5 Of The Safest 5% Yielding Dividend Aristocrats You Can Buy (2024)

It's been a wild year in 2022 so far.

• According to Bloomberg, January was the worst start to the year in history.
• In March, we saw an 11% S&P rally in 11 days.
• April is on track to be the worst month for the Nasdaq since November 2008.

This volatility is courtesy of a large wall of worry that includes:

• the highest inflation in 40 years;
• made worse by the largest land war in Europe in 85 years;
• also made worse by China locking down 25% of its economy (disrupting global supply chains);
• the fastest Fed rate hike cycle in 40 years;
• rising recession fears about 2023 and 2024;
• elevated valuations going into the start of 2022.

You might think that mean the market is now undervalued, or at least a good buy right?

Actually no. All this volatility has only resulted in a correction for the S&P and a mild bear market for the Nasdaq.

S&P 500 Valuation Profile

(Source: Dividend Kings S&P 500 Valuation & Total Return Potential Tool)

The market is still historically 9% overvalued though 5-year consensus total return estimates are starting to approach reasonable levels.

2027 S&P 500 Consensus Total Return Potential

(Source: Dividend Kings S&P 500 Valuation & Total Return Potential Tool)

For context, the S&P 500's historical inflation-adjusted return is 6.5% which means that currently, the market is offering about 31% of those returns adjusted for risk and the bond market's medium-term inflation expectations.

But guess what? No matter what the economy, war, interest rates, inflation, or the Fed do in the coming years the world's most dependable blue-chips are always ready to help you achieve your rich retirement goals.

So let me walk you through some of the world's safest high-yield dividend aristocrats, so you can sleep well at night, and potentially retire in safety and splendor.

No matter what happens next with the economy or the stock market.

The Safest 5% Yielding Dividend Aristocrats You Can Buy Today

The five safest high-yield aristocrats you can buy today are:

• Altria (MO) - dividend king
• Enbridge (ENB) - global aristocrat
• IBM (IBM) - dividend aristocrat
• 3M (MMM) - dividend king
• V.F Corp. (VFC) - dividend aristocrat

I've linked to articles providing a comprehensive analysis of each company's investment thesis, valuation, and risk profile.

These are some of the safest high-yield blue-chips on earth. How safe?

For context, the average aristocrat has

• 87% quality vs 90% for these aristocrats
• 89% safety score vs 91% for these aristocrats
• 84% dependability vs 76% for these aristocrats
• 3.0% 30-year bankruptcy risk (BBB+) vs 3.6% for these aristocrats (BBB+)

The average risk of a dividend cut during a historically average recession since WWII is about 1 in 200. The risk of a cut in a severe recession, like the Pandemic or Great Recession, is about 1.5% or 1 in 67.

Their average payout ratio is 40% vs 62% the rating agencies consider safe (industry safety guidelines).

Their average debt/capital is 40% vs 45% the rating agencies consider safe.

S&P estimates the average risk of bankruptcy over the next 30 years to be 3.6%, meaning an average credit rating of BBB+.

All of these aristocrats except for 3M have stable credit rating outlooks.

• 3M's negative outlook is due to PFAS liability concerns
• a 33% risk of a downgrade to A (0.66% bankruptcy risk)

Six rating agencies consider these aristocrats long-term risk-management to be in the top 39% of their respective industries.

For context, here's how that compares to the DK Master List.

The DK 500 Master List includes some the world's highest quality companies including:

• All dividend champions

• All dividend aristocrats

• All dividend kings

• All global aristocrats (such as BTI, ENB, and NVS)

• All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)

• 49 of the world's best growth stocks

(Source: DK Research Terminal)

Ben Graham considered a 20+ year dividend growth streak to be a sign of excellent quality.

• the average dividend growth streak of these aristocrats is 44 years, more than 2X the Graham sign of excellence
• the average 5-year dividend growth rate of 7.6%

OK, so now we can see why these are some of the safest high-yield aristocrats, here's why you might want to buy them today.

Wonderful Companies At Wonderful Prices

While the S&P 500 is 9% historically overvalued, these 5% yielding aristocrats are 19% undervalued and trading at 12.3X earnings and an earnings yield of 8.1%.

• the last time the S&P 500 traded at 12.3X earnings was November 2011

Analysts expect an average 17% total return in just the next year from these high-yield aristocrats.

• 31% would be justified by their fundamentals

Ok, so now you understand the quality and safety of these companies and their extremely attractive valuations. But here's why they might be just what your portfolio is looking for today.

Long-Term Return Fundamentals That Could Help You Retire In Safety And Splendor

For context, junk bonds (HYG) yield 4.4% and have an average credit rating of "B".

• 37% 30-year default risk vs 3.6% for these aristocrats

These aristocrats yield 0.7% more than junk bonds.

• but with 10X lower fundamental risk

Junk bonds have zero growth potential, while analysts expect 8% long-term growth from these aristocrats.

• vs 8.5% S&P 500 and 8.9% aristocrats

That means a long-term consensus return potential of 13.1% CAGR.

(Source: Morningstar, FactSet, Ycharts)

This is one of the best long-term high-yield investment strategies on Wall Street.

What does 13% long-term return potential mean for you?

Inflation-Adjusted Consensus Total Return Potential: $1,000 Initial Investment

(Source: DK Research Terminal, FactSet)

If these companies can grow as analysts expect for 30 years, that's a potential 21X inflation-adjusted return.

And potentially 100% higher returns than the dividend aristocrats, and 140% more than the S&P 500.

What evidence do we have that these aristocrats can deliver anything like 13% long-term returns?

Historical Returns Since 1991 (Annual Rebalancing)

"The future doesn't repeat, but it often rhymes." - Mark Twain

Past performance is no guarantee of future results, but studies show that blue-chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion.

These aristocrats were yielding 4.7% in 1991, and yield even more today.

They delivered 14% income growth, including dividend reinvestment and rebalancing, generating a yield on cost of almost 300% today.

What about future income growth?

(Source: DK Research Terminal, FactSet)

Analysts expect about 13.5% annual income growth in the future.

Adjusting for the risk of these companies not growing as expected, inflation, and taxes, that works out to 5.6% likely income growth.

Now compare that to what they expect from the S&P 500.

(Sources: S&P, FactSet, Multipl.com)

What about a 60/40 retirement portfolio?

• 0.5% consensus inflation, risk, and tax-adjusted income growth.

In other words, these high-yield aristocrats offer

• over 3X the market's yield (and a much safer yield at that)
• 30% higher long-term inflation-adjusted consensus income growth potential
• 10.4X better long-term inflation-adjusted income growth than a 60/40 retirement portfolio

Bottom Line: These Are 5 Of The Safest 5% Yielding Dividend Aristocrats You Can Buy Today

We live in interesting and troubled times, to say the least.

Market volatility has many investors nervous.

Fears of recession in 2023 or 2024 have many worried that a ferocious bear market might be coming to maul our savings and crush our portfolios.

I can't tell you what the economy will do this year, next year, or any year, no one can.

"Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.”— Peter Lynch

The good news is that you don't have to predict market panics, recessions, or know how to time the market at all.

All it takes to retire rich, and stay rich in retirement is focusing on five fundamentals, and five fundamentals alone.

• prudent risk-management (asset allocation)
• quality
• yield
• growth
• valuation

Nail these five fundamentals and you can sleep well at night knowing that you are 97% likely to achieve your long-term financial goals.

This is where MMM, ENB, MO, IBM, and VFC can help.

These are the safest high-yield aristocrats you can buy today.

• a very safe 5.1% yield
• 19% discount to fair value (12.3X earnings)
• 8.0% CAGR long-term growth consensus
• 13.1% CAGR long-term consensus return potential vs 13.8% CAGR over the last 31 years

In fact, with the right low-cost ETFs you can turn these 5% yielding aristocrats-rated high-yield retirement dream blue-chips into a Zen Ultra SWAN retirement portfolio that can potentially help the typical retired couple

• generate an extra $1.0 million in inflation-adjusted retirement income over 30 years compared to a 60/40 retirement portfolio
• deliver $4.0 million more inflation-adjusted wealth over 30 years than a 60/40 retirement portfolio
• turn $555,000 in median retirement savings into $6.3 million inflation-adjusted wealth after 30 years more than a 60/40 retirement portfolio
• The recession-optimized version of this Zen Ultra SWAN retirement portfolio fell just 14% during the Great Recession

This is how you stop praying for luck on Wall Street and start making your own luck.

This is how you stop being a gambler at the casino of Wall Street and turn yourself into the house that always wins in the long-term.

This is how you can stop fretting about the Fed, and stop fearing what Putin does next.

This is how you can safely ignore interest rates, inflation, and anything else the economy can throw at us in the coming years and decades.

Because when your savings are entrusted to the world's best companies, and working hard for you, retiring rich and staying rich in retirement isn't a function of luck.

It's just a function of time, discipline, and patience.

"Fortunes are made by buying right, and holding on." - Tom Phelps, 100 to 1 In The Stock Market

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