Dividend aristocrats are companies that have increased their dividends in each of the past 25 years. Companies that are achieved this status have been massive value creators. However, there are bound to be additions or changes in the list of dividend aristocrats in the coming decade. The focus of this article is to identify potential dividend aristocrat stocks that are worth buying at current levels.
The key screening criteria is picking out quality businesses with growth tailwinds. That can come in the form of innovation, industry growth and positive commodity price trend. Of course, the businesses discussed have an investment-grade balance sheet and they are already blue-chip stocks. Given the current cash flows and the growth outlook, these potential dividend aristocrat stocks are poised for robust total returns.
Let’s discuss the reasons you want to be bullish on these top stocks for dividend growth.
Apple (AAPL)
Apple (NASDAQ:AAPL) stock has trended higher by 54% year-to-date. At the forward price-earnings ratio of 32, the stock still looks attractive. At the same time, I believe it’s one of the top stocks for dividend growth.
Currently, AAPL stock offers an annual dividend of 96 cents, which translates into a dividend yield of 0.5%. Given the company’s cash flow potential, I expect robust dividend growth through the decade. Apple will also continue to create value through aggressive share repurchases.
To put things into perspective, Apple reported an operating cash flow of $62.5 billion for the first half of 2023. Additionally, the company has a robust cash buffer of $166 billion. Besides investing in innovation-driven growth, there is ample flexibility to boost dividends.
From a revenue perspective, the company’s services and wearable segment are potential growth drivers. The iPhone product remains the cash cow, and potential entry into electric vehicles will ensure that growth sustains. Those factors will support robust dividend upside visibility.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) stock looks undervalued at a forward price-earnings ratio of 10.95. The reason for ALB stock being depressed is the correction in lithium prices in 2023. However, it’s worth noting that the supply gap for lithium is likely to be significant by 2035. The long-term upside potential for lithium remains intact. The correction, therefore, presents an attractive entry opportunity.
Coming to dividends, ALB stock has an annual payout of $1.6, which implies a dividend yield of 0.76%. There are two reasons to believe that dividend growth will be robust through the decade.
First, I expect lithium to remain in an uptrend, and with a higher realized price, free cash flow is likely to swell. Further, Albemarle has guided for sales volume growth in the range of 20% to 30% annually through 2027. As the company boosts its lithium conversion capacity, revenue and cash flow growth will be robust.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) stock has remained sideways in the last 12 months. With a significant correction in oil, OXY stock has remained resilient. One reason is Warren Buffett boosting his stake in the stock to 25%. Further, Occidental has continued to witness an improvement in fundamentals.
From a dividend perspective, OXY stock has an annualized dividend of 72 cents, which translates into a yield of 1.16%. I believe that the stock is poised for robust dividend growth.
There are two reasons to be bullish. First, Occidental has low break-even assets. Even with a relatively depressed oil price, the company reported free cash flow (FCF) of $1.7 billion for Q1 2023. As a matter of fact, the company believes that dividends are sustainable even at $40 per barrel of oil. Plus, the company’s FCF is likely to swell as the commodity trends higher.
Further, Occidental is focused on deleveraging. The company already commands an investment-grade rating. This is important as I expect credit metrics to improve along with overall financial flexibility. Besides the flexibility to invest in exploration programs for growth, Occidental can accelerate dividends and repurchases.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
