Stocks that have paid dividends over long periods of time are often well-managed companies that run a good business and take a measure of care with their money. Even better are those that have consistently raised their payouts over the years, and that's where we find the Dividend Aristocrats, companies that have unfailingly raised their dividend every year for at least 25 years.
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Below are the top three Dividend Aristocrat performers from the S&P 500 -- they have outshined their counterparts over the last 10 years. While the pool of great stocks with a long history of increasing dividends -- American States Water, for example, is the reigning king of dividend-hiking stocks, with a record 62 straight years of increases, but it's not a member of the S&P 500 -- we're going to look only at the best that occupy the market index: McDonald's (NYSE: MCD), Hormel Foods (NYSE: HRL), and Sherwin-Williams (NYSE: SHW).
McDonald's (10-Year CAGR: 16.1%)
While the burger baron has had some operational issues over the past few years, McDonald's remains a top-performing Dividend Aristocrat because it is a business that consumers return to again and again.
Particularly during difficult economic times, people frequent McDonald's because of the good value it offers on quick, tasty food. In fact, most of the problems it's encountered seem to have been the result of forgetting where it came from, of trying to go more upscale when its customers were looking for basic meals. You can look at McDonald's as simply a defensive consumer staple stock.
More recently it has returned to its roots and responded to the demands of its customers, namely providing all-day breakfast, which helped break the cycle of falling comparable-store sales. CEO Steve Easterbrook has previously admitted the fast-food chain has been neglecting the value end of its menu and has vowed to remedy that.
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McDonald's currently pays a dividend of $3.76 that yields 2.4% annually. It has a track record of raising its payout for over 40 years, and even with a few stumbles here and there, there's no indication it won't continue to shine in the future.
Hormel Foods (10-Year CAGR: 17.2%)
Similar to McDonald's, meat-products maker Hormel Foods is a consumer staple that can perform well in good times or bad. While high-end grocery stores may suffer as a result of recessionary pressures causing customers to go downmarket, Hormel's line of products remains an affordable choice.
But for the company, "affordable" can work against it, too. In its fiscal second-quarter earnings report, Hormel said that turkey prices, particularly breast meat, were hurt because there is a massive oversupply in the market that's driven pricing to seven-year lows. The poultry industry, in general, is facing a glut following the avian influenza outbreak in 2015, which that saw tens of millions of birds killed off. Poultry producers bounced back faster than many anticipated, but demand has not followed quite so quickly, leading to the oversupply problems we are seeing now.
Hormel, however, can weather these short-term issues. The company distinguishes itself by making it to that rarified group of companies called Dividend Kings, stocks that have raised their payout for 50 years or more. Its dividend of $0.68 per share currently yields 2% annually, and the stock will likely rule for years to come.
Sherwin-Williams (10-Year CAGR: 19.1%)
The best-performing Dividend Aristocrat over the last decade is paint and coverings producer Sherwin-Williams, which has returned over 19% annually. Like the other two winners, it has the benefit of doing well in good markets and bad. When we're in the middle of boom times, commercial and industrial customers are expanding and need its products; when things turn south, customers tend to hunker down and favor sprucing up what they have over buying new. Sherwin-Williams benefits during both economic climates.
With its purchase of Valspar, the paint specialist is now the biggest coverings company in the world, giving it even greater reach. It also has the benefit of a network of company-owned stores that professionals trust and are loyal to.
Sherwin-Williams has raised its dividend every year since 1979; considering its premium position in the industry, its strong growth components, and its ability to weather storms and bright sunshine, there's no reason to think it won't continue to outperform the pack.
The only thing that might fade some income investors' enthusiasm for Sherwin-Williams stock is its dividend of $3.40 per share, yielding only 1% annually. Yet chasing yield is a fool's errand and can get investors into trouble. A better plan is to stick with a quality company with a proven track record, such as Sherwin-Williams, and accept safety, security, and growth potential.
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