In this article we analyze the list of stocks with the best dividend aristocrats according to hedge funds.
The appeal of dividend growth stocks is unmatched. For those looking to invest in dividend stocks, growth usually outweighs yield because they have produced consistent returns over the years. Dividend growth strategies are where Dividend Aristocrats stand out. Of the roughly 6,000 stocks listed on the NYSE and NASDAQ, only 67 companies deserve the title of Dividend Aristocrats. These companies have consistently increased their dividend payouts for at least 25 years in a row. They are part of the broader market and are tracked by the Dividend Aristocrat Index.
Also read: The 10 best dividend paying stocks under $50
Companies that regularly increase their dividends tend to demonstrate strong financial health and stability, indicating their consistent profitability. A report from Fortune highlighted that the Dividend Aristocrat Index, despite lagging its benchmark, has outperformed nearly all active U.S. managers over the past decade. Rupert Watts, head of factors and dividend indexes at S&P Dow Jones Indices, discussed dividend growth strategies with the global media organization. Here’s what the analyst said:
“Increasing dividends for more than 25 years is no easy task. These are high-quality companies.”
Dividend Aristocrats have produced impressive returns and outperformed other asset classes. Since the index’s inception in 2005 through September 2023, the Dividend Aristocrats Index has produced a total return of 10.35%, outperforming the broader market’s return of 9.54% for the same period. These stocks are celebrated not only for their dividend growth and steady price gains, but also for their lower volatility. During this period, Dividend Aristocrats had a volatility of 15.35%, compared to the market’s slightly higher 16.31%. This suggests that Dividend Aristocrats tend to have more stable price movements. Their consistent dividend increases over 25 years or more demonstrate their ability to reward shareholders even during difficult times, such as the 2007 financial crisis and the 2020 pandemic.
The debate between high yields and dividend growth continues. As of August 19, the High Dividend ETF, which tracks high-yielding companies in the broader market, offers a dividend yield of 4.18%. This yield would have been quite attractive to investors in the past. However, this year the ETF has only returned 4.8%, compared to the market return of 18%. According to FactSet, investors have withdrawn over $1.1 billion from the fund, representing more than 15% of its $6 billion in assets. This suggests that investors prefer dividend growth over high yields, as high yields are often viewed as a sign of financial trouble. In this article, we take a look at some of the best Dividend Aristocrat stocks according to hedge funds.
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Our methodology:
For this article, we first listed all Dividend Aristocrats stocks – the companies with more than 25 years of consecutive dividend increases. We also measured hedge fund sentiment on each stock using Insider Monkey’s database of 912 funds (as of Q2 2024). We selected 10 Dividend Aristocrats stocks with the highest number of hedge fund investors.
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
10. Parker-Hannifin Corporation (NYSE:PH)
Number of hedge fund owners: 67
Parker-Hannifin Corporation (NYSE:PH) is an American manufacturing company based in Ohio. The company specializes in motion and control technologies. Despite challenges in the industrial sector this year, the company reported strong earnings in the fourth quarter of fiscal 2024. It achieved record revenue of nearly $20 billion, record adjusted segment operating margin up 200 basis points year-over-year, adjusted earnings per share growth of 18%, and record free cash flow of $3 billion. The company’s strong outlook for fiscal 2025 suggests a promising future and keeps the company on track to meet its fiscal 2029 financial targets.
In addition to its recent gains, Parker-Hannifin Corporation (NYSE:PH) has shown growth over the years. Over the past five years, the stock has risen over 270%, outperforming the broader market, which gained nearly 96% during that time period. The company also stands out as a strong dividend payer with notable cash flow generation. For fiscal 2024, the company reported a 20% increase in operating cash flow, reaching a record $2.1 billion, representing 14.6% of revenue, up from $1.8 billion, or 12.8% of revenue, a year ago. The company also delivered significant improvements in adjusted operating segment margins, with the Aerospace Systems segment performing exceptionally well. This strong performance contributed to record year-to-date operating cash flow. Looking ahead, the company expects free cash flow to grow by 50% and plans to double its dividend over the next five years, resulting in higher dividends for shareholders each year, which is expected to have a positive impact on the share price.
Parker-Hannifin Corporation (NYSE:PH), one of the highest dividend-paying stocks, announced a quarterly dividend of $1.63 per share on August 15, matching its previous dividend. Overall, the company has increased its payouts for 68 consecutive years. The stock’s dividend yield was 1.11% as of August 19.
At the end of the second quarter of 2024, 67 hedge funds tracked by Insider Monkey reported holdings in Parker-Hannifin Corporation (NYSE:PH), up from 63 in the previous quarter. These holdings have a total value of more than $2 billion. Among these hedge funds, Diamond Hill Capital was the company’s largest shareholder in the second quarter.
9. McDonald’s Corporation (NYSE:MCD)
Number of hedge fund owners: 67
McDonald’s Corporation (NYSE:MCD), an American fast-food restaurant company, ranks ninth on our list of best Dividend Aristocrats stocks.
A few years ago, McDonald’s Corporation (NYSE:MCD) benefited significantly from rising prices during the pandemic. However, the current situation is different as customers are now fighting back against the higher costs caused by inflation. In response, the company has extended its $5 meal promotion. McDonald’s management noted that consumer sentiment, especially among lower-income groups, remains weak in its key markets and people are very selective about their spending. It expects these difficult conditions to continue for several more quarters, suggesting that consumers are finally resisting the significant price increases in the fast-food industry over the past few years. The stock has fallen nearly 4% since the start of 2024 as the company faces some challenges due to ongoing geopolitical conflicts.
Carillon Tower Advisers also highlighted these issues in its Q1 2024 investor letter. Here is what the company has to say:
“McDonald’s Corporation (NYSE:MCD) faces several near-term headwinds. Lower-income consumers are more cautious about spending because they feel the cumulative impact of inflation more than higher-income consumers. As a low-price fast-food operator, McDonald’s has a customer base that is more likely to be made up of lower-income people. As an international company, McDonald’s is also feeling the negative impact of war and tensions in the Middle East, as well as weakness in China.”
McDonald’s Corporation (NYSE:MCD) showed signs of weakness in its second-quarter 2024 earnings report. Worldwide comparable sales declined 1.0%, with declines across all segments, and quarterly revenue was flat year-over-year. Despite these challenges, analysts were not overly critical of the company’s performance. Due to its size and scale, McDonald’s has significant room to adjust through its purchasing power and marketing strategies.
McDonald’s Corporation (NYSE:MCD) currently pays a quarterly dividend of $1.67 per share and has a dividend yield of 2.33% as of August 19. It is one of the best dividend stocks on our list as the company has consistently increased its payout for 67 years.
The number of hedge funds tracked by Insider Monkey owning shares in McDonald’s Corporation (NYSE:MCD) increased to 67 in the second quarter of 2024 from 63 in the previous quarter. The consolidated value of these shares is over $2.1 billion. With nearly 2 million shares, Viking Global was the company’s largest shareholder in the second quarter.
8. The Coca-Cola Company (NYSE:KO)
Number of hedge fund owners: 68
The Coca-Cola Company (NYSE:KO) is a Georgia-based multinational beverage company that sells a wide range of beverages, including nonalcoholic beverage concentrates and syrups. The company reported strong earnings in the second quarter of 2024. Revenue for the quarter totaled over $12.3 billion, up 3% from the same period last year. The company has grown over the years through strategic acquisitions, responding to changing consumer preferences moving away from sugary sodas. Over the past decade, the company has invested significantly in diversifying its product line. These efforts have enabled Coca-Cola to reverse a sharp decline in sales and grow net sales from $33 billion in 2020 to $46 billion in 2023.
Although The Coca-Cola Company (NYSE:KO) has a strong balance sheet and its earnings are good, the larger size of the company presents greater challenges. As of last quarter, the company had over $45 billion in debt and a debt-to-equity ratio of 1.64. Its liquidity position is strong, with operating cash flow of $4.1 billion in the second quarter of 2024 and free cash flow of $3.3 billion. The company remains committed to meeting its obligations to shareholders, but after covering its cash outflows, the ability to reduce its overall debt is limited. Nevertheless, the company has maintained a strong business and earnings over the years, which should help it gradually reduce its debt over time.
The Coca-Cola Company (NYSE:KO), one of the best Dividend Aristocrat stocks, has rewarded shareholders with dividend growth for 62 consecutive years. The company’s current quarterly dividend is $0.485 per share and has a dividend yield of 2.81% (as of August 19).
Insider Monkey’s database for Q2 2024 shows that 68 hedge funds owned shares in The Coca-Cola Company (NYSE:KO), up from 62 in the previous quarter. These shares are worth a total of nearly $32 billion. Warren Buffett’s Berkshire Hathaway owned the largest stake in the company, with 400 million shares.
