3 dividend aristocrats to buy in June


Of Dogecoin For memes stocks, it can be easy to lose sight of the real headline – an economic recovery that’s happening sooner than many of us anticipated.

The industrial sector, hard hit by the pandemic, is starting to show signs of strength. However, there is still a lot of uncertainty about what exactly the new normal will look like, how people will adjust to return to the office, and the long-term effectiveness of COVID-19 vaccines. The Dividend Aristocrats, an elite race of S&P 500 members who have increased their dividends for at least 25 consecutive years offer a safer alternative to invest in an economic recovery than other more speculative assets. Some of our contributors have identified Stanley Black & Decker (NYSE: SWK), AO Smith (NYSE: AOS), and Illinois Tool Works (NYSE: ITW) like three of their favorites. Here’s why.

Image source: Getty Images.

Over 50 years of rising dividends

Lee Samaha (Stanley Black & Decker): Having paid a dividend for the past 144 years and increasing it for over 50 consecutive years, Stanley Black & Decker is a favorite among dividend investors. His dividend history is a testament to the strength of his business, and the good news is that it will grow stronger.

The company is capitalizing on the wave of DIY projects created by home care measures during the COVID-19 crisis. The boom in power tool sales linked to the pandemic came at the right time for the company. This has helped Stanley increase sales of brands purchased in recent years, including Craftsman, Irwin, and Lenox plumbing and power tools.

However, Stanley is more than just power tools. Its technical fasteners have an opportunity for long-term growth through their use in electric vehicles. For reference, the automotive industry is the most important end market in Stanley’s industrial segment. At the same time, its security segment will benefit from an increased awareness of the need for building security.

In addition, Stanley is poised to significantly increase sales in the lawn and garden product category. The company already owns 20% of outdoor lawn mower maker MTD, and management plans to take the option to purchase the remaining 80% in 2021. Plans are already underway to significantly increase MTD’s profit margin while integrating its outdoor products with Stanley’s existing lawn mower and leaves. blower offers.

All of this adds up to an impressive growth opportunity, and while Stanley’s dividend yield is currently just 1.3%, it’s a safe bet the company will increase it for many years to come. .

Forget the hard landing – getting into hot water can get you paid

Scott Levine (AO Smith): Find yourself standing in a steam shower or soaking in a hot tub at the end of a long day? You may have AO Smith to thank for this; the company is one of the world’s leading manufacturers of water heaters and boilers. But if you don’t rely on the company for hot water drops, buying shares in the company gives you the chance to enjoy a steady stream of dividends – and maybe a DRIP, too.

One of the most recent companies on the list of dividend aristocrats, AO Smith has increased its payouts for 27 consecutive years. Granted, the 1.5% forward dividend yield may not have spurred income investors, but the company’s unwavering dedication to rewarding shareholders deserves to be recognized as the stock – and its dividend. – have provided investors with above-market returns over the past decade.

AOS Total Return Price Table

AOS Total Return Price Data by YCharts.

Management’s cautious approach to the dividend suggests that investors don’t have to worry about being burned by the company’s over-ambitious approach to returning money to shareholders. Over the past 10 years, AO Smith’s payout ratio has averaged around 30%. Investors may find additional reassurance in the good financial health of the company, which suggests that the company is well positioned to maintain its investor-friendly dividend policy. Finishing the first quarter of 2021 in good financial health, AO Smith had net cash of $ 559 million.

While sales of water heaters in North America may decline in 2021, management anticipates growth in overseas markets, particularly China and India. As a result, the company is targeting revenue growth of around 14% in 2021. But it’s not just revenue that is expected to increase. AO Smith also forecasts an increase in EPS of around 23% year on year to reach around $ 2.60 in 2021.

For those looking to add nobility to their portfolio with AO Smith, today represents a great opportunity. Trading at 28.7 times earnings, the stock, after taking a quick peek at the valuation, may seem expensive considering its five-year average P / E ratio is 26.1 Dig deeper deeply, however, and investors will find that it’s not as expensive as it looks. . The stock is trading at 18.3 times operating cash flow, a discount from the five-year average multiple of 21.2.

At the top of his game

Daniel Foelber (Illinois Tool Works): Illinois Tool Works, commonly known as ITW, is one of those huge industrial conglomerates that you’ve probably never heard of but that surround our everyday lives. The company owns dozens of brands and manufactures just about everything from electronic components and automated systems used in heavy construction to food processing equipment. Over time, the company has consolidated its brands and streamlined its business operations to improve profitability. The strategy has been successful as ITW is now earning more net income with less income than in the past.

After a difficult 2020, the company is finally starting to see its business improve. Across its seven segments, all except automotive OEMs posted higher organic growth in the first quarter of 2021 than in the fourth quarter of 2020. The company’s revised forecast sets an attractive outlook for 2021 with a margin of operating between 25% and 26% and results in accordance with GAAP. per share (EPS) of $ 8.20 to $ 8.60. If achieved, ITW would record its highest operating margin and EPS in company history, with EPS growth of 9% over its pre-COVID EPS of $ 7.74.

Few industrial stocks are heading for a recovery as rapid as ITW. Strong profitability should support further dividend increases and share buybacks. ITW is only two years away from being crowned Dividend King. It would only be the fifth manufacturer to appear on the list.

The biggest red flag facing ITW is its valuation. If ITW hits the midpoint of its forecast, it would still have a forward P / E ratio of around 27, which is by no means cheap. However, ITW is at the top of its game, generating massive profits as it reap the benefits of its streamlined business model that has been built for years. With a dividend yield of 2%, ITW is a leading industrialist that deserves to be followed.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


About Catherine Wilson

Check Also

10 extremely undervalued dividend stocks to buy: Morningstar analysts

Dividend stocks have held up much better than growth stocks this year, according to Morningstar. …

Leave a Reply

Your email address will not be published.