Last week I warned Dividend Kings members that six factors could cause extreme volatility from March 14th through March 21st, and that's what happened.
Volatility can cut both ways, and last week the market soared 6%, staging its best five-day rally since November 2020.
Well, four of those six risk factors are still present, and we're not out of the woods yet.
However, the upside is that the world's highest quality blue-chips are still trading at attractive prices, including high-yield aristocrats that aren't just good buys, they are downright strong buys.
So let me show you why Philip Morris International (PM), 3M (MMM), V.F. Corp (VFC), Realty Income (O), and Enbridge (ENB), could be just what you're looking for right now.
Not only do these aristocrats offer a very safe 5% yield, but they are perfect for whatever is coming next for the economy, stock market, and interest rate in 2022 and beyond.
How To Find The Best Strong Blue-Chip Buys In All Market Conditions
We have over a dozen valuable tools to help you easily find the best blue-chips for your specific needs in all market conditions, as well tutorial videos on how to utilize them.
One of our members' favorite tools is the Automated Investment Decision Tool.
Based on the four priorities of all successful long-term investors, we've programmed this tool to instantly tell you how reasonable and prudent any potential investment is relative to the S&P 500.
Once you go to "file" and "make a copy" you have a personalized version of the tool and can change the tickers and sort the main tab of the tool.
You can also see how any combination of up to five companies works in a mini-portfolio bucket.
In this case, you can see that the risk-adjusted expected returns of these five high-yield aristocrats are about 10%, or 2X that of the S&P 500.
They represent a 16% discount to fair value (a potentially strong buy) and analysts expect 1/3 of your initial investment to be recouped in the first five years via dividends.
Basically, this group of aristocrats is as close to a perfect high-yield aristocrat investment as exists on Wall Street.
But how did I find these five names in particular?
On the main tab of the tool, you can sort by dozens of metrics, from investment decision score, to yield, to credit ratings and valuation ratings.
This is how in just minutes I was able to locate five-strong buy high-yield aristocrats that you can safely buy in this uncertain period of high market volatility.
5 High-Yield Dividend Aristocrat Strong Buys
Company Ticker Sector Country Dividend Withholding Tax Philip Morris International PM Consumer Staples US 0% 3M MMM Industrial US 0% V.F. Corp VFC Consumer Discretionary US 0% Realty Income O REIT US 0% Enbridge ENB Energy Canada 15% Average 3.00%
(Source: DK Research Terminal)
Here we have five aristocrats in five sectors from two countries.
Why these five in particular?
World-Class Quality You Can Trust
Company Quality Rating (out Of 13) Quality Score (Out Of 100) Dividend/Balance Sheet Safety Rating (out of 5) Safety Score (Out Of 100) Dependability Rating (Out Of 5) Dependability Score (out Of 100) Philip Morris International 13 90% 5 91% 5 89% 3M 13 92% 5 94% 5 88% V.F. Corp 13 98% 5 100% 5 100% Realty Income 13 85% 5 89% 5 83% Enbridge 13 84% 5 87% 5 85% Average 13.0 Ultra SWAN 89.8% 5.0 Very Safe 92.2% 5.0 Exceptional 89.0%
(Source: DK Research Terminal)
These aren't just safe aristocrats they are very safe Ultra SWAN aristocrats, the bluest of blue-chips and the safest of the safe when it comes to high-yield.
How safe are these dividends?
Approximate Dividend Cut Risk In Pandemic Level Recession 20% OR LESS Max Risk Cap Recommendation (Each)
Rating Dividend Kings Safety Score (149 Point Safety Model) Approximate Dividend Cut Risk (Average Recession) 1 - unsafe 0% to 20% over 4% 16+% 2- below average 21% to 40% over 2% 8% to 16% 3 - average 41% to 60% 2% 4% to 8% 4 - safe 61% to 80% 1% 2% to 4% 5- very safe 81% to 100% 0.5% 1% to 2% 5 High-Yield Strong Buy Aristocrats 92% 0.50% 1.40% Risk Rating Low Risk (76th industry percentile risk-management consensus) A- stable outlook credit rating 2.2% 30-year bankruptcy risk
(Source: DK Research Terminal)
In the average historical recession since WWII, the average risk of a dividend cut is 0.5%, and even in a Pandemic level recession its approximately 1.4%.
Company Payout Ratio Industry Safe Payout Ratio Guideline Debt/Capital Industry Safe Debt/Capital Guideline Philip Morris International 78% 85% 138% 60% 3M 60% 60% 50% 40% V.F. Corp 78% 60% 57% 40% Realty Income 76% 90% 38% 60% Enbridge 68% 83% 48% 60% Average 72.0% 75.6% 66.2% 52.00%
(Source: DK Research Terminal)
These are very safe dividends covered by cash flow.
Their balance sheets are stronger than they look.
- Elevated debt/capital is primarily a result of tobacco company buybacks
When a company buys back stock above book value it reduces shareholder equity and pushes up debt/capital.
- Shares that are repurchased sit on the balance sheet as treasury stock
- Which is primarily used for stock option compensation for employees
- It's treated as a liability
- In fact, it's an asset that can be sold to raise cash
Company Long-Term Risk Management Consensus Industry Percentile Risk-Rating Risk-Management Rating S&P Credit Rating 30-Year Bankruptcy Risk Philip Morris International 77% Low Good A 0.66% 3M 87% Low Very Good A+ 0.60% V.F. Corp 71% Low Good A- 2.50% Realty Income 58% Medium Average A- 2.50% Enbridge 87% Low Very Good BBB+ 5.00% Average 76.0% Low Good A- stable 2.3%
(Source: DK Research Terminal)
S&P estimates the average risk of default (bankruptcy) in the next 30-years at about 2.3%, which is why these aristocrats average an A- stable credit rating.
Six rating agencies estimate long-term risk-management in the top 24% of their industry peers, which means these Ultra SWAN aristocrats have proven management teams and corporate cultures that can adapt and overcome challenges that naturally arise over time.
Company Dividend Growth Streak (Years) ROC (Greenblatt) ROC Industry Percentile 13-Year Median ROC 5-Year ROC Trend (OTC:CAGR) Philip Morris International 52 198% 83% 170% 2% 3M 64 50% 86% 57% -2% V.F. Corp 50 82% 91% 54% 0% Realty Income 27 NA NA NA NA Enbridge 26 NA NA NA NA Average 43.8 110.0% 86.7% 93.5% 0.0%
(Source: DK Research Terminal)
Ben Graham considered a 20+ year dividend growth streak to be a sign of excellent quality, and that's backed up by historical data.
Companies that had 12+ year dividend growth streaks were far less likely to cut dividends during the pandemic and historically once a company achieves the Graham standard of excellence, dividend cut risk becomes minimal.
These Ultra SWAN aristocrats average a 44-year streak, more than 2X the Graham standard of excellence.
In fact, that 44 year-streak means the historical probability of these Ultra SWANs not raising their dividends each year is very close to zero.
Return on capital is annual pre-tax profit/operating capital (the money it takes to run the business). ROC is Greenblatt's gold standard proxy for quality and moatiness.
- S&P 500 ROC is 14.6%
- for each $1 it takes to run the average S&P company they generate $0.146 in annual pre-tax profit
- it takes about 6.5 years for new investments to pay for themselves
Greenblatt achieved 40% CAGR annual returns focusing purely on high returns on capital and valuation, and the average ROC for these aristocrats is 110%.
- $1.1 in annual pre-tax profit per $1 in operating capital cost
- the average invested dollar pays for itself in 11 months
- 7.5X higher quality than the average S&P 500 company according to one of the best investors in history
In fact, these companies' return on capital is in the top 14% of their peers, and has been rising over the last 13 years and stable over the last five.
- confirming a wide and stable moat
Ok, so now you can see why these are high-yield aristocrats you can trust to generate some of the world's most dependable income.
And here's why you might want to consider buying them today.
Wonderful Companies At Wonderful Prices
Company Discount To Fair Value PE/EBITDA/FFO 2021 Earnings Yield 2021 12-Month Consensus Total Return Potential 12-Month Fundamentally Justified Upside Total Return Potential Philip Morris International 11.9% 15.3 6.5% 25.7% 18.8% 3M 30.0% 14.3 7.0% 20.6% 46.9% V.F. Corp 24.6% 16.2 6.2% 33.1% 36.2% Realty Income 6.8% 17.1 5.8% 15.3% 11.6% Enbridge 5.7% 9.3 10.7% 5.1% 12.2% Average 15.8% 14.4 7.3% 19.9% 25.1%
(Source: DK Research Terminal)
These Ultra SWAN aristocrats are 16% historically, literally the mirror image of the 17% historically overvalued S&P 500.
Overvaluation (Blended PE) 25-Year Average Dividend Yield
Year EPS Consensus YOY Growth Forward PE Blended PE Overvaluation (Forward PE) 2021 $206.32 50.39% 20.7 21.4 20% 22% 2022 $225.15 9.13% 19.8 20.3 15% 15% 2023 $247.63 9.98% 18.0 18.9 5% 8% 2024 $274.54 10.87% 16.3 17.1 -5% -3% 12-Month forward EPS 12-Month Forward PE Historical Overvaluation PEG 25-Year Average PEG S&P 500 Dividend Yield $227.41 19.626 16.61% 2.31 3.62 1.44% 2.01%
(Source: DK S&P 500 Valuation And Total Return Tool)
Do you know the last time the S&P traded at 14.4X earnings?
- March... 2013
- not for nine years
Is it any wonder that analysts expect these high-yield aristocrats to deliver 20% total returns in just the next 12 months?
Of that, if they grow as expected and return to fair value within 12 months, 25% total returns (5% of which is dividends) would be 100% justified by fundamentals?
Could the S&P 500 deliver 25% returns in the next year? Sure. But not without flying off into a historic bubble that would almost surely result in a major bear market in the coming years.
These aristocrats could soar 25% in the next year and merely be back to fair value.
Long-Term Return Fundamentals That Can Help You Retire Rich And Stay Rich In Retirement
Company Yield FactSet Long-Term Consensus Growth Rate LT Consensus Total Return Potential LT Risk-Adjusted Expected Return Philip Morris International 5.3% 10.3% 15.6% 10.9% 3M 4.0% 8.0% 12.0% 8.4% V.F. Corp 3.5% 13.0% (management guidance) 16.5% 11.6% Realty Income 4.4% 5.2% 9.6% 6.7% Enbridge 6.1% 6.0% (management guidance) 12.1% 8.5% Average 4.7% 8.5% 13.2% 9.2%
(Source: DK Research Terminal)
These Ultra SWAN aristocrats offer not just a 5% yield, but one of the safest 5% yields on earth.
- junk bonds yield 4.2%, 0.5% less
- and junk bond average credit rating is "B" or 37% default/bankruptcy risk
Vanguard's high-yield ETF (VYM) yields 2.7%, or 1.5% less than these Ultra SWAN aristocrats.
And analysts (and management) currently expect them to deliver 8.5% CAGR long-term cash flow and dividend growth over time.
- FactSet S&P 500 consensus long-term growth rate: 8.5% CAGR
10 Year Inflation And Risk-Adjusted Return
Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return Long-Term Inflation And Risk-Adjusted Expected Returns Years To Double Your Inflation-Adjusted Wealth Safe Midstream 5.5% 6.0% 11.5% 8.1% 5.9% 12.3 1.77 5 High-Yield Aristocrat Strong Buys 4.7% 9% 13.2% 9.2% 7.1% 10.2 1.98 Realty Income 4.6% 5.2% 9.8% 6.9% 4.7% 15.4 1.58 Safe Midstream + Growth 3.3% 8.5% 11.8% 8.3% 6.1% 11.8 1.80 REITs 2.9% 6.5% 9.4% 6.6% 4.4% 16.4 1.54 High-Yield 2.8% 11.3% 14.1% 9.9% 7.7% 9.4 2.10 Europe 2.6% 12.8% 15.4% 10.7% 8.6% 8.4 2.27 Dividend Aristocrats 2.2% 8.9% 11.1% 7.8% 5.6% 12.9 1.72 10-Year US Treasury 2.2% 0.0% 2.2% 1.5% -0.7% -108.9 0.94 60/40 Retirement Portfolio 2.1% 5.1% 7.2% 5.1% 2.9% 24.9 1.33 Stanley Black & Decker 2.1% 10.0% 12.1% 8.5% 6.3% 11.4 1.84 Value 2.1% 12.1% 14.1% 9.9% 7.7% 9.3 2.10 REITs + Growth 1.8% 8.9% 10.6% 7.4% 5.2% 13.7 1.67 High-Yield + Growth 1.7% 11.0% 12.7% 8.9% 6.7% 10.8 1.91 Dividend Growth 1.6% 8.0% 9.6% 6.7% 4.5% 15.9 1.56 S&P 500 1.4% 8.5% 9.9% 7.0% 4.8% 15.1 1.59 Nasdaq (Growth) 0.8% 10.7% 11.5% 8.1% 5.9% 12.3 1.77
(Source: Morningstar, FactSet, Ycharts)
Analysts expect these aristocrats to deliver 13.2% long-term returns, better than the S&P 500, aristocrats, and even the Nasdaq.
In fact, adjusting for inflation, analysts think these Ultra SWANs could double your money approximately every decade.
Inflation-Adjusted Consensus Return Potential: $1,000 Initial Investment
Time Frame (Years) 7.7% CAGR Inflation-Adjusted S&P Consensus 8.9% Inflation-Adjusted Aristocrat Consensus 11.0% CAGR Inflation-Adjusted 5 Aristocrat Consensus Difference Between Inflation-Adjusted 5 Aristocrat Consensus And S&P 5 $1,449.03 $1,531.58 $1,685.06 $236.02 10 $2,099.70 $2,345.73 $2,839.42 $739.72 15 $3,042.53 $3,592.68 $4,784.59 $1,742.05 20 $4,408.74 $5,502.47 $8,062.31 $3,653.58 25 $6,388.41 $8,427.47 $13,585.46 $7,197.06 30 $9,257.02 $12,907.33 $22,892.30 $13,635.28
(Source: DK Research Terminal)
Over time these aristocrats could turn a modest investment into a small fortune.
Time Frame (Years) Ratio Aristocrats/S&P Ratio Inflation-Adjusted 5 Aristocrat Consensus and S&P 5 1.06 1.16 10 1.12 1.35 15 1.18 1.57 20 1.25 1.83 25 1.32 2.13 30 1.39 2.47
(Source: DK Research Terminal)
While potentially beating the S&P 500 by 150% and running circles around the aristocrats as well (the Nasdaq too).
Ok, so this is some very impressive math, but what proof do we have that these aristocrats can actually deliver anything close to 13% long-term returns?
Historical Returns Since 1995 (Annual Rebalancing)
The future doesn't repeat, but it often rhymes. - Mark Twain
Past performance is no guarantee of future results, but studies show that blue-chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion.
Over the last three decades, these aristocrats delivered 1900% inflation-adjusted returns, 2.5X that of the S&P 500.
The closest these aristocrats came to a lost decade was flat returns for five years.
- S&P 500 delivered -30% returns over 10 years...not adjusted for inflation
And take a look at the impressive income growth these aristocrats delivered.
Portfolio 1995 Income Per $1,000 Investment 2021 Income Per $1,000 Investment Annual Income Growth Starting Yield 2021 Yield On Cost 5 High-Yield Aristocrat Strong Buys $74 $1,676 12.75% 7.4% 167.6%
(Source: Portfolio Visualizer Premium)
13% long-term income growth turning a 7.4% starting yield in almost 170% yield on cost today.
What about future income growth?
Risk, Inflation, And Tax Adjusted Income Growth Consensus
Analyst Consensus Income Growth Forecast Risk-Adjusted Expected Income Growth Risk And Tax-Adjusted Expected Income Growth 11.9% 8.3% 7.1% 4.9%
(Source: DK Research Terminal)
Analysts expect this portfolio to deliver 12% long-term income growth, which adjusted for the risk of companies not growing as expected, inflation, and taxes are about 5%.
- S&P 500's historical inflation- and tax-adjusted income growth rate is 3%
- FactSet consensus for a 60/40's inflation and tax-adjusted income growth rate is 0.5%
- These high-yield aristocrats have 10x the real income growth potential of a 60/40 portfolio
Bottom Line: These 5 High-Yield Dividend Aristocrat Strong Buys Are Perfect For Whatever Is Coming Next From The Stock Market
Has the market bottomed already? Lipper Financial thinks it likely has, based on historical average declines and recent market sentiment.
Morgan Stanley thinks we're in a 20% bear market that still has a bit further to fall.
And JPMorgan thinks it could go either way depending on how the economy does for the rest of the year.
I'm not a market timer, I have no crystal ball.
I'm just a disciplined financial scientist who can tell you that Philip Morris, 3M, Realty Income, Enbridge, and V.F Corp represent five of the highest quality dividend aristocrats you can safely buy today.
- one of the safest 4.7% yields in the world
- A- rated balance sheet
- low-risk Ultra SWAN dividend aristocrat quality
- wide and stable moats
- 76th industry percentile long-term risk management
- 8.5% CAGR long-term growth consensus
- 13.2% CAGR long-term return potential vs 14.2% historical returns over the last three decades
In fact, with just two low cost ETFs you can turn these high-yield Ultra SWAN aristocrats into the Ultimate Sleep Well At Night Retirement Portfolio that can potentially help the typical retired couple
- generate an extra $1 million in inflation-adjusted retirement income over 30 years compared to a 60/40 retirement portfolio
- deliver $5 million more inflation-adjusted wealth over 30 years
- turn $555,000 in median retirement savings into almost $7.5 million inflation-adjusted wealth after 30 years
Are you're tired of fretting about the Fed, Putin, inflation, interest rates, or just this year's crazy volatility?
Then this is how you can stop praying for luck, and start making your own.
This is how you can stop gambling, and start taking charge of your retirement future.
This is how you can potentially retire in safety and splendor, no matter what the economy and stock market do in the coming years and decades.
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