3 High-Yield Dividend Aristocrats to Buy

The Dividend Aristocrats, those companies with at least 25 consecutive years of dividend growth, remain our go-to index when finding high-quality names. These companies have demonstrated over a long period of time that they have the business models and growth prospects to raise their dividend payments each year. Several of these names offer at least a 4% dividend yield, which is extremely generous compared to the average yield of 1.3% for the S&P 500 index. Even better, these dividends are often well-covered, which should allow for years of future growth. This article will look at three Dividend Aristocrats that offer a high yield, including: AbbVie, Inc. Exxon Mobil Corp. International Business Machines Corp. High-Yield Dividend Aristocrat #1: AbbVie AbbVie is one of the largest biotechnology companies in the world, with a focus on immunology, oncology and virology. The company came to be following the 2013 spinoff from parent company Abbott Laboratories . AbbVie is valued at $208 billion today and generated revenue of nearly $46 billion. Any discussion of AbbVie usually begins with the blockbuster Humira. For a time, Humira was the best-selling drug in the world. That has changed somewhat in recent years as the product has lost patent protection in Europe and will do the same in the U.S. by the end of 2023. This has pressured the stock at times over the past few years as investors believe the loss of the company's cash cow will materially impact AbbVie's performance going forward. What this analysis fails to account for is AbbVie's bountiful pipeline of drugs that should begin reaching peak sales just as Humira begins to be less important for the company. Skyrizi, which treats moderate to severe plaque psoriasis, and Rinvoq, which treats moderate to severe rheumatoid arthritis, are both enjoying very high growth rates now and are expected to reach combined sales of $15 billion by the middle of this decade. While these two drugs are among AbbVie's most promising, the company's healthy research and development budget as well as acquisitions has supplied the company with a portfolio of products that should more than make up for Humira's loss. In fact, leadership expects that revenue generated in 2025 will be ahead of what the company had in 2020. The success of the company's pipeline will likely allow AbbVie to continue to raise its dividend, something it has done for the past 49 years. The company has a five-year compound annual growth rate (or CAGR) of nearly 16%. Shareholders should see $5.20 of dividends in 2021. Using our expected earnings-per-share total of $12.47, AbbVie has a projected payout ratio of just 42%. With a low payout ratio and the potential for strong revenue growth of its pipeline, AbbVie, in all likelihood, will continue to raise its dividend and gain entrance into the exclusive Dividend Kings index. High-Yield Dividend Aristocrat #2: Exxon Mobil Exxon Mobil is one of the largest energy companies in the world. The company had oil production of 2.3 million barrels and natural gas production of 8.5 billion cubic feet on a daily basis last year. Exxon Mobil is valued at $245 billion and the company had revenue of nearly $182 billion in 2020. Exxon Mobil has not been immune to the up and down nature of the energy business. Oil prices still are not back to where they were at in 2014 as energy prices were extremely challenged last year during COVID-19 pandemic. Prices have improved over the past few months as demand has picked up, but Exxon Mobil will likely need to increase production levels in order to see its business grow. Unfortunately, increasing demand means an increase in capital expenditures. In order to protect its dividend, Exxon Mobil slashed its capital investments last year. The company had planned to invest $33 billion in 2020, but ended up allocating a little more than $21 billion towards projects. This move was likely prudent as the top- and bottom-lines were down significantly last year as social distancing restrictions kept a lid on demand for energy. This isn't to say that Exxon Mobil doesn't have quality projects that should help the company increase its output. In fact, just the opposite. The company's Permian operation continues to show potential, with volumes improving around 20% at the time of the last quarterly report. The Guyana project had a 70% improvement in volumes. The Permian and Guyana projects have an estimated 10 billion and 9 billion barrels of oil equivalent, respectively, which should go a long way in helping Exxon Mobil increase its production. The company had previously said it expected to increase its output from 4 million to 5 million barrels per day by 2025. That guidance has been withdrawn after the pandemic, but Exxon Mobil is not lacking in reserves. One other important note is that Exxon Mobil believes these projects to be profitable at $35 per barrel of oil. With energy prices at more than double that right now, the company looks in solid shape with regards to its profitability. As discussed, Exxon Mobil made a commitment to defend its dividend last year as opposed to other energy names that cut theirs as the energy sector felt the sting of much lower demand. Shareholders have received a dividend increase for 38 consecutive years, but the dividend has remained unchanged for ten straight quarterly payments, including the recently announced 9/10/2021 distribution date. Even with a pause, the dividend has a CAGR of 6.5% since 2011. A dividend increase in the fourth quarter will be needed to maintain the company's growth streak. That could be difficult as the annualized dividend amounts to $3.48 and would consume a 97% of expected earnings per share of $3.60. Still, Exxon Mobil yields 6%, which might entice more risk tolerant investors. High-Yield Dividend Aristocrat #3: IBM IBM is a leading provider of integrated enterprise solutions for software, hardware and services. The company typically provides end-to-end solutions, making IBM's offerings attractive to customers looking to fill their needs from one supplier. The company has a market capitalization of $128 billion and produced revenue of $74 billion in 2020. IBM famously went several years without showing year-over-year revenue growth as its legacy businesses were out of step with the advancement of cloud and software as a service. With a massive addressable market in cloud, IBM was behind many other technology stalwarts who embraced this space and have seen their business flourish ever since. On the plus side, IBM has realized these missteps and taken action to enter the cloud space. IBM acquired Red Hat for $34 billion in 2019. The company will now have a focus on the hybrid cloud, where at least one public cloud and at least on private cloud are connected. IBM believes that the total addressable market for hybrid cloud is approximately $1 trillion. Even with a late push into cloud, the addressable market is large enough that IBM, with its size and scale, should be able to carve out a significant market share. In addition, IBM is also spinning off its managed infrastructure business into a new company, called Kyndryl. The remaining businesses, which include hybrid cloud among others, will stay with IBM and should unlock value for shareholders given the push into these respective areas. With a focus on the faster-growing areas of technology, IBM should continue to raise its dividend every year, something the company has done for 26 consecutive years. The dividend has a CAGR of 8.4% over the last decade. We expect IBM to earn $11.03 in 2021. With an annualized dividend of $6.56, the expected payout ratio is 59%.The shares pay a yield of 4.6% at the moment, a solid offering as investors wait for the spinoff of the company's legacy businesses and a transition into a likely higher growth new IBM.

3 High-Yield Dividend Aristocrats to Buy

These names have demonstrated over a long period they have the business models and growth prospects to raise their dividend payments each year.

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