The ranking of the top 10 Dividend Aristocrats to buy today, is based on expected annual returns through 2026, so their 5 years future total returns. These top 10 stocks represent attractive long-term buys for dividend growth investors.
Estimating the expected 5 years future total returns are based on two main components for dividend growth stocks:
- Dividend yield
- Change in share price
The change in share price often comes from dividend growth which is mainly driven by earnings per share growth and the difference between the share price and the fair value. The expected price-to-earnings ratio over the next 5 years or the average dividend yield over the last 5 years is often used to estimate the change in the share price. The assumption made is that the share price will return over time to this average value.
To estimate the future total return the following values are added together:
- Estimated EPS growth next 5 years, as an indicator for the average dividend growth
- Average dividend yield, assuming
- Extra return due to over/undervaluation
Factset reported that “During the second quarter, analysts increased earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median Q2 EPS estimates for all the companies in the index) increased by 7.3% (to $45.03 from $41.97) during this period. “. We saw a similar increase for the EPS for the next 5 years, which is a key variable to determine our top-10 for July. One reason could be that analysts may have been too aggressive in their downward revisions to EPS estimates during the H1-2020 at the peak of the COVID-19 lockdowns. By the end of 2020 and the first half of 2021, the analysts reversed course and started raising EPS estimates.
In determining the new top-10, we have included the latest EPS 5Y estimates. The table below lists the top-10 Dividend Aristocrats with the highest estimated future total return for the next 5 years (CAGR), the EPS estimate for the next 5 years, and the extra positive or negative return due to over/undervaluation. The dividend score is also a factor that should be considered when evaluating those dividend stocks.
Other Sources of Dividend Investment Ideas
The Dividend Aristocrats list is not the only way to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market on the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 year of dividend can be an list of inspiration.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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