- The Dividend Aristocrats are a select group of currently 65 S&P 500 stocks with 25+ years of consecutive dividend increases.
- 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.
- Only Dividend Aristocrats with a Dividend Risk Score above 65 are included.
- 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
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.
To determine the valuation, we use the theory that for stable business dividend stocks, like the dividend aristocrats, their dividend yields tend to return to the historical average over time. In this case, a dividend stock is undervalued when the current yield is higher than the 5-year dividend yield average. In general, there could be two reasons for an above-average yield: the stock price is down, and/or the dividend has increased.
The dividend score is also a factor that should be considered when evaluating those dividend stocks. For the top-10 dividend stocks, we included only those with a Smart Dividend Score (SDS) above 65. The SDS scores range from 0 to 100. Of course, there are no guarantees when it comes to investing, but if a dividend stock scores over 60, it is an indication that the quality and the sustainability of the dividend are probably okay.
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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