Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Canadian National Railway (TSX:CNR) is a Dividend Aristocrat with 27 years of dividend growth.

| More on:
Golden crown on a red velvet background

Image source: Getty Images

Dividend Aristocrats are some of the world’s most popular stocks. Having outperformed the S&P 500 since 1991, they are also very high-quality stocks. While you might attribute this outperformance to survivorship bias (stocks that miss a dividend are removed from the index), some research suggests that companies that get kicked off the Dividend Aristocrats list perform even better than the “survivors.” If that is the case, then the Aristocrats beating the S&P 500 by 2% is nothing short of amazing.

The conventional definition of a dividend aristocrat is a stock with 25 consecutive years of dividend increases. Most of these stocks are U.S. based, but there are a few Canadian Aristocrats, too. There is a “Canadian Aristocrat” category with softer criteria (just five years of hikes), but most Canadian investors I’ve spoken to think of Aristocrats as stocks with 25 consecutive years of hikes.

Accordingly, I will share five Aristocrats that meet the “25-year” standard: two Canadian and three foreign.

CN Railway

Canadian National Railway (TSX:CNR) is a Canadian Dividend Aristocrat that meets the “U.S.” criterion for a Dividend Aristocrat, with 27 consecutive years of dividend hikes under its belt.

CN Railway has performed extremely well over the years. In the span of 24 years, it has risen 2,800% in price, and delivered significant dividends along the way. Its historical earnings growth has been strong, with earnings up 17% per year over the last three years. It also grew its earnings 6% in the last 12 months, despite revenue declining. Railroads suffered negative revenue growth in 2023, likely due to lower fees for crude by rail compared to the “hot” 2022 period. CN’s revenue decline was less severe than its peers’.

In addition to the respectable long-term growth, CN Railway also has outrageously good profitability metrics, with a 33% net income margin, a 15% free cash flow margin, and a 27% return on equity. I owned this stock in the past, and I’d be happy to own it again today.

Fortis

Fortis (TSX:FTS) is a Canadian utility that is not only a Dividend Aristocrat but also a Dividend King, having raised its dividend every year for the last 50 years. Fortis stock has a 4.4% yield at today’s prices, which means it has more near-term income potential than CNR does. CNR’s dividend-growth rate has been higher than FTS’s, so it might well deliver more dividends than Fortis over, say, a 20-year period. Nevertheless, Fortis can produce more dividend income today.

How has Fortis managed to grow its dividend so much? Like most utilities, it enjoys fairly stable, “recession-resistant” revenue. Unlike some other utilities, however, it hasn’t neglected growth. Instead, it has invested in expansion, buying up utilities across Canada, the U.S., and the Caribbean. Another virtue it has is a relatively modest amount of debt. It has $27 billion in long term debt to $24 billion in total equity, which gives it a 1.125 debt-to-equity ratio. By utility standards, that’s next to nothing!

Non-Canadian aristocrats

Having shared my top two Canadian dividend Aristocrats, I can now proceed to some global names that I think have a lot of potential:

  • Johnson & Johnson: A pharmaceutical giant with 61 years of dividend growth. The company boasts extremely high earnings growth (over 12-month, three-year and five-year time frames), and an absurdly high 45% net margin.
  • Coca-Cola: A soda company with 61 years of dividend growth with a 23% net income margin and a 44% return on equity.
  • S&P Global: Would you believe that the publisher of the Dividend Aristocrats index is itself a Dividend Aristocrat with 50 consecutive years of hikes? It also boasts a stunning 36% free cash flow margin, although its growth has been underwhelming.

Any one of these three stocks is worth looking into. Combined with the two TSX stocks above, we have the beginnings of a true Dividend Aristocrat portfolio here (five stocks is 20% of the 25 stock minimum the Motley Fool recommends).

Happy dividend collecting!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway, Fortis, and Johnson & Johnson. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Woman has an idea
Dividend Stocks

3 No-Brainer Best Dividend Stocks in Canada to Buy With $500 Right Now

Are you craving more cash flow? $500 in one of these best dividend stocks in Canada might deliver a slice…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

5 Stocks Whose Dividends Just Keep Growing

Stocks like Enbridge and Fortis are growing their dividends for decades, and returning higher cash to their shareholders.

Read more »

Dividend Stocks

2 Stocks I’m Loading Up On in 2024

Restaurant Brands International (TSX:QSR) and another stock I'm pretty close to buying right here, right now.

Read more »

protect, safe, trust
Dividend Stocks

RRSP Investors: 2 Superior Dividend Stocks for Optimal Returns

Superior dividend stocks like the Canadian National Railway (TSX:CNR) can add income power to your portfolio.

Read more »

Increasing yield
Dividend Stocks

TFSA Passive Income: 2 High-Yield Stocks to Buy Before They Bounce

These top TSX dividend-growth stocks look cheap today and offer high yields.

Read more »

Portrait of woman having fun in the street.
Dividend Stocks

Why I Can’t Stop Buying Shares of This Magnificent High-Yield Dividend Stock in My TFSA

This dividend stock continues to be a top winner, even with returns falling the last few years. We're nearing some…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Investors: 1 Cheap Dividend Stock That Could Soar in 2025

This dividend-growth stock now trades at a discounted price and offers a 7% yield.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

1 Dividend Stock Down 13% to Buy Right Now

Are you looking for a buy-the-dip opportunity? This dividend stock is down 13% and is a buy right now before…

Read more »