Dividend Aristocrats are stocks in the S&P 500 Index that have grown their dividends for at least 25 consecutive years.
Most of these companies have achieved such long dividend growth streaks thanks to their strong business models, which are characterized by a meaningful business moat and resilience to recessions.
The following 3 Dividend Aristocrats are excellent considerations for buy-and-hold investors due to their long-term growth potential and lengthy dividend histories.
A O Smith (NYSE:AOS)
A O Smith is a leading manufacturer of residential and commercial water heaters, boilers and water treatment products. A O Smith generates two-thirds of its sales in North America, and most of the rest in China, whereas the rest of the world is just a small market for A O Smith.
A O Smith has raised its dividend for 30 years in a row, making the company a Dividend Aristocrat.
A O Smith reported its second quarter earnings results on July 23. The company generated revenues of $1.0 billion during the quarter, which represents an increase of 7% compared to the prior year’s quarter. Revenues were up by 9% in North America. The international business saw appealing growth in local currencies, but reported growth was impacted by forex rate movements.
A O Smith generated earnings-per-share of $1.06 during the second quarter, which was up 5% on a year over year basis. This was possible thanks to a combination of higher revenues and buybacks that reduced the share count, while margins were a bit of a headwind. A O Smith has reiterated its guidance for 2024.
The company is forecasting earnings-per-share in a range of $3.95 to $4.10, which reflects that management expects earnings-per-share to grow meaningfully this year. At the midpoint of the guidance range, earnings-per-share would be up 6% for 2024. Revenue is expected to increase by 3% to 5% this year.
Thanks to a healthy housing market in the U.S., the company has enjoyed consistent growth in the domestic market throughout most of the last decade. A O Smith’s sales performance was even more impressive in China, where sales have grown by ~20% per year on average during the last decade.
China’s huge population, its robust GDP growth, and the booming of its middle class are major tailwinds in this important market. In addition, thanks to the severe pollution of the country, the demand for air purifiers should remain strong as well.
Franklin Resources (NYSE:BEN)
Franklin Resources is a global asset manager with a long and successful history. The company offers investment management (which makes up the bulk of fees the company collects) and related services to its customers, including sales, distribution, and shareholder servicing. As of March 31st, 2024, assets under management (AUM) totaled $1.645 trillion for the $12 billion market cap company.
On July 26th, 2024, Franklin Resources reported third quarter 2024 results for the period ending June 30th, 2024. (Franklin Resources’ fiscal year ends September 30th.) Total assets under management equaled $1.647 trillion, up $1.9 billion sequentially, as a result of $3.0 billion of cash management net inflows, and a $2.1 billion of net market change, distributions, and other, partly offset by $3.2 billion of long-term net outflows.
For the quarter, operating revenue totaled $2.123 billion, up 8% year-over-year. On an adjusted basis, net income equaled $326 million or $0.60 per share, flat compared to Q3 2023. During Q3, Franklin repurchased 4.3 million shares of stock for $101.5 million. Franklin ended the quarter with $5.6 billion in cash and investments.
The biggest growth segment in the asset management industry is ETFs, which have much lower expense ratios than actively managed funds. Franklin’s actively managed funds have performed well, which serves as an advantage versus other active asset managers. BEN has aggressively made acquisitions in recent years to accelerate its growth.
Franklin Resources has been acquiring alternative AUM through purchases such as Legg Mason, Lexington Partners, and Alcentra. It also closed its acquisition of Putnam Investments on January 1, 2024. At the time, Putnam had $148 billion in AUM.
BEN stock currently yields 5.6%, making it one of the highest-yielding Dividend Aristocrats right now.
Pentair plc (NYSE:PNR)
Pentair plc operates as a pure-play water solutions company that operates in 3 segments: Aquatic Systems, Filtration Solutions, and Flow Technologies. Pentair was founded in 1966. Pentair has increased its dividend for more than four decades in a row, when adjusted for spin-offs, which makes Pentair a member of the Dividend Aristocrats.
Pentair reported its second quarter earnings results on July 23. The company was able to generate revenues of $1.1 billion during the quarter, which was 2% more than the company’s revenues during the previous year’s quarter, a result that beat estimates slightly. Core sales, which excludes the impact of currency rate movements, acquisitions, and dispossessions, were up 2% year over year as well, which was better than the core revenue growth rate during the previous quarter when core sales had declined by 1%.
Pentair recorded earnings-per-share of $1.22 for the second quarter, which was up 18% year-over-year. Pentair’s earnings-per-share beat the analyst consensus by $0.08. Pentair updated its guidance for the current year during the earnings report. For fiscal 2024, Pentair is forecasting earnings-per-share of around $4.25, which indicates a substantial profit increase versus 2023.
Pentair’s management believes that a long-term earnings-per-share growth rate of 10% is possible, but we are a bit more conservative. It is, we believe, realistic to expect a ~6% earnings-per-share growth rate from Pentair over the coming years. The company should be able to achieve this growth through a combination of rising revenues, which will be possible thanks to organic growth and acquisitions, and through tailwinds from margin expansion and share repurchases, which will lead to further declines in Pentair’s share count.
When we adjust for the spin-off of nVent, Pentair’s dividend growth track record remains intact. The payout ratio is not very high, which makes us believe that the dividend looks quite safe. Even a decline in earnings, such as the one during the last financial crisis would most likely not result in a dividend cut. PNR has increased its dividend for 49 consecutive years.
Disclosure: No positions in any stocks mentioned
