Dividend Aristocrats are generally phenomenal sources of dependably increasing income for long-term oriented investors. As companies that have increased their dividends for at least 25 consecutive years, they have proven to have durable business models that can weather all kinds of macroeconomic and geopolitical stressors while also being skilled capital allocators that balance long-term growth and competitive viability with returning ever-increasing amounts of capital to shareholders.
For these reasons, Dividend Aristocrats are a great place to start a search for attractive additions to a dividend growth portfolio.
Here, we will cover three freshly minted Dividend Aristocrats that could provide attractive long-term income growth for investors.
With a Dividend Record Like This, It's Got to Be Good
J.M. Smucker ( SJM) operates in the packaged food and beverages sector and owns well-known brands including Smucker's, Jif, and Folgers. Furthermore, it also owns a pet food business with popular brands like Milk Bone and 9Lives.While it isn't in a fast-growing industry, Smucker still has several levers to pull to drive long-term growth. These include acquisitions of smaller businesses that benefit enormously from the synergies that come with Smucker's business network and economies of scale. One of the success stories is Big Heart Pet Brands back in 2015, which gave the company access to the pet food market.
Another growth lever is price increases. The reason this lever is so powerful is because it does not require any further market-share gains and simply leverages the brand power and customer loyalty that it already enjoys.
Last but not least, Smucker has shown a willingness to buy back stock opportunistically. This can also boost earnings per share and enhance the compounding of long-term returns for shareholders without needing to gain market share or raise prices.
Thanks to these initiatives, we expect the company to drive solid 5% average annual EPS growth over the long term. We have confidence in the long-term competitive viability of the company because it possesses significant economies of scale and brand power in the segments it operates in. It's brands have proven to be well received and loyally purchased by customers, enabling it to pass on inflationary forces to its input costs over time without threatening market share. It's growing economies of scale enable it to drive growth via accretive acquisitions and increasing margins.
Furthermore, the company has proven to be very recession resistant as its products are generally considered essentials rather than discretionary. In fact, during the last major recession, the company saw its EPS increase every year from 2007 to 2010.
Keep on Truckin' With This New Aristocrat
C.H. Robinson Worldwide (CHRW) operates in the transportation industry, offering mission-critical logistics solutions that generate stable performance for the company and drive consistently growing dividend income for shareholders.
It provides multimodal transportation services and third-party logistics to clients, from freight transportation and transportation management to brokerage and warehousing. These modes of transportation include truckload, air freight, intermodal, or ocean transportation, giving it a wide range of resources to serve virtually any client in any part of the world.
It's Freight & Logistics brokerage services are capturing a growing share of the U.S. freight market, and should continue to serve as a growth driver for the company moving forward. This trend should only accelerate given that the industry has been shifting away from asset-based trucking companies to brokers like C.H. Robinson.
Another tailwind for the company's growth is its extensive investment in its digital infrastructure, optimizing and accelerating its scaling process. For example, C.H. Robinson is now able to provide more advanced and user-friendly products, features and insights to clients, which is something that few of its rivals can match. With economies of scale as vast as theirs, harnessing digital and data-driven technology will only compound its competitive position.
As a result of these competitive advantages, we anticipate the company generating fairly stable EPS during a recession and -- when combined with its low payout ratio -- should result in continued dividend per share growth for many years to come. We also expect the company will be able to grow its EPS at a 4% annualized rate over the next half decade, further enhancing dividend per share growth.
Catalysts for Long-Term Growth
Nordson Corp. (NDSN) is a truly global giant in its industry with a presence in over 35 countries. It engineers, manufactures, and markets products used for dispensing adhesives, coatings, sealants, biomaterials, plastics, and other materials, with applications ranging from diapers and straws to cell phones and aerospace.
It enjoys numerous catalysts that should drive long-term growth of the company along with it a steady stream of growing dividends for shareholders. For instance, it's best-in-class technology makes its products very attractive to customers because it helps them to optimize productivity, reduce costs, and enjoy access to customer service across the globe.
Furthermore, Nordson's growth profile is enhanced by the growing demand/need for disposable goods, productivity investments, mobile computing, medical devices, and lightweight/lean vehicles which bode well for demand growth across its product offerings. As a result, we expect the company to grow EPS at a 4% annualized rate over the next half decade through combination of organic revenue growth, continued modest margin expansion, and strategic acquisitions.
We also see the company's global presence as giving it many potential options to drive further growth by uncovering new attractive markets in which to grow market share by leveraging its economies of scale, business network, and superior technology.
It is important to keep in mind, though, that Nordson is not entirely immune to macroeconomic and geopolitical disruption. While its moat is quite strong and its payout ratio is very low, during the Covid-19 outbreak its EPS declined by nearly one-third. That said, the next year EPS rebounded to set new all-time highs and Nordson has continued its relentless growth streak since then.
Final Thoughts
Dividend Aristocrats like J.M. Smucker, C.H. Robinson, and Nordson have proven to be effective long-term compounders of shareholder wealth and dividend income.
With economic and geopolitical uncertainty soaring at the moment, now maybe a good time to consider adding some stocks like these to your portfolio.
