3 Best Dividend Aristocrats to Buy Now

Three best Dividend Aristocrats to buy now offer yields of at least 2.5% and stable returns that could be aided by high growth in 2021.

The Dividend Aristocrats — a prestigious group of companies in the S&P 500 that have increased their payouts for more than 25 consecutive years — can provide investors with consistent dividend payments. While the list currently contains 65 reliable dividend-paying companies, we’ve narrowed it down to the top three by evaluating their performance, dividend yield, growth potential and several other key variables.

These three best dividend aristocrats to buy now are some of the most powerful dividend-paying stocks to include in your portfolio for 2021. One is a gargantuan communications company, the second is a front-page-news healthcare operation and the third a real estate investment trust (REIT) paying out a monthly dividend.

Each of these companies is a member of dividend-paying royalty and offers strong returns for savvy income investors. Here are the three best dividend aristocrats to buy now:

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3 Best Dividend Aristocrats to Buy Now: #3

AT&T (NYSE:T)

Dividend Yield: 6.8%

AT&T (NYSE:T) is the second-largest U.S. wireless carrier and one of the biggest communications companies in the world. The company connects more than 100 million wireless devices, making up the most dominant of its business sectors, but a full 25% of its total revenue is drawn from the entertainment industry. AT&T manages both DirecTV and WarnerMedia, controlling the assets of HBO, the Turner Cable Networks and Warner Brothers Studios.

All of these powerful assets give the company a market capitalization of $218 billion, making AT&T a mega-cap stock.

The company released its final earnings report for 2020 in late January of this year alongside its Q4 results. In the fourth quarter, AT&T generated $45.7 billion in revenue, giving the company a net loss of $1.95 per share due largely to the negative impacts of COVID-19.

For the year 2020 in its entirety, AT&T reported $171.8 billion in revenue, a 5.5% decrease from the $181.2 billion it generated the year prior in 2019. Yet, these somewhat disappointing results have done little to phase the company’s stock growth — in the trailing 12-month period the share price grew 16.6%, nearly half of which (7.8%) occurred in 2021 so far this year.

AT&T’s overall growth has been satisfactory but also not mind-boggling to investors interested in growth stocks. What’s far more impressive is the income distributed through the company’s quarterly dividend payments. AT&T currently pays a dividend of $0.52, corresponding to an annual payout of $2.08 and a 6.8% yield.

Chart provided by Stock Rover.

It is highly likely the company will increase its dividend again in the third or fourth quarter of 2021, bringing its quarterly dividend to $0.53 or higher. If it fails to do so, AT&T will break its 34-year streak of consecutive dividend increases and lose its status as a dividend aristocrat.

In the near future, the company is expected to spur growth and financial stability through three major changes. The first is a small company split, where AT&T will reorganize some of its assets into a new company called New DIRECTV that will manage the TV and satellite business. The parent company will retain 70% ownership over New DIRECTV and sell the remaining 30%, using the profit to pay down debt.

The other two catalysts for future growth are the new HBO Max service and the company’s 5G rollout. The former continues to compete against other streaming platforms and currently boasts more than 40 million monthly subscribers. The latter now occupies 355 U.S. markets and covers well over 100 million people. Both operations are expected to grow in 2021 and increase AT&T’s bottom line by a healthy amount.

3 Best Dividend Aristocrats to Buy Now: #2

Johnson & Johnson (NYSE:JNJ)

Dividend Yield: 2.5%

Johnson & Johnson (NYSE:JNJ) is the largest health care firm in the world, boasting a market capitalization of nearly $430 billion and operating in three primary markets: medical devices and diagnostics, pharmaceutical and consumer health. The company was well-known in the pre-pandemic era but has received further public light with its development of a COVID-19 vaccine that is starting to be distributed en masse in the United States.

In late January 2021, Johnson & Johnson released its earnings report for both fourth-quarter and full-year 2020. By year’s end, the company had generated $82.6 billion in revenue, a 0.6% increase year-over-year. With the rollout of its single-dose vaccine, Johnson & Johnson is offering guidance that its revenue for the year 2021 will top $91.7 billion, giving the company an earnings per share (EPS) of $9.60.

J&J is one of the longest-standing dividend aristocrats, having increased its dividend for the last 58 consecutive years. This makes the company a member of the Dividend Kings — an ultra-exclusive group of companies that have increased their dividend payouts for more than 50 consecutive years. Currently, there are only 29 dividend kings in the world.

Johnson & Johnson’s growth in the trailing 12 months has been remarkable. The share price of JNJ has grown 26.8% in the last year, as well as 73.2% in the last five years. Plotted below is a chart showing the stock growth in the trailing 12-month period alongside a 50-day moving average to clarify the general upward trend.

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J&J currently pays a quarterly dividend of $1.01 and has for the last four quarters — meaning if the company plans to keep its dividend royalty status, it is due for an increase in the next quarter. The current dividend distribution corresponds to an annualized $4.04 payout and a forward yield of 2.5%. This dividend payout has grown consistently over the last several years. The three-year average growth rate for JNJ’s dividends is 6.3%, which is on par with its five-year growth rate of 6.1% and 10-year growth rate of 6.5%. If the company continues this trend, we can expect a coming distribution of $1.07 in Q2 2021.

The COVID-19 pandemic has damaged and destroyed many other businesses, but Johnson & Johnson has taken its rushed vaccine development as an opportunity to streamline its production practices and maximize overall efficiency. The company has a stellar return on invested capital (ROIC) of 16% and an equally impressive return on assets (ROA) of 8.4%, placing it in the 95th percentile for most efficient companies in the drug manufacturing industry group. For reference, the industry average ROIC is just over half that amount — 9.5%.

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3 Best Dividend Aristocrats to Buy Now: #1

Realty Income (NYSE:O)

Dividend Yield: 4.4%

Realty Income (NYSE:O) is a real estate investment trust that owns roughly 6,600 properties, the majority of which are single-tenant, triple-net-leased retail deals. It operates in 49 states and Puerto Rico and leases to over 250 large tenants. The company was added to the dividend aristocrats group in 2020, making it one of the newest entries but still one of the best values for income investors.

O was faced with exceptional challenges surrounding the COVID-19 crisis — with the industry implosion of both theaters and fitness centers. The latter two types of tenants accounted for more than 10% of the company’s income, so Realty Income was likely to see a significant reduction in its bottom line. But its management used strategies such as excellent acquisition decisions to help Realty Income finish 2020 with an 11% revenue growth, as well as a 10% increase in funds from operations.

With its excellent financial performance, Realty Income is seizing the opportunity to buy up other companies at a substantial budget while many of them are still recovering from the pandemic. The company has announced it plans to spend $3.25 billion on acquisitions in 2021 alone, making a considerable investment in future income for the company’s shareholders.

O was hit hard in early 2020 with the closure of many of its properties and uncertainty of its tenants’ ability to pay rent. However, the company recovered fast, soaring from its 2020 low of $40.38 (also a five-year low) to its current trading price of $64.92. O has grown 48.9% in the trailing 12-month period — its growth pattern in the last five years is charted below with a 50-day moving average of the share price.

Chart provided by Stock Rover.

Many investors expect O to continue to rise further. The average target price among analysts is $68.44, a 5.42% increase over the current trading value. A discounted cash flow (DCF) analysis suggests a brighter future, valuing the company at $86.24 per share — 33% higher than the latest closing price.

What’s most impressive about Realty Income, however, is its commitment to dividend payments. The company went public in 1994 and has increased its dividend every year since then. Unlike many other top dividend payers, O distributes its dividend monthly, with a current monthly rate of $0.23 — equaling an annual $2.76 per share for investors and a dividend yield of 4.4%. The company has a dividend payout ratio of 243.6%, which correlates to a much more reasonable 85.9% funds from operations (FFO) payout ratio. The combination of growth potential alongside consistently high dividend distributions make Realty Income an excellent company for income investors.

Related articles:

The Dividend Aristocrats List

The Dividend Aristocrats Investing Strategy and Stocks List

5 Best Dividend Aristocrats to Buy Now

The Best Dividend Aristocrats ETFs

The S&P 500 Dividend Aristocrats — Everything You Need to Know

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