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This is a guest contribution by Bob Ciura from Sure Dividend. Sure Dividend helps individual investors build high quality income security portfolios for rising passive income over time.
Investors looking for high-quality dividend growth stocks should consider the Dividend Aristocrats, a group of 57 stocks in the S&P 500 Index that have increased their dividends for at least 25 years. The Dividend Aristocrats make for great long-term stock investments.
In order to become a Dividend Aristocrat, a company must have several desirable qualities. Dividend Aristocrats widely have strong brands, leadership positions in their industries, and durable competitive advantages that provide for long-term growth.
The following 3 Dividend Aristocrats could produce excellent returns for dividend growth investors.
Dividend Aristocrat #1: AbbVie (ABBV)
AbbVie was spun off from Abbott Laboratories (ABT) in 2013. Today, AbbVie manufacture pharmaceutical products primarily in Immunology, Oncology, and Virology. The company generates annual revenue above $32 billion. AbbVie stock has declined 15% in the past year, as investors worry about the company’s direction now that its flagship drug is facing competition.
Multi-purpose drug Humira is the world’s top-selling pharmaceutical, and itself represented 61% of AbbVie’s total revenue last year. This is potentially problematic, as Humira no longer enjoys patent exclusivity in Europe. AbbVie has had to significantly discount the price of Humira across multiple European markets to retain share. In the most recent quarter, Humira sales grew 9% in the U.S., but fell 15% in the international markets due to biosimilar competition. Humira will see biosimilar competition in the U.S. starting in 2023.
In response, AbbVie has invested heavily in new product development. The result is that AbbVie has stocked its pipeline with strong new products, in particular Imbruvica, which grew sales by over 40% last quarter. AbbVie expects its portfolio outside Humira to generate $16 billion of annual sales by 2020.
AbbVie has been an excellent dividend growth stock for many years. The company raised its dividend twice in 2018. In total, AbbVie’s total dividends paid increased 40% last year. Total dividends paid are on track to increase 19% for 2018, as the company already hiked the dividend for the 2019 first quarter payment.
AbbVie management expects 10% adjusted EPS growth for 2019, which should allow the company to continue raising its dividend each year. For now, AbbVie stock has a very attractive dividend yield of 5.4%.
Dividend Aristocrat #2: Walgreens Boots Alliance (WBA)
Walgreens is a Dividend Aristocrat, having raised its dividend for over 40 years in a row. Walgreens’ impressive dividend history is the result of its strong business. Walgreens stock has underperformed the S&P 500. Shares of the company have declined 7% in the past 12 months, a disappointing performance as investors weigh the possibility of new competition in the industry.
E-commerce giant Amazon (AMZN) purchased online pharmacy PillPack for nearly $1 billion, which has stoked fears that brick-and-mortar stores like Walgreens will soon see fierce competition. But to this point, Walgreens has proven resilient. In fiscal 2018, Walgreens grew sales by 11%, along with 18% adjusted EPS growth. Conditions do not appear to be deteriorating for the company. Walgreens reiterated its guidance of nearly 10% adjusted EPS growth in 2019.
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Instead, Walgreens has doubled down on its physical store business. Last year, Walgreens acquired over 1,900 Rite Aid stores, along with three distribution centers, for over $4 billion. The company is taking the view that brick-and-mortar pharmacies offer value for customers. In a complicated industry like health care, customers will often want to ask questions to qualified pharmacists. This has kept Walgreens’ store traffic and sales trending higher.
Walgreens’ share price drop over the past year has pushed its dividend yield up to 3%, an attractive payout for a high-quality company. Walgreens is also a high dividend growth stock. It raised its dividend by 10% for 2018. And, Walgreens has a fairly low dividend payout ratio of less than 30% expected for fiscal 2019, which gives the company room for continued dividend growth.
Dividend Aristocrat #3: AT&T Inc. (T)
AT&T rounds out the top 3 Dividend Aristocrats, in large part because of its very attractive yield of 6.4%. AT&T is the highest-yielding Dividend Aristocrat. It is a giant telecommunications company, providing a number of services including wireless, Internet, as well as cable and satellite television.
AT&T’s biggest growth catalyst in recent years was the massive acquisition of Time Warner, which gave AT&T a huge content business. Time Warner has a number of cable television and premium stations like Turner networks and HBO. It also operates the Warner Bros. production studio. The Time Warner acquisition makes great strategic sense for AT&T, which is now an integrated operator in the media space.
AT&T not only delivers content to consumers through a variety of distribution channels, but it also owns content. This gives it a valuable hedge against rising content costs, and also provides AT&T with the ability to ramp up a huge advertising business, based on its vast content and millions of subscribers.
In 2018, AT&T generated $171 billion of revenue, a 6% increase from 2017. Adjusted EPS increased 15% for the year. AT&T expects low single-digit adjusted EPS growth for 2019. Time Warner was a big reason for AT&T’s strong growth last year, and should continue to be in 2019 and beyond.
In the meantime, AT&T has a projected dividend payout ratio of approximately 57% in 2019. This leaves room for continued dividend growth.
AT&T has increased its dividend for over 30 years in a row. Investors can count on annual dividend increases in the low single-digit range each year. Combined with a 6.4% current yield, AT&T is a premier high-yield dividend stock.
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