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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| July 5, 2018
The Dividend Aristocrats are an elite group of 53 stocks that have at least one thing in common: They have raised their annual payout in at least each of the past 25 years, if not longer.
But just because a company consistently raises its dividend doesn’t necessarily make it a compelling investing proposition.
Market experts advise a further layer of research before diving into these “elite” dividend stocks. You should always check that the company holds up to scrutiny – this means an encouraging business outlook and strong fundamentals. That way you’re “covered” twice: You have an attractive income proposition that should only get better over time, and chances are if you ever want to sell, you can do so at a profit.
We have used TipRanks’ market data to pinpoint the highest-rated Dividend Aristocrats right now. TipRanks scans the latest stock ratings from over 4,800 Wall Street analysts to be able to compile a list of stocks with the most Street support from analysts and top analysts.
The following are seven of the best dividend growth stocks on the market right now, in the eyes of the “pros.” This includes the average analyst price target, to give you an idea of how much upside potential Wall Street sees in these companies.
Data is as of July 4, 2018. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Companies are listed alphabetically.
Market value: $238.3 billion
Dividend yield: 3.6%
TipRanks consensus price target: $140.75 (13% upside potential)
TipRanks consensus rating: Strong Buy
Energy giant Chevron (CVX, $124.73) is one of the top Dividend Aristocrats from the oil patch. Even in the face of volatile oil and natural-gas prices, Chevron has consistently ramped up dividends for 31 years and counting, including a roughly 4% increase to the payout announced in January. Better still, CVX yields a generous 3.6%, which looks much better than the average material stock’s 2.2% annual dole.
Chevron currently sports a consensus “Strong Buy” ranking from the Street. If we look only at top-ranked analysts, the picture is even more bullish, with CVX receiving five buy ratings with an average price target of $146 (17% upside potential).
Most recently, Raymond James analyst Pavel Molchanov (view Molchanov’s TipRanks profile) upgraded CVX to “Outperform” (equivalent of buy). His move came with a $140 price target (12% upside potential). He believes Chevron has the best exposure to higher oil prices of its peers – and Molchanov predicts that oil prices will hit cyclical highs in the next six to 12 months. Indeed, Brent crude oil recently hit highs of nearly $75 even as OPEC companies move to stabilize oil supply.
Molchanov adds that Chevron’s low exposure to West Texas Intermediate oil should boost earnings and cash flow.
Market value: $77.6 billion
Dividend yield: 2.0%
TipRanks consensus price target: $105.90 (10% upside potential)
Retail home improvement chain Lowe’s (LOW, $95.06) ticks most boxes. This “Strong Buy” Dividend Aristocrat has received 11 buy ratings in the past three months compared to just two holds. And on the dividend front, investors have received 55 consecutive years of payout growth.
“We recommend LOW as a top pick … upon the view that amid a still very healthy backdrop within the Home Improvement sector, positive change is now underway at the company,” cheered five-star Oppenheimer analyst Brian Nagel (view Nagel’s TipRanks profile) on June 4.
For a long while, operating margins at LOW have lagged those of rival Home Depot (HD). However, change is now afoot, and a big activist investor has spurred a board shakeup. Lowe’s named Home Depot veteran Marvin Ellison as CEO in May – he took the role July 2 – and CFO Marshall Croom announced his retirement in June.
Following the switch, Nagel – who has a “Buy” rating on Lowe’s, with no price target – is predicting a bright future: “We are optimistic that under the direction of new senior leadership, LOW will strengthen operational disciplines and improve sales and profitability at the chain.”
Courtesy Mike Mozart via Flickr
Market value: $123.7 billion
Dividend yield: 2.6%
TipRanks consensus price target: $186.67 (19% upside potential)
The world’s largest and most recognizable food chain is also a premium dividend stock. McDonald’s (MCD, $156.48) boasts a decent 2.6% yield, but more importantly, 41 years of consecutive annual increases. The latest was a 7% improvement back in September 2017.
Dividends aside, this is a company with a very bullish Street outlook. “After its generally encouraging or better-than-expected 2017 results, which reflected a relatively healthy increase in global comparable sales, we see a continuing momentum in 2018,” writes CFRA’s Tuna Amobi (view Amobi’s TipRanks profile). He has just reiterated his “Buy” rating with a $195 price target (25% upside potential).
Amobi says investors should keep an eye on McDonald’s international expansion. He is predicting “potentially significant upside in China and other emerging markets.” Not only do these countries have fewer restaurants per capita, but they also offer a growing middle class with disposable income and a taste for burgers and milkshakes.
Amobi expects McDonald’s earnings to hit $7.16 per share in 2018, up from $6.37 last year. If we fast-forward to 2019, he sees MCD raking in earnings of $7.61.
Courtesy U.S. Embassy Kyiv Ukraine via Flickr
Market value: $116.0 billion
Dividend yield: 2.3%
TipRanks consensus price target: $95.38 (12% upside potential)
TipRanks consensus rating: Moderate Buy
Medical device maker Medtronic (MDT, $85.48) recently announced a 9% dividend boost – its 41st consecutive year of payout hikes.
Medtronic recently held an analyst day where leadership stressed that its top priority is execution – a vague term, but more specifically, the company says that means improving operating margins and free cash flow. The company gave clear guidance from there and solid pipeline details.
For Bank of America’s Bob Hopkins (view Hopkins’ TipRanks profile), “The detail MDT provided on its pipeline definitely increased our confidence in revenue growth.” He called the analyst day a “solid step forward” but only time will tell if Medtronic can truly achieve its goals. Nevertheless, Hopkins remains bullish, arguing that “MDT’s revenue growth, MDT’s new restructuring, and the move in the dollar over the last year gives us confidence.”
Medtronic has a cautiously optimistic “Moderate Buy” rating from the Street – over the past three months, six analysts have published buy ratings on MDT, while three have announced holds.
Courtesy Stanley Black & Decker
Market value: $20.5 billion
Dividend yield: 1.9%
TipRanks consensus price target: $181.67 (38% upside potential)
With half a century of dividend growth under its belt, Stanley Black & Decker (SWK, $131.84) represents one of the most-established Dividend Aristocrats.
This Fortune 500 company, a manufacturer of industrial tools and household hardware, has a disruptive growth opportunity in emerging markets. These markets only represent 15% of total sales, but they offer double-digit revenue growth potential – so says top B. Riley FBR analyst Liam Burke (view Burke’s TipRanks profile). He sees the e-commerce platform as accelerating growth in countries like China, where distribution channels remain “antiquated.”
He concludes: “With an ever-improving global market position in the specialty tool sector, we see a stronger overall business capable of growing into its multiple beyond 2018.”
Good news for investors: His $195 price target suggests robust upside potential of 48%.
Market value: $40.7 billion
Dividend yield: 3.4%
TipRanks consensus price target: $87.33 (15% upside potential)
Discount chain-store Target (TGT, $76.63) is one of the more generous retail stores when it comes to dividends. The company pays a 3.4% yield at current prices, and currently sits on a streak of 47 consecutive payout increases.
This dividend growth should continue going forward if estimates for $7 billion in cash flow for 2019 pan out.
“TGT’s significant economic operating cash flow will continue to fund its strategic initiatives and enhance shareholder returns through ongoing dividend increases and share repurchases,” writes top Tigress Financial analyst Ivan Feinseth (view Feinseth’s TipRanks profile).
Feinseth likes how Target is differentiating itself from other retailers, be it through same-day delivery, shop upgrades, exclusive offers or savvy digital initiatives. For example, DriveUp enables customers to preorder their shopping for pickup, while discount app Target Cartwheel offers instant savings.
“Target’s strong brand equity and strategic initiatives will continue to drive increased sales growth, increasing Return on Capital, greater Economic Profit growth and increasing shareholder value creation,” Feinseth writes.
Courtesy VF Corporation
Market value: $31.9 billion
TipRanks consensus price target: $88.75 (9% upside potential)
TipRanks consensus rating: Moderate Buy*
From one retail stock to another, VF Corporation (VFC, $81.49) describes itself as a global brand leader. While you may not have heard of VFC, you almost certainly know its brands: the company owns everything from Lee and Wrangler to The North Face and Kipling. And while it doesn’t offer a compelling current yield, at just 2.3%, it has grown its payout for 45 consecutive years, meaning investors enjoy ever-growing yields on their original investments.
Five-star Susquehanna analyst Sam Poser (view Poser’s TipRanks profile) has just met with VFC management. “It was clear to us that the team’s confident tone about the strengths and opportunities that lay ahead is commensurate with a company that is seeing the key elements of its growth drivers accelerate,” he wrote.”
Poser lists three key brands to keep a close eye on. Most notably, Vans is continuing to see “exceptional” growth. North Face sales also appear promising; after recent years of selling goods at high discounts, Poser is relieved to see North Face returning to innovation-led full price goods. Meanwhile workwear brand Williamson-Dickie “is shaping up to quickly become VFC’s next $1B brand,” Poser says. VFC snapped up W-D back in 2017 for $820 million.
*While this stock has a “Moderate Buy” analyst consensus rating, if we shift to only top analysts, the consensus rating becomes a more bullish “Strong Buy.”
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 4,700 Wall Street analysts as well as hedge funds and insiders. You can find more of TipRanks’ stock insights here.