Investing in dividend aristocrats can be an important strategy for investors seeking reliable income. These companies offer a combination of consistent dividend growth, stability, and capital appreciation potential, making them valuable additions to a long-term income-focused investment portfolio.
Given this backdrop, investors could consider buying dividend aristocrats such as Automatic Data Processing, Inc. (ADP), Target Corporation (TGT), Kimberly-Clark Corporation (KMB), and Genuine Parts Company (GPC) for reliable income.
At the start of this year, it was anticipated that cooling inflation would compel the Federal Reserve to cut interest rates this year. Now, the situation is such that there might be no cuts this year at all. Fed governor Michelle Bowman stated that there are still “upside inflation risks,” which might mean elevated interest rates stay in place for longer than expected.
Given this volatile market backdrop, investors might be looking for a steady income stream from their investments.
Dividend aristocrats are companies that have a track record of consistently increasing their dividend payouts for at least 25 consecutive years. This provides investors with stable income and potential for capital appreciation, even during times of market volatility.
By investing in these companies, investors can benefit from regular dividend income and the potential for long-term capital growth, making them an attractive long-term investment option. Moreover, they span a wide range of industries, providing investors with the opportunity to diversify their income sources by reducing risk against downturns.
Considering these conducive trends, let’s examine the fundamentals of the four featured dividend aristocrats.
Automatic Data Processing, Inc. (ADP)
ADP provides cloud-based human capital management solutions worldwide. It operates in two segments: Employer Services and Professional Employer Organization (PEO).
ADP has been paying dividends to its shareholders for the past 48 years. Its annualized dividend of $5.60 per share translates to a dividend yield of 2.25% on the current share price. Its four-year average yield is 2%. Over the past three and five years, ADP’s dividend payments have grown at CAGRs of 13.8% and 12.2%, respectively.
ADP’s trailing-12-month levered FCF margin of 25.48% is 301.1% higher than the industry average of 6.35%. Its trailing-12-month Return on Common Equity and Return on Total Capital of 88.92% and 40.65% are 604.3% and 468.7% higher than the industry averages of 12.63% and 7.15%, respectively.
ADP’s total revenues for the fiscal third quarter that ended March 31, 2024, increased 6.6% year-over-year to $5.25 billion. Its adjusted EBIT rose 12.1% from the year-ago quarter to $1.54 billion. Moreover, its adjusted net earnings stood at $1.19 billion, up 13.2% from the prior-year quarter. Also, its adjusted EPS grew 14.3% year-over-year to $2.88.
Analysts expect ADP’s revenue and EPS for the quarter ending June 30, 2024, to increase 5.9% and 9.1% year-over-year to $4.74 billion and $2.06, respectively. The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past year, the stock has gained 16.2% to close the last trading session at $248.40.
ADP’s POWR Ratings reflect its positive prospects. It has an overall B rating, which is equivalent to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ADP has a B grade for Stability and Quality. Within the B-rated Outsourcing - Business Services industry, it is ranked #19 out of 41 stocks. Click here for the additional POWR Ratings of ADP (Growth, Value, Momentum, and Sentiment).
Target Corporation (TGT)
TGT operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as jewelry, accessories, shoes, beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
On June 25, 2024, TGT announced its biggest sale of the season, Target Circle Week, from July 7-13, featuring savings on summer and back-to-school essentials. TGT will deliver more deals for members of Target Circle, including deep discounts, personalized Target Circle bonuses to put toward top summer finds, hot prices on everyday items, and early savings on back-to-school and college essentials.
On June 24, 2024, TGT partnered with Shopify to expand its digital marketplace, Target Plus, offering a curated selection of Shopify merchants' products online and, soon, in-store, providing consumers with more affordable and quality options. TGT also became the first mass retailer to work with Shopify to bring select merchants' products into its physical stores, offering shoppers new brands to discover.
TGT has been paying dividends to its shareholders for the past 55 years. Its annualized dividend of $4.48 per share translates to a dividend yield of 2.99% on the current share price. Its four-year average yield is 2.19%. Over the past three and five years, TGT’s dividend payments have grown at CAGRs of 17.4% and 11.4%, respectively.
TGT’s trailing-12-month asset turnover ratio of 1.99x is 137.1% higher than the industry average of 0.84x. Similarly, its trailing-12-month Return on Total Capital and Return on Total Assets of 11.36% and 7.49% are 65.3% and 62.8% higher than the industry averages of 6.87% and 4.60%, respectively.
For the fiscal first quarter that ended May 4, 2024, TGT’s total revenue stood at $24.53 billion. Its EBITDA increased 1.3% year-over-year to $2.04 billion. For the same quarter, its net earnings and adjusted earnings per share amounted to $942 million and $2.03, respectively.
Street expects TGT’s EPS and revenue for the quarter ending July 31, 2024, to increase 21.8% and 1.7% year-over-year to $2.19 and $25.19 billion, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 30.7%, closing the last trading session at $146.77.
TGT’s strong fundamentals are reflected in its POWR Ratings. Its overall rating is B, equating to Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Quality. It is ranked #22 out of 36 stocks in the A-rated Grocery/Big Box Retailers industry. Get TGT’s Growth, Stability, and Sentiment ratings here.
Kimberly-Clark Corporation (KMB)
KMB manufactures and markets personal care and consumer tissue products in the United States. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional.
On May 7, 2024, KMB’s Huggies launched the Skin Essentials diaper, which features the new, proprietary SkinProtect liner technology, leaves behind up to 5x less mess than ordinary diapers, and helps protect baby's skin against the top two causes of rash. The launch is expected to be a game-changer for the category.
On April 18, 2024, KMB’s Thinx launched styles featuring its new LeakSafe Barrier technology. The innovation offers all-day absorbency and is designed to prevent leaks for up to 12 hours. The patent-pending 4-layer gusset provides wearers with outstanding comfort and protection.
KMB has been paying dividends to its shareholders for the past 51 years. Its annualized dividend of $4.88 per share translates to a dividend yield of 3.49% on the current share price. Its four-year average yield is 3.45%. Over the past three and five years, KMB’s dividend payments have grown at CAGRs of 2.8% and 3.4%, respectively.
KMB’s trailing-12-month Return on Common Equity of 209.30% is considerably higher than the industry average of 11.23%. Its trailing-12-month EBIT margin and net income margin of 14.76% and 9.05% are 57.7% and 82.7% higher than the industry averages of 9.36% and 4.95%, respectively.
KMB’s net sales for the first quarter that ended March 31, 2024, stood at $5.15 billion. Its non-GAAP operating profit came to $898 million. In addition, its non-GAAP net income attributable to KMB and earnings per share came in at $681 million and $2.01, respectively.
For the quarter ending December 31, 2024, KMB’s revenue is expected to increase 1% year-over-year to $5.02 billion. Its EPS for the quarter ending June 30, 2024, is expected to rise 3% year-over-year to $1.70. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 15.2% over the past six months to close the last trading session at $138.42.
KMB’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to Buy in our proprietary rating system.
KMB has a B grade for Sentiment and Quality. It is ranked #6 out of 53 stocks in the B-rated Consumer Goods industry. Click here to see the additional POWR Ratings of KMB for Growth, Value, Momentum, and Stability.
Genuine Parts Company (GPC)
GPC distributes automotive replacement parts, as well as industrial parts and materials. It operates in two segments: Automotive Parts Group and Industrial Parts Group segments.
On May 29, 2024, GPC partnered with Altor Locks to make the ICON Trailer Lock available to customers around the world through their NAPA, Auto Accessories Garage, and other trusted brands. Altor chose to offer the Altor ICON Trailer Lock because no other lock on the market keeps trailers safer.
On May 1, 2024, GPC announced the acquisition of Motor Parts & Equipment Corporation (MPEC) for its U.S. Automotive business. The acquisition aligns with GPC’s initiative to own more NAPA stores in priority markets.
GPC has been paying dividends to its shareholders for the past 67 years. Its annualized dividend of $4 per share translates to a dividend yield of 2.82% on the current share price. Its four-year average yield is 2.60%. Over the past three and five years, GPC’s dividend payments have grown at CAGRs of 6.7% and 5.6%, respectively.
GPC’s trailing-12-month asset turnover ratio of 1.31x is 31.6% higher than the industry average of 1x. Likewise, its trailing-12-month Return on Common Equity and Return on Total Capital of 30.29% and 12.79% are 155.6% and 101.2% higher than the industry averages of 11.85% and 6.36%, respectively.
For the fiscal first quarter that ended March 31, 2024, GPC’s net sales increased marginally year-over-year to $5.78 billion. The company’s free cash flow stood at $202.62 million, up 85.2% from the year-ago quarter. Furthermore, its adjusted net income rose 2.3% and 3.7% from the prior-year quarter to $310.90 million and $2.22 per share.
Analysts expect GPC’s EPS and revenue for the quarter ending June 30, 2024, to increase 6.6% and 2.5% year-over-year to $2.60 and $6.06 billion, respectively. The company surpassed the consensus EPS estimates in each of the trailing four quarters. GPC’s stock has gained marginally year-to-date to close the last trading session at $139.10.
GPC’s robust prospects are reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system.
GPC has a B grade for Stability, Sentiment, and Quality. It is ranked #22 out of 61 stocks in the A-rated Auto Parts industry. Beyond what we stated above, we have also rated GPC for Growth, Value, and Momentum. Get all the GPC ratings here.
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ADP shares were trading at $238.62 per share on Wednesday afternoon, down $9.78 (-3.94%). Year-to-date, ADP has gained 3.61%, versus a 15.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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