3 High-Yield Dividend Aristocrats for 2022

We believe that investing in high-quality dividend stocks is the best way to accumulate wealth over the long-term. There are many ways to accomplish this, but identifying the best-of-the-best in terms of dividend longevity is a great place to start. The Dividend Aristocrats are a group of just 65 stocks that are components of the S&P 500, and have at least 25 consecutive years of dividend increases. This means they all have durable competitive advantages, as well as some measure of recession resistance. However, not all Dividend Aristocrats are created equal. Here we take a look at three that we believe offer superior potential returns in 2022. Cardinal Health Our first stock is Cardinal Health , an integrated healthcare services and products provider that operates globally. Cardinal provides a wide variety of services and products for hospitals, physicians, surgery centers, clinical labs, and consumers. Its Pharmaceutical segment provides branded and generic prescription and over-the-counter products, and pharmacy management services. The Medical segment manufactures, sources, and distributes private label products and devices for a wide variety of single-use applications. Cardinal was founded in 1979, employs about 47,000 people, generates $178 billion in annual revenue, and trades with a market capitalization of $14.5 billion. We see Cardinal producing 3% annual earnings per share growth for the foreseeable future, which is based on a combination of factors. Cardinal, like other companies involved in pharmaceuticals, faces nearly constant litigation threats. However, it is also seeing strong growth in generic pharmaceutical products, and it buys back a fair amount of its own stock. A small measure of revenue growth should help as well, so we're estimating what may be a conservative 3% growth rate from here. The shares trade at just 9 times earnings today, which is a meaningful discount to our estimate of fair value at 10 times earnings. That implies we could see a 2% tailwind to total annual returns from the valuation as it could rise to meet our estimate of fair value. Finally, Cardinal has always been a very strong income stock, and today is no different. The stock yields 3.8% at the moment, which puts it at roughly triple that of the S&P 500. When we combine the growth estimate of 3%, the valuation impact of 2%, and the yield of 3.8%, we arrive at a total return estimate for the next five years of more than 8% annually. International Business Machines Our next stock is IBM , an integrated computing solutions and services provider that operates globally. IBM offers a wide variety of computing services and products, including information computation and storage, analytics products, middleware and data platform software, blockchain, artificial intelligence computing, and more. IBM was founded in 1911, employs nearly 350,000 people worldwide, generates about $70 billion in annual revenue, and trades with a market capitalization of $120 billion. We estimate IBM's growth potential at 4% annually, but note that it has struggled in the past to generate growth because of the transformation it has undertaken. IBM was slow to react to the transition of IT services to the cloud, and has spent some years trying to catch up. That has hampered its growth, but it recently spun off its legacy operations into a new company called Kyndryl Holdings , which now trades on its own. This renewed focus on the growth areas of IBM should help it in the coming years, but we are taking a wait-and-see approach for now. IBM goes for just over 13 times earnings at the moment, which is ahead of our estimate of fair value at 11 times earnings. That implies a 3.5% headwind to total returns from the valuation as investors have bid up the stock following the Kyndryl spinoff. The stock hasn't lost its status as a strong source of income, however, as IBM currently yields 4.8%. That puts its yield at nearly four times that of the S&P 500, and helps drive the stock to 5%+ total annual returns in the coming years, as the valuation and growth prospects roughly offset each other. Chevron Corporation Our third stock is Chevron , an integrated energy and chemicals company that operates worldwide. Chevron's Upstream segment is involved in the exploration, development, and production of crude oil and natural gas, as well as transportation, storage, and marketing of those products. The Downstream segment refines crude oil into various products, including chemicals and lubricants, fuel additives, plastics, and more. Chevron was founded in 1879, having originally been part of Standard Oil before it was broken up. The company employs about 48,000 people worldwide, generates $158 billion in annual revenue, and trades with a market capitalization of $226 billion. We are cautious on Chevron's ability to grow in the coming years given its recent investments in growth haven't panned out as planned. However, the company's total output continues to rise at 3% to 4% each year, as it invests in the Permian Basin, in particular. Chevron has been negatively impacted by whipsaw price action in crude oil at times, and we're estimating 0% annual growth in the coming years to be conservative. The stock currently trades for 13.8 times this year's earnings, which is just under our estimate of fair value at 14 times earnings. That implies a modest impact on total returns from the valuation, but the stock is well-priced. Like the others in this article, Chevron has a strong dividend yield, which currently stands at 4.5%. Combined with the other factors, we see total annual returns of around 5% in the coming years, and note that Chevron's dividend looks safe at the current level. Final Thoughts The list of Dividend Aristocrats is a great place to start when it comes to finding a high-quality dividend stock to own. In this article, we put forth three names we think stand to do well in 2022, in addition to having very strong dividend yields. All three names offer those robust yields in concert with decades-long dividend increase streaks and high potential returns in 2022.

3 High-Yield Dividend Aristocrats for 2022

When it comes to finding a high-quality dividend stocks to own, the list of 'Aristocrats' is a great place to start.

Columnist Conversation

An Interesting Chart

This Weekend on Real Money

Stocks Under $10 Portfolio

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.