Income Investors, Meet the Dividend Aristocrats
I'm not sure where the name "Dividend Aristocrat" originated, but I tip my hat to the person who conceived it. These are the stocks that have raised their dividend for each of the last 25 years. Only companies that have been around for a long time and also have strong and consistent cash flow are capable of this feat. So when you're buying these companies, you're buying some of the largest and most iconic names out there.
Let's start with Clorox (CLX) , which makes such iconic household brands as Clorox, Liquid-Plumr and Formula 409. Clorox, whose is currently yielding 3.22%, is currently trading around $120 -- about 6% above its 52-week low. The company has seen a slight increase in earnings in each of the last two years and its margins have been consistent. It has ample free cash flow (which has been between $581 and $749 billion the last five years) and has purchased $1.25 billion of its own shares since 2014.
Consolidated Edison (ED) has a monopoly to sell electricity to New York City and some of the surrounding areas. Currently yielding 3.81%, it has raised its dividend for the last 43 years. Its current P/E is abnormally low (3.4). It's forward P/E of 16.85 is a better indicator of its relative cost. Revenue has been flat for the last five years. This has been a trend across the entire utility complex as energy efficiency has kicked in. It is currently trading a few points above its 52-week low.
AT&T (T) currently has a dividend yield just north of 6%. And the company has raised it in each of the last 33 years. While the current P/E is high (19.24) the forward P/E of 9.35 indicates this is a bargain, especially for a company this late in a rally. Revenue grew strongly between 2013-2016 but has tapered off a bit since. Its margins do jump around a bit, but the company is a cash flow juggernaut, with free cash flow between $10.1 billion and $18.5 billion for the last five years. As a result, they're repurchased nearly $16 billion of their own stock since 2013. The stock is trading a few points above its 52-week low.
Action Alerts PLUS holding PepsiCo (PEP) is currently yielding 3.7% and has raised its dividend for the last 45 years. It is currently trading a few points above its 52-week low. While top-line revenue has been drifting lower since 2014, the company has been improving its gross and operating margins. The net, however, is still a bit lower over the same time period. The company has ample free cash slow (it's been between $6 billion and $9 billion a year for the last five years). And they want you to be a shareholder -- they've repurchased slightly more than $18 billion over the last five years.
Each of these companies have two other things going for them. First, they're somewhat defensive in nature. Remember that we're a long way into this expansion; it's a good idea to start thing a bit defensively in our portfolio allocations. Secondly, because they're trading near 52-week lows they have a ton of upside room. While all of these companies are yielding at or above the 10-year Treasury, you can increase your gains if the stocks appreciate from here.
This article was sent May 25 to subscribers of TheStreet's Income Seeker, a product presenting the world of opportunities in fixed income and dividend stocks. Click here to learn more about Income Seeker and to receive articles like this from Robert Powell, Peter Tchir, Jonathan Heller and others.
Action Alerts PLUS, which Cramer manages as a charitable trust, is long PEP.