3 Dividend Aristocrat Stocks to Buy That Can Beat the Market

Stocks to buy

When most investors think of Dividend Aristocrat stocks, their minds immediately go to the S&P 500. It’s the granddaddy of Dividend Aristocrat indexes. 

The S&P 500 Dividend Aristocrats are 68 companies from the S&P 500 that have increased their dividends annually for 25 consecutive years or more. It gets most of the media attention. 

If you go to the S&P Dow Jones Indices website, you’ll see 16 different indexes based on the Dividend Aristocrats theme. However, not all indexes have as strict criteria for inclusion as the original, so you’ll want to confirm this before seeking out an ETF to gain broad exposure to one or more of them.

However, because I’m selecting three Dividend Aristocrat stocks to buy, I will grab one name from the original, plus the S&P MidCap 400 Dividend Aristocrats and the S&P Global Dividend Aristocrats Quality Income Index.

Here goes. 

PepsiCo (PEP)

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Now batting for the S&P 500 Dividend Aristocrats is PepsiCo (NASDAQ:PEP), the beverage and snack food company. You might have heard of it.

As I mentioned in the intro, there are 68 holdings in the S&P 500 Dividend Aristocrats. PepsiCo recently announced that it would increase its annualized dividend by 10% to $5.06 a share with the June 2023 payment. It is the company’s 51st year of increasing its dividend, making it a prime candidate to be among the top choices for Dividend Aristocrat stocks. 

Interestingly, PEP has a reasonably high dividend yield at 1.63%, 102 basis points higher than the average dividend yield of the S&P 500. Moreover, over the past five years, PEP stock has taken the index to the cleaners, delivering a 96% return, 78% higher.

The company’s Frito-Lay business has been a big reason for the stock’s above-average growth over the past five years. In 2022, it had $23.3 billion in revenue, accounting for 27% of its overall revenue. In 2017, Frito-Lay generated 25% of its $63.5 billion in revenue, or $15.9 billion, a compound annual growth rate of nearly 8%. 

However, Frito-Lay generated 44% of the company’s operating profit in 2022, 200 basis points higher than five years earlier. 

As the snack food business goes, so goes PepsiCo.

Evercore (EVR)

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I selected Evercore (NYSE:EVR) for the S&P MidCap 400 Dividend Aristocrats. To make it into this club, a company has to be a constituent in the S&P MidCap 4oo Index and have increased the dividend for 15 consecutive years or more.   

Evercore is an investment bank based in New York. On April 26, It increased its dividend by 6% to 76 cents a share—the annualized rate of $3.04 yields a healthy 2.8%. The company has increased its dividend every year since 2007

Over the past five years, it’s paid out $582 million in dividends and repurchased $1.96 billion of its stock. In Q1 2023, it repurchased $285 million of its stock while paying out $43 million in dividends. In 2021, it repurchased $721 million of its stock at an average price of $132.10. However, it has yet to generate a positive return on its share repurchases.     

EVR’s 10-year total return exceeded the S&P 500 by 32%. 

Given the state of the IPO market, it’s incredible that it could make any money in Q1 2023. However, its operating income was $107 million on $572 million in revenue, close to a 20% operating margin.

Universal Corp. (UVV)

Source: Shutterstock

The final selection is Universal Corp. (NYSE:UVV). It’s part of the S&P Global Dividend Aristocrats Quality Income Index. To make it into the index, it must be a constituent of the S&P Global BMI and have increased its dividend for 10 consecutive years. It’s the least strict of the bunch.

Universal was founded in 1918. It is one of the world’s leading leaf tobacco suppliers. In addition, it has a long history of returning value to shareholders through dividends and share repurchases. 

The company’s capital allocation strategy is pretty simple. It’s based on four key ideas: 1) Continue to invest in its leaf tobacco business to enable it to keep growing, 2) increase its strong dividend, 3) explore new growth opportunities in its plant-based ingredients platform, and 4) return excess capital through share repurchases. 

It has increased its dividend for 52 consecutive years. It will report its Q4 2023 results on May 24. When it does, it will announce a 53rd successive year increasing its dividend. It currently yields 6%. 

In the first nine months of the fiscal year, it increased its revenues by 29% to $1.88 billion. On the bottom line, it had an operating income of $128.7 million, 25% higher than a year earlier. In addition, its tobacco and plant-based ingredients operations increased sales by more than 20%.  

A wise move with this stock is to buy shares in the $40s. Since 2000, it’s rarely traded in the $30s.

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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