3 Quality Dividend Aristocrats For Long-Term Investors

by Guest Post

Author: Bob Ciura is Senior Vice President of Sure Dividend. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

Fears of coronavirus have rattled the stock market in recent days, but investors should keep a long-term focus. At Sure Dividend, we highly recommend investors resist the urge to sell their stocks in moments of panic. Instead, we believe investors should use these temporary dips to buy high-quality dividend growth stocks, such as the Dividend Aristocrats.

The Dividend Aristocrats are a group of 64 stocks in the S&P 500 Index, which have each raised their dividends for at least 25 years in a row. Many of the Dividend Aristocrats have maintained 30-40 years of annual dividend increases, and even longer streaks in some cases.

We believe the Dividend Aristocrats have many qualities that long-term income investors should look for, including competitive advantages, growth potential, and shareholder-friendly management teams that are committed to increasing dividends each year. The following 3 Dividend Aristocrats are particularly attractive right now.

Quality Dividend Aristocrat #1: AbbVie Inc. (ABBV)

AbbVie was spun off from former parent company Abbott Laboratories (ABT) in 2013. As Abbott was a member of the Dividend Aristocrats, AbbVie is also on the list. And, AbbVie has continued to increase its dividend since the spin-off. Since the company’s inception in 2013, AbbVie has increased its dividend by 195%.

The main reason for AbbVie’s impressive growth was its flagship drug Humira, which became the best-selling drug in the world. Humira alone represented 45% of AbbVie’s total revenue in 2019. But this also poses a risk for the company, as Humira has lost patent exclusivity in Europe, which caused international sales of Humira to decline 28% last year on an operational basis.

The bad news for AbbVie is that Humira will lose patent exclusivity in the U.S. in 2023, which poses a risk to future sales and profits. The good news is, AbbVie has prepared for this outcome by investing heavily in new products and in acquisitions to generate future growth. Research and development spending totaled $6.4 billion last year.

This spending has paid off, as AbbVie now has a well-stocked pipeline, particularly in hematologic oncology. Led by Imbruvica and Venclexta, AbbVie’s hematologic oncology segment generated nearly $5.5 billion in sales last year, an increase of 39% from 2018. AbbVie will also get a major growth boost from the $63 billion acquisition of Allergan (AGN).

Botox is Allergan’s strongest product, generating $3.8 billion in sales last year. This acquisition greatly diversifies AbbVie’s product portfolio by giving it exposure to aesthetics products. According to AbbVie, the combined company will generate annual revenue of nearly $50 billion. AbbVie also expects the acquisition to boost adjusted earnings-per-share by 10% in the first year after closing.

AbbVie has an attractive yield above 5%, and a high likelihood of raising its dividend on an annual basis going forward, due to its internal investments and the Allergan acquisition.

Quality Dividend Aristocrat #2: Franklin Resources (BEN)

Franklin Resources was founded in 1947. Today, is a global asset manager with a long and successful history. The company offers investment management (which makes up the bulk of fees the company collects) and related services to its customers, including sales, distribution, and shareholder servicing. As of December 31st, 2019, assets under management (AUM) totaled $698.3 billion for the $13 billion market cap company.  

Franklin Resources stock has declined 27% in the past 12 months, as the company experiences the challenges facing the broader asset management industry—specifically, the price war of declining fees. The boom in exchange-traded funds and low-cost index fund investing has forced traditional asset managers to lower fees in an attempt to retain clients.

Fortunately, Franklin Resources’ strong brand and trusted leadership has allowed the company to continue growing assets under management. In the most recent quarter, total assets under management equaled $698.3 billion, a 0.8% increase from the previous quarter, as -$12.3 billion in net outflows were offset by an +$18 billion improvement from positive market performance.

For the quarter, operating revenue totaled $1.41 billion, a marginal increase compared to the same quarter last year. Net income equaled $350.5 million or $0.70 per share, up 30% from $0.54 per share in the first fiscal quarter of last year. This continued growth has provided for steady dividend increases, even while the share price remains under pressure. The end result is that Franklin Resources stock now yields 4.5%, a highly attractive payout in relation to the broader market.

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

Walgreens Boots Alliance has been hit hard by the overall weak environment for retail. Investor sentiment towards Walgreens has deteriorated significantly in the past year, due to fears of Amazon’s dominance of retail and its acquisition of PillPack. This is widely viewed as the beginning stages of Amazon making a broader push into pharmaceutical retail, which is a potential risk for brick-and-mortar pharmacies such as Walgreens.

However, we believe these fears are overblown. Walgreens remains an industry giant, with a widely recognizable brand and a large number of stores that are in close proximity to its customers. Walgreens Boots Alliance is a pharmacy retailer with over 18,000 stores in 11 countries. The stock currently has a $45 billion market capitalization. The company has remained highly profitable throughout its recent turnaround, and is making investments to restore growth.

In the most recent quarter, Walgreens’ sales increased 2.3% in constant currency to $34.3 billion. The Pharmaceutical Wholesale segment led the way with 5.2% growth, followed by the Retail Pharmacy USA segment with 1.6% comparable sales growth for the quarter. The company made progress on a number of strategic initiatives last quarter. For example, Walgreens created a German wholesale joint venture with McKesson, and also formed a group purchasing organization with Kroger. 

We believe Walgreens is undervalued. The stock currently trades for just 8 times 2020 expected adjusted earnings-per-share. In addition, Walgreens has increased its dividend for 44 consecutive years, which makes it a member of the Dividend Aristocrats. With a highly attractive current yield of 3.8% and the prospect of continued dividend growth, Walgreens is an appealing stock for value and dividend growth investors.

Key Takeaways

The Dow Jones Industrial Average and S&P 500 Index have registered major losses in recent days, due to fears of spreading coronavirus and the potential impact on the global economy. And while the stock market may continue to sell-off in the coming days or weeks, we believe investors should think in terms of years and decades.

If anything, the recent declines could simply be a great buying opportunity, as many high-quality dividend growth stocks can be purchased at even better prices. The 3 Dividend Aristocrats presented here rank highly for us, in terms of dividend yield, dividend growth, and future total returns.

You may also like

Leave a Comment