I’ll start by stating that any month is a great month to buy dividend aristocrat stocks. September is proving to be a volatile month in terms of economic headwinds posed by Covid-19. That has essentially been true for all of 2021, let’s hope 2022 is better.
But that volatility leaves investors searching for stability. That is of course where dividend aristocrat stocks come into the picture: Steady in the best of times and the worst of times.
We often come across the term “dividend aristocrats” while searching for general investment advice, but what exactly defines this class of stocks?
Most investors know that in order to make the cut, a stock has to have a track record of 25 straight years of dividend increases. In addition, those stocks also have to be members of the S&P 500. I’d venture to guess that most investors didn’t know that there are standards beyond that.
Dividend aristocrats must also meet a few other requirements including being valued at $3 billion or greater at the point of each quarterly rebalancing. On top of that, companies also have to record an average daily volume of $5 million for each trailing three month period at rebalancing. That means companies can and do fall off the list regularly.
In 2021 Carrier Global (NYSE:CARR), Otis Worldwide (NYSE:OTIS), and Raytheon (NYSE:RTX) were all removed from the list.
That should actually give confidence to investors because those that remain have dividend income and potential for capital appreciation. Let’s get into seven such picks right now.
- Amcor (NYSE:AMCR)
- Johnson & Johnson (NYSE:JNJ)
- Caterpillar (NYSE:CAT)
- Nucor (NYSE:NUE)
- Roper Technologies (NYSE:ROP)
- Chevron (NYSE:CVX)
- AbbVie (NYSE:ABBV)
Dividend Aristocrat Stocks for September: Amcor (AMCR)
Amcor, like almost all companies on this list, operates in an unsexy business: Packaging. Dividend aristocrats are generally old economy companies, so I won’t belabor the point.
The point here is that Amcor provides packaging solutions across many markets: Beverages, food, healthcare, home care, personal care, pet care, specialty cartons, and technical applications.
Let’s look at some metrics that matter to dividend investors. In particular, let’s look at Amcor’s growth and its dividend.
The company’s most recent dividend of 11.8 cents provides a yield of 3.67%, that’s relatively high among the dividend aristocrats. The other thing to note about Amcor is that the AMCR stock has appreciated in price by 9.2% year-to-date. That’s a much higher return than you’ll receive on bonds or a savings account, and quite good in any case.
Factor in an annualized dividend of 47 cents and that return rises even further. That’s the point with Amcor and the rest of the dividend bearing stocks on this list: Steady, reliable returns around 10% with all factors accounted for. That isn’t an easy feat to achieve even chasing growth stocks. And it’s much, much safer and more reliable.
The good news is that Amcor is anticipating further growth. Per its most recent earnings report: “Fiscal 2022 outlook: Adjusted EPS growth of 7-11% on a comparable constant currency basis and Adjusted Free Cash Flow of $1.1-$1.2 billion. Allocating approximately $400 million of cash towards share repurchases.”
Johnson & Johnson (JNJ)
Johnson & Johnson is likely the company on this list with the most attention on it. That is of course attributable to its role in the ongoing pandemic.
The most recent news on that front relates to Covid-19 vaccine booster shots. Officials representing the Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX) vaccine, the Moderna (NASDAQ:MRNA) vaccine, and Johnson & Johnson’s vaccine are all seeking FDA approval for their vaccines as booster shots.
It is very likely that approval for all three vaccine booster shots will be authorized by mid-September.
That should mean increased revenue at Johnson & Johnson from its pharmaceutical arm, the Janssen subsidiary.
At this point, it’s almost a foregone conclusion that the JNJ vaccine will be approved as a booster shot. Beyond that, though, investors simply have a reputable dividend stock in Johnson & Johnson.
The stock’s yield is 2.44% and recently increased from $1.01 to $1.06. So investors can count on between 2% and 3% return from its dividend. JNJ stock has also appreciated in price by 10% YTD, which only helps its appeal.
Dividend Aristocrat Stocks for September: Caterpillar (CAT)
Caterpillar is a heavy equipment company, so it’s primed for success with the recent passing of the $1 trillion infrastructure plan in the U.S. Senate. A recent Wall Street Journal article summed up the idea through its title: “Ride the Global Construction Boom with Caterpillar.”
The article notes that Caterpillar should benefit from a cyclical recovery as the “developed world appears poised to embark on a multiyear construction binge.”
Countries are utilizing the current low interest rate environment to undertake these large projects. In the U.S. the $1 trillion infrastructure bill is moving its way through both houses of Congress and is one of few projects with bipartisan support. That all bodes well for Caterpillar of course.
With Caterpillar, investors get a dividend bearing a 2.1% yield and a stock which has been appreciating in price. Year-to-date, CAT stock is up 16.4%. However, analysts believe there is further growth ahead based on their target stock prices.
Their consensus target stock price is $233.49, 10.2% above current levels. That’s a nice return to aspire to and there’s safety even if it doesn’t quite reach those levels.
Let’s begin by discussing Nucor’s price appreciation this year because it’s been quite phenomenal. In 2021 alone NUE stock has increased in price from $52 to $120. That’s exceptional for any class of stock, and unheard of among the dividend class.
Based on analyst sentiment, Nucor has plateaued and should trade in its current range for the foreseeable future. The high analyst price is $142, but that should be taken as an outlier.
The good news is that Nucor’s forward price-to-earnings (P/E) ratio of 6.66 looks to be below the forward P/E ratio of the broader steel industry at 17.02. That suggests value following its massive rise.
The stock provides a modest yield of 1.34%, which of course increases return.
And Nucor certainly has room to grow. It recently completed a $370 million purchase of Hannibal Steel on Aug. 23. And there’s plenty of growth left in the steel industry. Steel prices are up 87% this year, hitting $1,900 a ton.
Analysts believe that those price levels will persist for some time. Nucor will benefit handsomely should that prove true.
Dividend Aristocrat Stocks for September: Roper Technologies (ROP)
Roper Technologies is an under the radar business in the sense that it isn’t a household name. The company was recently mentioned in a Barron’s article discussing the importance of water as both a resource and an asset class. It mentioned Roper Technologies in relation to the company’s water metering solutions, but the company operates across multiple industries and services.
Roper Technologies sells software, analytics, measurement and process technology solutions across lots and lots of verticals. The business isn’t likely to appear attractive to outsiders, but growth is clearly there.
While Roper Technologies’ dividend only provides a 0.47% yield, the stock itself has appreciated at a healthy pace. Year-to-date it has risen by 12%. That’s part of a broader trend over the past few years.
ROP stock has steadily increased from under $300 to near $500 within the last 3 years. There’s no indication that the company will increase its dividend drastically anytime soon, but it could if it chose to: Its dividend payout ratio is 0.22 and anything up to 0.50 is considered very sustainable.
Big Oil stocks are becoming less and less of a fixture on the dividend aristocrat list. Royal Dutch Shell (NYSE:RDS.A, NYSE:RDS.B) famously cut its dividend for the first time since World War II in April of last year.
Some have speculated that Exxon Mobil (NYSE:XOM) could be next. Chevron, though, has continued, raising its dividend from $1.29 to $1.34 back in May. That equates to a strong 5.45% yield for the stock. It must be noted that questions regarding the sustainability of Chevron’s dividend persist as well. CVX stock certainly carries a bit of risk due to that.
That dividend payout ratio is 2.79 meaning that Chevron is paying $2.79 in dividends for every $1 of net income. As you can imagine, that isn’t something a company can sustain in the long run.
The hope is that the metric will fall as business normalizes for Chevron. If the economy rebounds, more people will be driving and Chevron will benefit. That could mean that CVX stock will approach the $124.40 target price analysts have assigned to it. In that case, everything will be going better for the company and dividend worries will likely have subsided.
Dividend Aristocrat Stocks for September: AbbVie (ABBV)
AbbVie has multiple factors working in its favor as a stock: It has shown strong growth YTD, it bears a strong dividend and it is well regarded. Those are among the reasons that it ends this list of dividend aristocrat stocks to buy in September.
Year-to-date, ABBV stock has increased from $105 to $120. It also bears a dividend yield of 4.31% which well exceeds returns from many assets by itself. Finally, analysts have it rated overweight and see it rising to $127.30 per share.
AbbVie reported strong revenue growth in its latest earnings report. The $13.959 billion it recorded in revenues in Q2 worldwide represented an increase of 33.9%
The hope is that with Humira sales slowing somewhat, the company can replace them with drugs including Skyrizi. Overall the company has managed to improve its sales so the issues look to be well under control.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.