They say that dividend investing is boring, and they are right. Investing isn't so much about doubling one's money in a short period—that's more like “betting.” Sure, many reliable dividend-paying companies are mature businesses, which means they don’t often experience the triple-digit growth of new, exciting startups.
However, that doesn’t mean that dividend investing should only focus on income. Getting above-average returns through dividend stocks is possible—you just have to pick the right ones.
How I Came Up With The Following Stocks
For this analysis, I’ll consider companies included in the vaunted Dividend Aristocrats list—those that are S&P 500 listed with more than 25 years of dividend increases.
The first step is to access my pre-prepared Dividend Aristocrat watch list from Barchart. Once there, I clicked “Screen” to access the Stocks Screener page, then used the following filters:
- 5-year percent change: This shows me how much a stock's price has increased over five years. I set it to 60% and above. The S&P 500 has an average return of about 10% per year, so I set the bar higher than that.
- Dividend payout ratio: Set to 50% and below. A company’s payout ratio has always been a good indicator of its ability to increase its dividend payments in the future—a key criterion for Dividend Aristocrats. For reference, healthy payout ratios range from 30% to 55%.
- Annual dividend yield: Left blank so that it appears in the search results.
- Current analyst rating: 4.5 to 5 (Strong Buy). I’m only scanning for Dividend Aristocrats at the top of analysts’ to-buy lists to support their attractiveness as a long-term investment.
After running the scan, I came up with four results. I then arranged the results from highest to lowest dividend yields and took the top three. So, let’s kick off this list with the top one:
Emerson Electric Company (EMR)
Emerson Electric Company is a well-known Dividend Aristocrat and King with 67 years of increases. The company provides engineering services across many industries and is also considered one of the leaders in automation solutions.
EMR stock has been up 68.53% in the last five years. That might not be as high as some Dividend Aristocrats over the same period. But, unlike them, EMR maintains a strong buy rating from multiple analysts, with some marking the stock as undervalued.
The dip in stock price could be related to management slightly lowering guidance for 2024. Year-end net sales were initially pegged to increase by 14% to 17% in Q1 2024, but its recent Q3 filing now shows a flat 15%. This, along with the sharp drop that most companies experienced this month, allows for a golden opportunity to snag this well-regarded Dividend Aristocrat for cheap.
Speaking of dividends, the company pays 52.5 cents per share quarterly, amounting to $2.10 on a forward annual basis and translates to a 2% yield based on current prices. However, note that the company has historically raised dividend payouts in Q4 so that value will likely increase. Emerson Electric's dividend payout ratio is only 39.45%, giving it ample headroom to increase dividends for the foreseeable future.
Walmart (WMT)
Retail giant Walmart is having an excellent run after breaking out of its resistance at around $70 and gapping up. Unlike most companies in the market, WMT stock is up roughly 9% over the last month despite the recent selloff a few weeks ago. Its 5-year return is an even rosier value at 98.81%.
Meanwhile, analysts are still optimistic about WMT stock. They rate it a strong buy on average and give it a high target price of $85, which suggests a 12% potential upside.
The company pays 84 cents per share annually, translating to a 1.10% yield. That might seem low; however, remember that Walmart has increased its dividends for 51 years straight, with its latest increase at 9% earlier this year.
John David Rainey, executive vice president, and CFO, says the increase “is the largest in over a decade, and a sign of our confidence in our growth potential and cash flow.”
Indeed, Walmart's cash flow for increased dividend payments doesn’t seem to be a problem, as its current dividend payout ratio is only 33.29%.
S&P Global (SPGI)
In all fairness, S&P Global has been on a generally upward trajectory for as long as I can remember. The premier financial intelligence and analytics company is up 87.50% from five years ago. Even more impressive, its 10-year return is at 518.78%.
Some might say that these excessive returns are a sign that the company has exhausted its bull run. However, the latest price movements and expert sentiments say otherwise. Analysts rate the stock as a strong buy with an average score of 4.84—the highest on this list.
To be completely transparent, SPGI isn’t exactly the go-to stock for dividend investors. The company currently pays $3.64 annually—a less-than-stellar 0.73% yield based on its current stock price. Still, it has a 25.07% payout ratio, which means dividend increases will most certainly be on the table for many years to come. Furthermore, its stable business model, reliable income streams, and optimistic views from experts and investors alike mean its bull run is far from over.
Final Thoughts
There’s no reason not to invest in dividend stocks while eyeing high potential returns. Just do your research, look at all available facts, and utilize resources like Barchart’s Watchlist and Screeners, and you should be able to land one or a couple of these high-return Dividend Aristocrats.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
