Stock Analysis & Ideas

The 3 Highest-Yielding Dividend Aristocrat Stocks

Story Highlights

V.F. Corporation, Walgreens Boots Alliance, and Leggett & Platt are the only Dividend Aristocrats that are currently trading with dividend yields above 5%. Let’s take a look at if they’re worth buying or if their above-average yields indicate a potential value trap.

Dividend-growth investing has been gaining popularity lately. Today, I’ll be showing you the three highest-yielding Dividend Aristocrat stocks. Dividend Aristocrats are companies within the S&P 500 (SPX) that have raised their dividends for at least 25 consecutive years. In this article, we are looking at V.F. Corporation (NYSE: VFC), Walgreens Boots Alliance (NASDAQ: WBA), and Leggett & Platt (NYSE: LEG), the only three Dividend Aristocrats offering dividend yields north of 5%.

V.F. Corporation (VFC)

  • Dividend Yield: 6.9%
  • Years of Dividend Growth: 50

Apparel behemoth V.F. Corporation is known for its portfolio of iconic brands, including names such as North Face, Timberland, Supreme, and Napapijri, amongst others. Despite the apparel industry experiencing strong saturation, VFC’s diversified portfolio of brands tends to generate strong sales and profits.

With its stock price tumbling by about 60% last year, VFC’s dividend yield has now been pushed close to 7%. In fact, VFC is currently the highest-yielding Dividend Aristocrat.

Could this imply that investors are pricing the stock for a dividend cut after 50 years of non-stop dividend growth? Possibly. VFC earnings are expected to come in at $2.07 per share for Fiscal Year 2023, implying a year-over-year decline of about 35%.

Inflation is significantly pressuring profitability, and with the payout ratio near 100% based on VFC’s annualized dividend per share of $2.04, the probability of a dividend cut has risen – especially with many expecting a recession during 2023.

While VFC’s free cash flow is likely to continue covering the dividend, there is a reason it’s currently the highest-yielding Dividend Aristocrat: the dividend is not totally safe.

Walgreens Boots Alliance (WBA)

  • Dividend Yield: 5.5%
  • Years of Dividend Growth: 47

Retail pharmacy giant Walgreens Boots Alliance boasts a remarkable track record of 47 consecutive annual dividend increases.

Its necessity-type, recession-proof business model, as well as management’s commitment to reading shareholders with growing dividends, makes this Dividend Aristocrat an attractive option for income-seeking investors.

However, the real icing on the cake is WBA’s dividend, which is currently the second-highest dividend yield among its Dividend Aristocrat peers. The stock’s yield, paired with a relatively low payout ratio of about 40% based on this year’s expected earnings, suggests that Walgreens has room for further dividend growth in the future.

Additionally, with shares currently trading at a P/E of 7.3x, near historic lows, investors get to enjoy a relatively wide margin of safety at their current price. It’s not often that you find a high-quality company with a juicy yield trading at such a discounted price, so dividend-growth investors should keep an eye on this one.

Leggett & Platt (LEG)

Leggett & Platt is a diversified manufacturer with a rich history dating back to 1883 when inventor J.P. Leggett revolutionized the industry with his game-changing bedspring design.

Fast forward to today, the company continues to innovate and grow by acquiring smaller competitors. Its product portfolio is diverse and broad, ranging from bedding industry machinery and steel wire to adjustable beds and vehicle seat support systems. The diversification of the product base helps the company generate consistent cash flows, aiding its 51-year-long dividend growth journey.

With the company’s manufacturing costs increasing and wage growth remaining strong, profitability has been somewhat pressured. The company is expected to earn $2.36 in Fiscal Year 2022, down about 15% year-over-year. Nevertheless, the $1.76 annual dividend remains well-covered and implies enough room for the company to keep growing its payouts over time as it gradually scales its operations.

Do Analysts Think VFC, WBA, and LEG Shares are Worth Buying?

Turning to Wall Street, VFC and WBA both have Hold ratings, while LEG stock comes in as a Moderate Sell. VFC’s average price target calls for no upside potential, and WBA stock is expected to rally by 16.7% in the next 12 months. On the other hand, analysts expect 32.4% downside risk for LEG stock.

Conclusion: Only VFC, WBA, and LEG Shares Have Substantial Yields

Despite the yields of Dividend Aristocrats having expanded over the past year following the decline in equities, only a few of them come with substantial yields. V.F. Corporation, Walgreens Boots Alliance, and Leggett & Platt are the only ones currently trading with yields north of 5%. This could indicate a number of concerns, including investors expecting below-average growth from these companies and, in the case of VFC, a potential threat to the viability of its dividend.

Nevertheless, all three are quality companies, and in the case of Walgreens and Leggett & Platt, investors do not really face the possibility of a dividend cut, suggesting they are likely to keep serving conservative, income-oriented investors satisfactorily as we advance.

Disclosure

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