The article and research below comes from Sure Dividend. As an investor, I’ve enjoyed reading their research over the years. So today, I’m sharing their new article that covers three Dividend Aristocrat growth stocks. Enjoy!
The stock market decline in 2020 caught investors by surprise. Even after a comeback, the S&P 500is still down 14% year-to-date. The U.S. economy is likely already in a recession. We’re just waiting for data to make it official. As a result, companies in industries such as retail and energy have already announced dividend cuts.
In this tough time, income investors should be more selective. That’s why we recommend investors focus on the Dividend Aristocrats. It’s a group of 66 stocks in the S&P 500 that have each raised their dividends for at least 25 consecutive years.
In our view, the Dividend Aristocrats have a proven ability to outlast recessions. They have competitive advantages and defensive business models. The following 3 Dividend Aristocrats growth stocks are attractive buying opportunities. That’s for long-term dividend growth investors.
Top Dividend Aristocrat Growth Stocks
Walgreens Boots Alliance (WBA)
Walgreens is a pharmacy retailer with over 18,000 stores in 11 countries. It has increased its dividend for 44 consecutive years, which easily makes it a Dividend Aristocrat.
In early April, Walgreens reported financial results for the second quarter of 2020. Revenue of $35.8 billion increased 4.1% year-over-year excluding foreign exchange impacts. It beat analyst estimates by $580 million. Revenue growth was due to comparable store sales growth of 2.7% in the core Retail Pharmacy USA segment. However, adjusted earnings-per-share fell 7.3% to $1.52 from the same quarter last year.
Walgreens’ competitive advantage is its leading market share. Its size and convenient stores encourage consumers to use Walgreens instead of its competitors. This brand strength keeps customers coming back to Walgreens. And that provides stable sales and growth.
Consumers are unlikely to cut spending on prescriptions and other healthcare products, even during a downturn. That makes Walgreens resistant to recessions. Walgreens’ adjusted earnings-per-share declined by just 7% during 2009. And the company grew its adjusted earnings-per-share from 2007 through 2010.
Walgreens has a positive long-term growth outlook. Retail Pharmacy has proven to be resistant to ecommerce. It will also benefit from the aging U.S. population and rising demand for healthcare. For example, in the most recent quarter Walgreens’ pharmacy sales increased 5.3% year-over-year. This reflects higher brand inflation and prescription volume.
Walgreens stock has a 4.3% dividend yield and shares trade at a forward price-to-earnings ratio of 7.8. That’s based on current analyst estimates of $5.53 per share. With a projected dividend payout ratio of 33% based on the consensus analyst estimate, we believe Walgreens’ dividend is secure, even in a recession. It’s a great Dividend Aristocrat growth stock for long-term investors.
AbbVie is a pharmaceutical company. It focuses on immunology, oncology, and virology. Abbott Laboratories spun it off in 2013. Still, it qualifies as a Dividend Aristocrat as its parent company was on the list at the time of the spin-off.
AbbVie’s biggest product is Humira, which represents about 60% of annual revenue. Humira is now facing biosimilar competition in Europe, which has had an impact on the company. International sales of Humira declined 31% in 2019. Humira is set to lose patent protection in the U.S. in 2023, which is risky for investors. However, we believe the company has great growth opportunities even after the expiration of Humira in the U.S.
AbbVie has received 14 major approvals since 2013, with 10 of those coming in the core categories of immunology and oncology. AbbVie has many opportunities to replace Humira sales. Total revenue increased 3% to $33.3 billion in 2019, driven largely by new products. AbbVie saw 2019 revenue of $355 million for Skyrizi and $47 million for Rinvoq. Abbvie expects combined sales in 2020 of $1.7 billion. Also, Imbruvica sales increased 29% in 2019, while sales of Venclexta more than doubled last year.
Growth is likely to accelerate by the $63 billion acquisition of Allergan (AGN). The combined company will have annual revenues of nearly $50 billion. AbbVie expects this to add 10% to adjusted earnings-per-share over the first year.
AbbVie’s earnings are likely to drop in a recession, but the dividend should remain safe. Estimates call for AbbVie to earn $10.16 per share for 2020. That would put the stock at a P/E ratio of 8.1. We view AbbVie as undervalued, given its growth potential. The stock also has a high dividend yield of 5.8% and a dividend payout ratio of 46%.
People’s United Financial (PBCT)
People’s United Financial is a regional bank and financial services company. It’s engaged in real estate and mortgage lending, equipment financing, consumer loans, life insurance, brokerage services, wealth management and traditional banking services. The company has increased its dividend for the past 26 years.
In fourth quarter 2019, net interest margin remained flat. That’s due to lower interest rates. Although, the company grew its operating earnings-per-share 3% over last year’s quarter. It climbed from $0.36 to a record $0.37, thanks to the acquisition of United Financial. For the full year, earnings-per-share of $1.39 showed growth of 6.1% compared with 2018. Operating earnings-per-share have now increased for 10 consecutive years.
Competitive advantages are hard to come by in the banking industry But People’s United has built a successful track record of steady growth. The company has a network of 400+ branches, with total assets of $52 billion.
People’s United is not a recession-resistant company. As a financial services provider, its profits are correlated to economic growth. For example, from 2007-2010, earnings-per-share declined 54%. With that said, it remained profitable.
The company continued to increase its dividend through the Great Recession. Analysts expect earnings-per-share of $1.08 for 2020. The current dividend payout stands at $0.71 per share, for a dividend payout ratio of 66%. This shows some dividend safety. People’s United stock has a dividend yield of 6.5%
Key Investor Takeaways
At Sure Dividend, we believe investors can generate superior long-term returns. That’s by buying and holding high-quality dividend growth stocks such as Dividend Aristocrats. Investors can further improve returns by buying undervalued Dividend Aristocrats.
The three Dividend Aristocrat growth stocks above are leaders in their industries. They have wide economic moats to protect their market share. They also have long histories of dividend increases. That’s thanks to their strong business models which provide healthy cash flow each year, even during recessions.
We believe Walgreens Boots Alliance, AbbVie and People’s United are likely to maintain their dividend growth over the long run. In the meantime, the stocks appear undervalued. All three have high dividend yields. In our view, these three stocks are among the most attractive Dividend Aristocrats for long-term dividend growth investors.
Want to see my most recent dividend investment? Check out why I bought Wells Fargo stock last month. It’s not a Dividend Aristocrat but it still has a good track record of rewarding shareholders.