Love Dividends? 2 Safe Dividend Aristocrats to Buy and Hold Forever

While high dividend yields are always attractive, the safety of the dividends matters more. Here, Dividend Aristocrats come into the picture. These are S&P 500 Index ($SPX) companies that have raised dividends consistently for at least 25 consecutive years in a row. Investing in these companies may be an appealing strategy for income-seeking investors. 

These companies provide a consistent income stream, making them an excellent option for those looking for passive income. Furthermore, these are typically large, well-established businesses with a long history of profitability and sound financial management. Their ability to increase dividends for decades, even during challenging economic conditions, speaks to their resilience. 

Because these companies are typically more mature and operate in established industries (such as consumer staples, healthcare, and utilities), their stocks tend to experience fewer fluctuations. This stability can provide comfort to risk-averse investors during times of market volatility. Here are two safe Dividend Aristocrats that are worth buying now. 

#1. Exxon Mobil Corporation

Exxon Mobil Corporation (XOM) has been a major player in the global oil and gas industry for more than a century. It explores, produces, refines, and distributes oil (CLV24) and natural gas (NGV24), as well as investing in chemicals and clean energy technologies. This energy company is recognized for its consistent dividend payments, strong cash flow, and large-scale operations.

Valued at $450.2 billion, XOM stock has gained 14.1% year-to-date, compared to the S&P 500’s gain of 18%. 

The company operates in three segments, which contributes to its strong fundamentals. Exxon's key segments include: Upstream, which covers the exploration and production of oil and natural gas; Downstream, for the refining of crude oil into petroleum products such as gasoline, diesel, and jet fuel, as well as their global marketing; and Chemical, which focuses on manufacturing plastics, resins, and synthetic rubber for use in various industries.

ExxonMobil is well-known for its financial strength and commitment to returning capital to shareholders. The company has a long history of paying consistent dividends and has increased its dividend for 41 consecutive years, placing it among the Dividend Aristocrats.

XOM has a forward dividend yield of 3.3%, compared to the energy sector average of 4.2%. Its forward payout ratio of 42.9% is low and sustainable, allowing for future dividend growth.

In the recent second quarter, Exxon’s earnings increased by 10.3% to $2.14 per share. This marked the company’s second-highest 2Q earnings over the last 10 years. Exxon distributed $4.3 billion in dividends and repurchased shares worth $5.2 billion during the quarter.

ExxonMobil is committed to increasing production from key assets, such as the Permian Basin in Texas, Guyana, and Brazil. In Q2, upstream total net production from Guyana and Permian increased by 15% sequentially, to 574,000 oil-equivalent barrels per day. Furthermore, Exxon's acquisition of Pioneer Natural Resources, which closed in May, added $0.5 billion to earnings in the first two months after the closing.

ExxonMobil has undergone significant restructuring in recent years to cut costs and increase operational efficiency. This capital discipline has allowed it to consistently pay and hike dividends over the last 41 years. It has paid off $3.9 billion in debt year to date, reducing its debt-to-equity ratio to 0.13. At the end of the second quarter, Exxon had a cash balance of $26.5 billion and adjusted free cash flow of $9.5 billion.

Analysts who cover XOM predict earnings to dip by 12% in 2024, before rising by 7.9% in 2025.  

Overall, analysts have an average rating of “moderate buy” for XOM. Out of 22 analysts covering the stock, 13 have a “strong buy” rating, and nine rate it a “hold.” Based on its mean target price of $131.85, the stock has an upside potential of 15.5% from current levels. Plus, its high target price of $157 implies an upside potential of 37.8% over the next 12 months. 

#2. PepsiCo

PepsiCo (PEP) is an iconic name in the food and beverage industry, with a rich history spanning more than a century. It has expanded into a global powerhouse, now operating in more than 200 countries and territories around the world. Pepsi's diverse offerings include well-known brands such as Lay's, Quaker, Doritos, Cheetos, and more.

With a market cap of $243.1 billion, PepsiCo is a stable and established company. Its growth rate may be slower than artificial intelligence (AI) companies, whose profits are skyrocketing. However, being a consumer staples company has its perks. These companies are mostly defensive, which means their product demand will remain generally unaffected, regardless of the state of the economy.

This is reflected in PepsiCo's consistent revenue growth and profitability over time, which has allowed it to raise dividends for the past 52 years. PepsiCo’s stock has gained 4.6% YTD, compared to the broader market's gain. 

PepsiCo is not just a Dividend Aristocrat, but also a Dividend King, which refers to companies that have increased their dividends for more than 50 years in a row. PepsiCo has a forward dividend yield of 3.06%, which is higher than the consumer staples sector average of 1.89%.

The company recently hiked its quarterly dividend by 7% to $1.355 per share. This also marked the company’s 52nd annual dividend increase. In the second quarter, adjusted core earnings per share (EPS) increased 10% to $2.28, exceeding consensus estimates despite a challenging macroeconomic environment that impacted consumer spending. Organic revenue increased by 1.9% during the quarter.

Despite generating a negative free cash flow of $259 million in Q2, management remains confident of returning $7.2 billion in dividends and $1.0 billion in share repurchases in 2024. This demonstrates PepsiCo's commitment to returning value to its shareholders.

For the full year, the company expects organic revenue to increase by 4% and adjusted core EPS to rise by 8%. Its forward payout ratio of 61.8% is manageable if PepsiCo continues to grow its earnings. Analysts predict PepsiCo’s earnings to increase by 7.05% in 2024, and 7.4% in 2025, respectively.

Overall, analysts have an average rating of “moderate buy” for PEP. Out of 18 analysts covering the stock, 10 have a “strong buy” rating, and eight rate it a “hold.” Based on its mean target price of $186.19, the stock has an upside potential of 5% from current levels. Plus, its high target price of $202 implies an upside potential of about 14% over the next 12 months. 

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On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.