The Best Dividend Aristocrats of 2016
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Dividend investors love the dividend aristocrats because they have a long track record of sustained increases in their regular payouts. To become a dividend aristocrat, a company has to boost its dividend each year for 25 straight years, and that demonstrates an ability to weather the ups and downs of the economy and produce lasting growth. 2016 was a good year for dividend stocks generally, but some did better than others, and Nucor (NYSE: NUE), Illinois Tool Works (NYSE: ITW), and Sysco (NYSE: SYY) were among the best performers on the dividend aristocrat list. Let's take a closer look at how these three stocks did and whether they can sustain their upward momentum in the future.
NUE Total Return Price data by YCharts
Nucor steels its resolve
The top stock on the dividend aristocrats list for 2016 was Nucor, which has climbed 63% since the beginning of the year. The stock's bona fides as a dividend stalwart are impressive, with 44 straight years of dividend increases and a reasonably strong current yield of 2.4%. Just about the only mark against it as a dividend aristocrat is that its most recent dividend increases have been largely ceremonial. For instance, the payout Nucor will make in February will take the dividend up from $0.375 per share to $0.3775 per share, an increase of less than 1%. The stock has made similarly minimal increases every year since 2010, reflecting the overall weakness in the steel industry.
Nucor has had to deal with tough conditions in the global steel market that have hurt its overall prospects. But more recently, Nucor shares perked up following the U.S. presidential election, as investors increasingly believe that a firmer hand in dealing with trade partners could lead to more favorable conditions for U.S. steel producers like Nucor. Given Nucor's competitive advantages with its mini-mill production techniques and favorable relationships with customers and employees, improving conditions in the industry should indeed lead to more opportunities for the steel company to stand out from its peers and thrive.
Illinois Tool Works builds itself higher
Industrial stocks started the year slowly, and like Nucor, Illinois Tool Works lost ground in January as fears about the sustainability of economic growth in the U.S. weighed on investor sentiment. But after going through somewhat of a malaise in 2015, Illinois Tool Works rebounded quickly from its early year slump. The company has exposure to a wide variety of sectors ranging from food equipment and automotive original equipment manufacturing to welding and construction products. With most investors seeing prospects for construction-related industries improving in the wake of the election, Illinois Tool Works could be in a better position to do well going forward.
As a dividend aristocrat, Illinois Tool Works has 42 straight years of dividend increases, and its most recent boost in September was extremely large, sending the quarterly payout from $0.55 to $0.65 per share. A dividend yield of 2.1% isn't particularly remarkable, but it makes more sense when you consider that the share price has climbed by 150% just since mid-2012. Again, for a stock with single-digit earnings growth prospects, an earnings multiple above 20 looks a bit rich, unless the boost to industrials is stronger than expected.
Sysco feeds investors' appetites
Finally, Sysco has done very well in 2016, rising 38%. The stock carries a 2.5% yield, and it recently announced a new dividend increase that will add 6% to its payout, resulting in quarterly payments of $0.33 per share starting in January. The move marks the 47th straight year that the food services giant has rewarded shareholders with higher dividends.
Sysco has worked hard to keep growing, and recently, it has turned to the acquisition arena for good prospects. After failing to gain approval for a planned acquisition of US Foods, Sysco instead acquired European food distributor Brakes Group for $3.1 billion early this year. That buyout has helped juice Sysco's results higher this year, and greater optimism for the restaurant industry would be positive for the company as well.
Dividend aristocrats are generally strong stocks, but not all Dividend aristocrats are the same. These three companies have shown their mettle in 2016, and they have growth prospects that could well help carry them even higher in 2017 and beyond.
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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Illinois Tool Works and Nucor. 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.