3 Top Dividend Aristocrats to Buy in December

By Dan Caplinger, Sean Williams, and Matthew DiLallo Markets Fool.com

Income investors know how important consistent growth in payouts can be, and the dividend stocks that you'll find among the dividend aristocrats are among the best in the business at providing dividend growth. With requirements of at least a quarter-century of annual payout increases, dividend aristocrats prove their success through good times and bad. Let's take a closer look at why Medtronic (NYSE: MDT), 3M (NYSE: MMM), and Enbridge (NYSE: ENB) are among the top dividend aristocrats to buy this month.

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Wall Street's earnings overreaction makes this aristocrat a bargain

Sean Williams (Medtronic): I don't believe there's a dividend aristocrat more deserving of a deeper dive in December than medical-device giant Medtronic.

Medtronic's second-quarter earnings report was a bit rough around the edges -- there's no two ways about it. The company's sales improved 3% on a constant-currency basis, and its adjusted EPS grew by 9%. Despite a $0.01 EPS beat, revenue fell $110 million short of estimates, which the company blamed on a delay in some new product launches, and its full-year EPS forecast of $4.55 to $4.60 in EPS was below the Street's consensus of $4.65. Medtronic also anticipates a negative foreign currency effect of $0.20 to $0.22 per share for fiscal 2017.

But the important thing to remember is that much of Medtronic's weakness is mostly temporary, or should be ignored by smart investors. For example, Medtronic's 3% sales growth and 9% adjusted profit growth is great news for a medical-device company of its size. While currency moves can affect the surface-scratching revenue and profit figures, we're more concerned about the health of the underlying business, and to that end, things are going well on a constant-currency basis.

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In particular, Medtronic is beginning to see real benefits from its tie-up with Covidien. Being able to redomicile its headquarters in Ireland, a country with a very favorable corporate tax environment, didn't alter its tax rate all too much, but it will free up billions in capital that was being held overseas. Furthermore, it allows Medtronic the ability to better deploy its capital, with a goal outlined in 2014 of reinvesting $10 billion into research and development over the next decade. By next fiscal year, the combined entity could realize $850 million in cost synergies.

More recently, Medtronic also announced the approval of the first artificial pancreas, the MiniMed 670G. Through an attached sensor and an insulin pump, Type 1 diabetics will soon have a game-changing device at their disposal that can eliminate constant blood sugar tests while simultaneously reducing their chances of a hypoglycemic event. While not perfect, the MiniMed 670G could still generate blockbuster sales for the company.

Having raised its dividend in 39 consecutive years and averaged a compound dividend growth rate of 18% over that span, Medtronic does a good job of rewarding its shareholders. Yet with a payout ratio of just 40%, there's plenty of coverage for this dividend to head higher. Smart income investors would be wise to give Medtronic a closer look.

Put a yellow stickie on this stock

Dan Caplinger (3M): The industrial sector has been on fire since the election, and Dow component 3M is up almost 6% over the past month. Not all investors are convinced that 3M will thrive from anticipated boosts in infrastructure and construction, and fears of declining growth in sales of smartphones could hurt 3M's electronics segment. Yet throughout the course of its history, 3M has consistently found new ways to innovate, coming up with products in a wide range of different industry niches that have helped it find ways to grow over the long run.

From a dividend perspective, 3M at first glance looks rather ordinary, with a 2.6% dividend yield being slightly above what the typical Dow stock pays. But where 3M stands out is in its long history of dividend growth. As a dividend aristocrat, 3M has been increasing its dividend year in and year out for 58 consecutive years, with its most recent 8% boost coming early this year. The industrial conglomerate tends to raise its payout within the first two months of the year, making now a great time to anticipate a future increase. With earnings growth targets of as much 11% annually between now and 2020, 3M is setting its sights high to maximize its prospects going forward.

Unrivaled dividend growth

Matt DiLallo (Enbridge): Canadian oil pipeline giant Enbridge might not technically fit the official definition of a dividend aristocrat, given that it has grown its payout for "only" 21 straight years. However, not only is that an exceptionally long history of dividend growth, but the company has also delivered average compound annual dividend growth of 10.6% over the past two decades. That said, as excellent as Enbridge's dividend history might be, it is the company's future outlook that is even more impressive.

Enbridge is currently in the midst of an enormous expansion program that will transform it into the largest energy infrastructure company in North America. The biggest step will come in early 2017, when the company anticipates closing its $28 billion deal for U.S. natural gas pipeline giant Spectra Energy (NYSE: SE). Enbridge expects that the transaction will enable the company to boost the dividend by 15% in 2017. Further, the transaction will bolster Enbridge's growth project backlog to an industry-leading $20 billion, along with another $37 billion of projects in development. Those growth projects are expected to supply Enbridge with ample cash flow to deliver 10% to 12% annual dividend growth through 2024.

No energy company comes close to matching Enbridge's growth forecast. That's why investors seeking dividend growth should take a good look at Enbridge this December.

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Dan Caplinger has no position in any stocks mentioned. Matt DiLallo owns shares of Medtronic. Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Spectra Energy. The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.