%
Brown-Forman Corporation (BF.B) is one of the largest spirits and wine companies in America and among the top 10 largest spirits companies in the world. Its products are sold in 160 countries worldwide.
Brown-Forman has more than 25 brands in its portfolio of wines and spirits. Its whiskey brand, Jack Daniels, is the best-selling whiskey in the world. Much of the business is international with just over half of total revenue derived outside of the U.S.
The company has used its extensive 145-year experience to produce drinks of premium quality, evolving along with changing customer tastes and preferences. As such the company has built a strong brand name and level of trust that will be difficult to be replicated. In addition, government regulations and ownership of intellectual property rights in this business makes entry difficult for new comers. Brown-Forman’s business is relatively recession proof as people drink both in good and bad times, too.
BF.B has disappointed investors over the past year in part because volatility in emerging markets slowed its reported growth. However, the company continues to see opportunity for growth of its brands going forward.
Brown-Forman has paid regular quarterly cash dividends for 71 consecutive years and has increased the dividend for 33 straight years. BF.B has grown its dividend by 9.7% per year over the past five years, and its low payout ratio indicates that the company can comfortably increase its dividend at a mid-single-digit rate for many years to come.
Kimberly-Clark Corp (KMB) is a global consumer goods giant focusing on personal care, consumer tissue and professional products. Some of its major brands include Huggies, Kleenex, Scott, Kotex and Depend. Many of its brands hold the No. 1 or No. 2 share positions in their categories.
With over 145 years of existence, Kimberly-Clark has successfully built a strong competitive moat in the form of well-known brands, global distribution and economies of scale. The company has become an indispensable part of people’s lives today and leverages its years of consumer experience to introduce successful new products.
Kimberly-Clark faced a tough 2016 due to a demand slowdown across some of its biggest markets. However, the company has not only paid uninterrupted dividends to shareholders for more than 80 years, but also increased them for the past 45 consecutive years.
Over the past two decades, the company has grown dividends 7.2% per year, and its payout ratio looks reasonable near 60%. The company targets an annual organic sales growth rate between 3% and 5% and per-share earnings growth in the mid- to high single digits.
This implies that dividend growth will continue to grow in the mid- to high-single-digit level if the company achieves its targets.
This article is from Brian Bollinger of InvestorPlace. As of this writing, he was long KMB, CL, XOM and HRL.
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