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Top 15 Low-Volatility Dividend Aristocrats


Published April 3rd, 2017 by Nicholas McCullum

There is a great divide among investors about whether volatility matters when investing in the stock market.

On the one hand, volatility shouldn’t matter unless you are in the process of selling your stocks. Long-term investing means that short-term changes in stock prices are irrelevant to portfolio returns.

On the other hand, there is empirical evidence that low-volatility stocks tend to outperform higher volatility stocks, all else being equal. There is also the obvious benefit of less unpredictability for investors who are in the process of selling stocks. This is why The 8 Rules of Dividend Investing ranks stocks by volatility, with lower being better.

 

Dividend investors generally benefit from lower volatility than non-dividend investors because the periodic cash dividend payments provide predictability and stability to portfolio returns.

A great way to take advantage of this trend is in investing in the Dividend Aristocrats – companies with 25+ years of consecutive dividend increases.

You can see the list of all 51 Dividend Aristocrats here.

This article will present the top 15 Dividend Aristocrats with the lowest stock price volatility. You can click on the companies below to be taken directly to the analysis of each low volatility dividend stock.

Low Volatility Dividend Aristocrat #15: Abbott Laboratories

10-Year Stock Price Volatility: 20.8%

Payout Ratio: 48%

Dividend Yield: 2.4%

Abbott Laboratories (ABT) is a large healthcare business with four operating segments:

Abbott’s pharmaceuticals segment used to be much larger until the company spun-off AbbVie in 2013.

Abbott Labs has the fifteenth lowest stock price volatility of any Dividend Aristocrats.

ABT Stock Price

Source: Google Finance

Abbott Labs’ low stock price volatility is largely due to their presence within the healthcare industry. The company produces products that are in demand during booth recessions and economic booms.

The healthcare industry is poised to benefit from some favorable demographic trends moving forward. Namely, the baby boomer generation is aging, which will increase the demand for health-related products and services.

ABT Aligned With Global Trends

Source: Abbott Laboratories Presentation at the JP Morgan Healthcare Conference, slide 5

Abbott Laboratories estimates that 12.0% of the global population will be older than 65 in 2030, and that figure will rise to 16.7% in 2050. This means that Abbott’s stable business model will likely be around for decades to come.

Abbott Laboratories is often a favorite of The 8 Rules of Dividend Investing due to its low volatility, above-average dividend yield (2.4%), and strong growth prospects.

Other articles from Sure Dividend on Abbott Laboratories can be seen below.

Low Volatility Dividend Aristocrat #14: C.R. Bard Inc.

10-Year Stock Price Volatility: 20.8%

Payout Ratio: 10%

Dividend Yield: 0.4%

CR Bard (BCR) is a diversified medical supply company that operates in four business segments:

CR Bard is the Dividend Aristocrat with the fourteenth lowest stock price volatility.

BCR Stock Price

Source: Google Finance

CR Bard has been a strong performer over the past decade. The company’s stock has essentially tripled during this time.

Like the other healthcare companies on this list, CR Bard produces products that are needed in all economic environments. This produces stable business performance which contributes to the low volatility of this dividend stock.

CR Bard is investing in its future by spending more money on research and development and less on SG&A. This should allow the company to create new products and services, driving strong revenue and earnings growth.

BCR Investing in a Sustainable Engine

Source: CR Bard Analyst Meeting Presentation

Until these long-term bets pay off, CR Bard will continue to benefit from its high degree of operational diversity. CR Bard’s business is roughly evenly divided between its four large segments (with the Surgical Specialties segment being much smaller), and most of the company’s revenues come from devices with an average sales price (ASP) below $400 (a very low price in the medical devices industry).

BCR Strong Fundamentals

Source: CR Bard Analyst Meeting Presentation

CR Bard is also continuing to grow its sales force. The number of CR Bard sales reps has steadily increased every year since 2008.

BCR Well Positioned for Future Growth

Source: CR Bard Analyst Meeting Presentation

CR Bard is a low volatility dividend stock. It is also a very low yield dividend stock, with a current yield of 0.4%. This is not because the company is overvalued, but rather because it pays out only a small proportion (10%) of its earnings as dividends. The company’s low payout ratio limits its dividend yield.

Income investors looking for minimal volatility would be better served to consider other the other medical device company on this list – Becton Dickinson.

Low Volatility Dividend Aristocrat #13: Hormel Foods

10-Year Stock Price Volatility: 20.3%

Payout Ratio: 41%

Dividend Yield: 2.0%

Hormel Foods (HRL) is a diversified producer of packaged foods and owns well-known brands such as Jennie-O Turkey, Muscle Milk, Skippy peanut butter, Dinty Moore, SPAM, and Wholly Guacamole.

Hormel’s business is divided into five reporting segments:

Hormel has the thirteenth lowest stock price volatility of any Dividend Aristocrat.

HRL Stock Price

Source: Google Finance

Hormel’s low volatility is partially due to its consistent operating history. The company has raised its annual dividend for 51 consecutive years, which shows that it can withstand many different market conditions. It also makes Hormel a member of the Dividend Kings, a group of elite dividend stocks with 50+ years of consecutive dividend increases.

You can see the list of all 19 Dividend Kings here.

Hormel has increased its earnings-per-share in 28 out of the last 31 years, which is a record matched by only 4 companies in the S&P 500.

HRL We Are Hormel Foods

Source: Hormel CAGE Conference Presentation, slide 4

Hormel’s business also has considerable stability because of its market leadership in a variety of product categories. 35 food categories have a Hormel product holding the #1 or #2 market share position.

HRL Our Brands Have a 1 or 2 Share in Over 35 Categories

Source: Hormel CAGE Conference Presentation, slide 17

Hormel is able to leverage the popularity of their products into an impressive level of profitability. The company has a very high return on invested capital, the sixth highest in heir peer group.

HRL Consistently High ROIC

Source: Hormel CAGE Conference Presentation, slide 14

Hormel Foods has very strong growth prospects and is still a relatively small Dividend Aristocrat with a market capitalization of $18 billion. As such, this low volatility dividend stock provides a unique mix of strong expected total returns and a relatively stable stock price.

Other articles from Sure Dividend on Hormel Foods can be seen below.

Low Volatility Dividend Aristocrat #12: Becton Dickinson & Co.

10-Year Stock Price Volatility: 19.9%

Payout Ratio: 33%

Dividend Yield: 1.6%

Becton, Dickinson, & Company (BDX) is a medical supply company that operates in two segments:

Becton Dickinson has the twelfth lowest stock price volatility of any Dividend Aristocrat.

BDX Stock Price

Source: Google Finance

Becton Dickinson’s stable stock price comes from being a market leader in the medical device industry, a market where product demand remains constant through all economic environments.

Becton Dickinson’s scale is quite impressive. After being founded in 1897, the company has grown to $12 billion in revenue generated across 50+ countries by 40,000 associates.

BDX Who is BD?

Source: Becton Dickinson Presentation at the 2017 CECP Conference, slide 3

Becton Dickinson also has a concrete capital allocation plan which is communicated clearly to shareholders. The company’s financial priorities include capex, dividends, and debt reduction.

BDX Cash Flow Flexibility and Opportunity

Source: Becton Dickinson Presentation at the 2017 CECP Conference, slide 10

Becton Dickinson’s current dividend yield of 1.6% is below the average dividend yield within the S&P 500. As such, this company might not be the best choice for investors that rely on portfolio income.

However, the company is posed to benefit from the same demographic trends as the other healthcare companies in this article. Investors interested in owning a shareholder-friendly, low volatility dividend stock would do well to accumulate Becton Dickinson at the right price.

Other articles from Sure Dividend on Becton Dickinson can be seen below.

Low Volatility Dividend Aristocrat #11: Wal-Mart

10-Year Stock Price Volatility: 19.7%

Payout Ratio: 47%

Dividend Yield: 2.9%

Wal-Mart (WMT) is the largest retail company in the world, generating more than $480 billion of revenues in fiscal 2017.

The company is divided into three segments for reporting purposes:

Wal-Mart has the eleventh lowest stock price volatility of any Dividend Aristocrat.

WMT Stock Price

Source: Google Finance

Wal-Mart’s low volatiltiy comes from its business stability. Wal-Mart is the largest retail company in the world, and generated eye-popping financial statistics during its most recent fiscal year: $486 billion in revenues, $31.5 billion of operating cash flow, and $14.5 billion of capital returned to shareholders.

WMT Great Financial Strength

Source: Wal-Mart Presentation at the Raymond James Institutional Investor Conference, slide 4

Wal-Mart is also a notably shareholder-friendly company. A large proportion of the company’s capital is allocated to share repurchases and dividend payments, which have helped improve total returns despite the company’s currently depressed stock price.

WMT Generating Strong Cash Returns For Shareholders

Source: Wal-Mart Presentation at the Raymond James Institutional Investor Conference, slide 5

Many believe that the brick-and-mortar retail industry is on the decline. I would argue that while the industry is changing, there is still room for a strong company like Wal-Mart to thrive.

Wal-Mart has recognized the changes in its industry and is acting accordingly. Management has aimed to reduce the pace of new store openings, and instead focus on improving same-store sales and increasing eCommerce sales.

WMT Strong, Efficient Growth

Source: Wal-Mart Presentation at the Raymond James Institutional Investor Conference, slide 10

Wal-Mart’s eCommerce segment was bolstered in 2016 by its acquisition of Jet.com. Jet was known for the website’s ability to lower prices as an online shopping cart became more full, which encourages consumers to purchase more goods from Wal-Mart during a single session.

The future of retail is shrouded in uncertainty. However, of all the competitors in this space, Wal-Mart is one of the companies that looks best prepared for success. Investors will benefit from the company’s exceptionally low stock price volatility along the way.

Other articles from Sure Dividend on Wal-Mart can be seen below.

Low Volatility Dividend Aristocrat #10: Colgate-Palmolive Co.

10-Year Stock Price Volatility: 19.0%

Payout Ratio: 58%

Dividend Yield: 2.2%

Colgate-Palmolive (CL) is a massive consumer staples company with a market capitalization of $64 billion. The company is best known for its namesake Colgate oral hygiene products.

Colgate-Palmolive is divided into four segments for reporting purposes:

Colgate-Palmolive has the tenth lowest stock price volatility of any Dividend Aristocrat.

CL Stock Price

Source: Google Finance

Colgate-Palmolive’s stock price stability comes from its robust portfolio of popular brands. Many of these products are indispensible and used on a daily basis by many consumers.

CL Product Portfolio

Source: Colgate-Palmolive 2016 Annual Report, page 9

Colgate produces these products while maintaining a remarkably high level of profitability. The company’s after-tax return on capital is nearly four times the average of its peer group.

CL After-Tax Return on Capital

Source: Colgate-Palmolive 2017 CAGNY Presentation

Colgate also is the indisputed leader in the worldwide toothpaste industry with 44.0% market share. Considering that Oral Care is Colgate’s largest operating segment, this market leadership is incredibly important to the success of Colgate-Palmolive’s business.

CL Worldwide Toothpaste Shares

Source: Colgate-Palmolive 2017 CAGNY Presentation

Colgate-Palmolive is a great example of a low volatility dividend stock, but the company is trading at a rich valuation right now. Investors looking to reduce the volatility of their investment portfolio would do well to pick up share of Colgate on the cheap in the event of a market correction.

Other articles from Sure Dividend on Colgate-Palmolive can be seen below.

Low Volatility Dividend Aristocrat #9: McDonald’s Corporation

10-Year Stock Price Volatility: 19.0%

Payout Ratio: 68%

Dividend Yield: 2.9%

McDonald’s Corporation (MCD) is the world’s largest fast food chain with a market capitalization of $107 billion. The company is well-known for its popular menu items like the Big Mac, the Quarter Pounder, and the Egg McMuffin.

McDonald’s has the ninth-lowest stock price volatility of any Dividend Aristocrat.

MCD Stock Price

Source: Google Finance

McDonald’s has an impressive history of delivering total returns to its shareholders. This has come from earnings growth, but also from the company’s shareholder orientation.

In the past three years, McDonald’s has returned $30 billion to its shareholders through a combination of stock buybacks and dividend payments.

MCD Cash Return to Shareholders

Source: McDonald’s Investor Presentation

McDonald’s is also a free cash flow machine. The company currently converts ~90% of its adjusted net income to free cash flow, which is up from 72% in 2012. On a dollar value basis, McDonald’s generated $4.2 billion of free cash flow in fiscal 2016, giving the company a free cash flow yield of just under 4% at today’s prices.

MCD Free Cash Flow Conversion

Source: McDonald’s Investor Presentation

Looking ahead, McDonald’s expected total returns appear robust. The company is expecting earnings-per-share growth in the high single digits. McDonald’s also currently has a 2.9% dividend yield.

MCD Updated Long-Term Financial Targets

Source: McDonald’s Investor Presentation

McDonald’s is a very recession resistant business. The company’s financial performance appears relatively uncorrelated with the overall economy, as McDonald’s grew earnings-per-share by 37% during the Great Recession.

This is unsurprising. While consumers generally cut back on dining out during recessions, the opposite would be true for McDonald’s because their food is so affordable. Consumers who might normally eat at a more expensive restaurant will opt to eat at McDonald’s, which boosts the company’s performance during recessions.

For investors looking for a low volatility stock that will perform well during recessions, McDonald’s is a great choice at the right valuation.

Other articles from Sure Dividend on McDonald’s can be seen below.

Low Volatility Dividend Aristocrat #8: McCormick & Co.

10-Year Stock Price Volatility: 18.9%

Payout Ratio: 50%

Dividend Yield: 1.9%

McCormick & Co. (MKC) was founded by Willoughby McCormick, who made spices in his basement and sold them door-to-door. The company has since grown to be the leader in the spices industry with a market capitalization of $12 billion.

The company operates in two segments:

McCormick has the eighth lowest stock price volatility among the Dividend Aristocrats.

MKC Stock Price

Source: Google Finance

The spice industry might not be one of the first that comes to mind when looking for companies suitable for investment.

However, the industry is larger than one might expect. Spices and seasonings together form a $11 billion market globally with a 5% projected growth rate.

MKC Spices and Seasonings is an $11 billion global market

Source: McCormick 2017 Annual Shareholder Meeting Presentation, slide 63

McCormick is the undisputed leader in this space and also has a very strong total return history. Over 5-, 10-, and 20-year periods, McCormick has delivered double-digit total returns. This equates to fantastic risk-adjusted returns for a low volatility dividend stock.

MKC Total Annual Shareholder Return

Source: McCormick 2017 Annual Shareholder Meeting Presentation, slide 41

Looking ahead, McCormick’s strong performance is likely to continue. The company is experiencing robust growth in emerging markets like China.

The company also often acquires smaller spice companies and scales their operations through McCormick’s large distribution network. McCormick’s management expects that roughly one-third of the company’s future sales growth will come from these strategic acquisitions.

McCormick is also highly recession-resistant, which helps it become a low volatility dividend stock. During recessions, people tend to scale back on dining out, which means more purchases of spices and seasonings for home cooking. Evidence supports this claim, as McCormick grew its earnings-per-share each year of the global financial crisis.

Because of its low volatility and recession resiliency, McCormick makes a great addition to the portfolio of the dividend growth investor. However, income-oriented shareholders might want to look elsewhere. McCormick is a low yield dividend stock with a dividend yield of 1.9%.

Low Volatility Dividend Aristocrat #7: The Coca-Cola Company

10-Year Stock Price Volatility: 18.9%

Payout Ratio: 70%

Dividend Yield: 3.5%

Coca-Cola (KO) is the world’s largest soda company. Aside from its flagship Coca-Cola soda, the company also owns:

and other popular beverage brands.

Coca-Cola has the seventh-lowest stock price volatility among the Dividend Aristocrats.

KO Stock Price

Source: Google Finance

Coca-Cola’s low volatility comes from its industry-leading market share. The company has 21 brands with $1 billion+ in sales, which can be seen below.

KO Our Portfolio Includes 21 Billion-Dollar BrandsSource: Coca-Cola Infographic

These brands are generally low-cost, ready-to-drink beverages, which means that consumer demand is relatively inelastic with respect to changes in economic conditions.

Coca-Cola benefits from a considerable amount of geographic diversity. Despite being founded and headquartered in the United States, the company generates only 20% of is case volume sales from the continent of North America.

KO Worldwide Unit Case Volume Geographic Mix

Source: Coca-Cola Infographic

The popular rhetoric among the investing community nowadays seems to be that the carbonated beverage industry is declining and Coca-Cola’s best days are behind it.

However, this is not true. The global retail beverage industry is expected to grow by $110 billion (or 4% per year) between now and 2019, and Coca-Cola will certainly benefit as one of the most dominant participants in the market. KO Industry Growth Remains Solid

Source: Coca-Cola 2017 CAGNY Presentation, slide 9

Coca-Cola’s business is undergoing a major strategic change right now. The company is divesting its capital-intensive, labour-driven bottling operations to focus on its core business of producing syrups and concentrates. The post-transformation Coca-Cola will have lower revenues but higher margins, which will hopefully drive earnings-per-share growth in the long run.

The following diagram provides an update on this transformation broken down by geography.

KO Refranchising Will Drive Local Market Performance

Source: Coca-Cola 2017 CAGNY Presentation, slide 26

This transformation is an example of long-term thinking by Coca-Cola’s management team. The transformation is hurting the company’s short-term earnings-per-share numbers in exchange for long-term business growth.

KO In 2017, EPS Will BE Impacted As We Sell Profitable Businesses

Source: Coca-Cola 2017 CAGNY Presentation, slide 34

Coca-Cola’s future might seem uncertain because of this considerable change in its business. However, many investors have placed their ‘seal of approval’ on low volatility dividend stock.

Coca-Cola is the most popular dividend growth stock among dividend growth bloggers and is also a long-term favorite in Warren Buffett’s investment portfolio.

Other articles from Sure Dividend on the Coca-Cola Company can be seen below.

Low Volatility Dividend Aristocrat #6: Procter & Gamble

10-Year Stock Price Volatility: 18.8%

Payout Ratio: 71%

Dividend Yield: 3.0%

Procter & Gamble (PG) is one of the largest consumer staples companies in the world with a market capitalization of $229 billion. The company is divided into five segments:

Procter & Gamble has the sixth lowest stock price volatility among any Dividend Aristocrat.

PG Stock Price

Source: Google Finance

Procter & Gamble has an impressive business history. After being founded by two immigrants 179 years ago, the company now sells products in more than 180 years and in 10 different categories. Procter & Gamble is also a Dividend King with 60 years of consecutive dividend increases.

PG Company Overview

Source: Procter & Gamble Investor Relations

Procter & Gamble’s business stability comes from its diverse group of household products. I can say with near certainty that most U.S. readers will have at least one of the following products in their house right now.

PG Stronger Portfolio to Win

Source: Procter & Gamble 2017 CAGNY Presentation

Despite Procter & Gamble’s strong product base, the company has disappointed its shareholders over the past decade. Earnings growth has been sluggish.

The company’s strategy to restore growth centers on divesting non-core brands and focusing on efficiency among its best performers.

One key example of these efficiency initiatives is Procter & Gamble’s supply chain transformation, which is visualized below.

PG Productivity Savings

Source: Procter & Gamble 2017 CAGNY Presentation

The simplification in Procter & Gamble’s business model is substantial. The company expects to reduce its number of product categories by 60%, its number of brands by 70%, and its number of country clusters by 50%.

Procter & Gamble also returns a tremendous amount of capital to its shareholders, one of the telltale signs of a shareholder-friendly stock. The company expects to return up to $70 billion to shareholders through 2019 via share repurchases and dividend payments.

PG Total Shareholder Return

Source: Procter & Gamble 2017 CAGNY Presentation

Procter & Gamble’s recent performance has been less-than-stellar. However, the company’s turnaround appears to be on track and investors who purchase shares at an attractive valuation will benefit from strong risk-adjusted returns from this low volatility dividend stock.

Other articles from Sure Dividend on Procter & Gamble can be seen below.

Low Volatility Dividend Aristocrat #5: Clorox Co.

10-Year Stock Price Volatility: 18.4%

Payout Ratio: 64%

Dividend Yield: 2.3%

Clorox (CLX) is known as a name-brand bleach product that many consumers are quite familiar with. The Clorox company produces a lot more than just Clorox bleach and is a diversified manufacturer of consumer and professional products with a market capitalization of $17 billion.

Clorox’s operations are divided into four business segments:

Clorox has the fifth lowest stock price volatility of any Dividend Aristocrat.

CLX Stock Price

Source: Google Finance

Clorox’s low stock price volatility comes from its strong portfolio of necessity products. Pine-Sol, Clorox bleach, Glad garbage bags, and Kingsford charcoal are not going to be cut out of the shopping list if a consumer is tight on cash. This creates business stability for Clorox, which translates to reduced stock price volatility.

Clorox’s product portfolio can be seen in more detail below.

CLX The Clorox Portfolio

Source: Clorox FY2016 Investor Fact Sheet 

Clorox’s products are often leaders in their particular categories and often hold #1 or #2 market share. Most notably, Kingsford charcoal holds 75% (!!!) of the market share in its category.

CLX Share Leadership

Source: Clorox FY2016 Investor Fact Sheet 

In the categories where Clorox competes, it enjoys ~3x the market share of the next branded competitor. Clorox’s products are very popular, and consumers are often recurring customers for Clorox’s products.

CLX Advantaged Portfolio Big Share Brands in Mid-Sized Categories

Source: Clorox 2Q2017 Investor Presentation

As a company that produces necessity-based products, Clorox (and its investors) enjoys low stock price volatility and recession resistant business performance.

Other articles from Sure Dividend on Clorox can be seen below.

Low Volatility Dividend Aristocrat #4: Kimberly-Clark Corporation

10-Year Stock Price Volatility: 17.8%

Payout Ratio: 64%

Dividend Yield: 2.9%

Kimberly-Clark (KMB) is a consumer goods giant that specializes in tissues, cloths, diapers, wipes, and other hygiene-related products. The company is divided into three segments for reporting purposes:

Kimberly-Clark also has the fourth-lowest stock price volatility among the Dividend Aristocrats.

KMB Stock Price

Source: Google Finance

Kimberly-Clark manufactures cleaning products that are essential no matter what. Consumers are not going to stop purchasing Huggies diapers or Kleenex tissues because of uncertainty about the global economy.

KMB Brands

Source: Kimberly-Clark Presentation at the 2016 Barclays Global Consumer Staples Conference, slide 2

Kimberly-Clark is also a remarkably shareholder-friendly business. Aside from 44 years of consecutive dividend increases, the company devotes a large amount of capital to its shareholders.

2016 saw Kimberly-Clark pay out 61% of its earnings-per-share as dividend payments. Further, the company has paid out $12.4 billion in cash dividends in the past dozen years, which is substantial in comparison to the company’s current ~$47 billion market capitalization.

KMB Shareholder-Friendly Cash Deployment - Dividends

Source: Kimberly-Clark Presentation at the 2016 Barclays Global Consumer Staples Conference, slide 24

Kimberly-Clark’s shareholder-friendliness also extends to its share repurchase program. Between 2004 and 2015, the company repurchased $14.6 billion of company stock – which means the company has devoted more capital to buybacks than dividend payments during that time.

KMB Shareholder-Friendly Cash Deployment - Share Repurchases

Source: Kimberly-Clark Presentation at the 2016 Barclays Global Consumer Staples Conference, slide 25

Kimberly-Clark’s stock price has a notably low stock price volatility. Generous dividend payments and share repurchase programs also help to smooth the ride of Kimberly-Clark’s shareholders.

Other articles from Sure Dividend on Kimberly-Clark can be seen below.

Low Volatility Dividend Aristocrat #3: PepsiCo., Inc.

10-Year Stock Price Volatility: 17.7%

Payout Ratio: 62%

Dividend Yield: 2.7%

Pepsi (PEP) is the world’s second-largest soda company that is best known for its namesake Pepsi soda. The current Pepsi corporate entity was created by a merger of Pepsi-Cola and Frito-Lay in the 1960s. Right now, Pepsi sells a nearly balanced mix of beverage and food products.

Pepsi has the third lowest stock price volatility among the Dividend Aristocrats.

PEP Stock Price

Source: Google Finance

Like Coca-Cola, Pepsi’s future is doubted by some investors because of a perceived decline in demand in the global carbonated beverage industry. We saw with Coca-Cola that this is not really the case, and the beverage industry continues to grow.

Pepsi provides an additional hedge in the event that the beverage market does decline since this company also sells food and snacks.

Pepsi continues to deliver strong financial performance for its shareholders. Fiscal 2016 saw the company generate nearly $8 billion of free cash flow, of which $7.2 billion was returned to shareholders through a combination of dividend payments and share repurchases.

PEP Strong Cash Generation Leading to Attractive Shareholder Returns

Source: PepsiCo 2016 Investor Infographic

Pepsi also recently announced its 45th consecutive annual dividend increase. With the company’s portfolio of strong brands and its recession-resistant presence in the beverage and food industry, it is highly likely that Pepsi will continue to reward investors for years to come.

Other articles from Sure Dividend on Pepsi can be seen below.

Low Volatility Dividend Aristocrat #2: Consolidated Edison

10-Year Stock Price Volatility: 17.6%

Payout Ratio: 69%

Dividend Yield: 3.5%

Consolidated Edison (ED) is a holding company in the regulated utility sector. Consolidated Edison owns two major operating companies:

Consolidated Edison has the second-lowest stock price volatility among any Dividend Aristocrat.

Consolidated Edison Stock Price

Source: Google Finance

CECONY sells electricity, gas, and steam in New York and Westchester County, while O&R sells electricity and gas in the states of New York and New Jersey.

Consolidated Edison also owns smaller operating companies in the regulated transmission and clean energy sectors. The following diagram provides a visual explanation of Consolidated Edison’s corporate structure.

ED Organizational Structure

Source: Consolidated Edison March 2017 Company Update, slide 3

CECONY and O&R make up the vast majority of Consolidated Edison’s business. Together, these two subsidiaries make up more than 90% of the company’s earnings-per-share.

Consolidated Edison has been in business for a very long time and can trace its roots back to 1823 when it was known as the New York Gas Light Company. Consolidated Edison’s size and operating history certainly qualify it as a blue chip stock.

Despite its age, Consolidated Edison is preparing for a future that might look very different for utility and energy companies. The company continues to install hundreds of gigawatt-hours of renewable electric production per quarter.

ED Con Edison Development - Renewable Electric Production

Source: Consolidated Edison March 2017 Company Update, slide 10

Consolidated Edison has been a strong dividend stock to own over the years. The utility has 43 years of consecutive dividend increases, which means it is on pace to become a Dividend King in 2024. The company’s regulated revenue stream means that Consolidated Edison has a very high probability of joining this elite group of dividend stocks.

ED 43 Consecutive Years of Dividend Increases

Source: Consolidated Edison March 2017 Company Update, slide 17

Utility companies on average have very little stock price volatility. In fact, utilities generally behave more like bonds than like stocks – they are interest rate sensitive and appeal more to income investors than those who seek absolute returns.

Consolidated Edison is the only utility company to be a Dividend Aristocrat. If another utility company eventually joins the index, it will very likely hold a place on this list of low volatility stocks.

Other articles from Sure Dividend on Consolidated Edison can be seen below.

Low Volatility Dividend Aristocrat #1: Johnson & Johnson

10-Year Stock Price Volatility: 16.4%

Payout Ratio: 48%

Dividend Yield: 2.6%

Johnson & Johnson (JNJ) is a global healthcare company that operates in three segments:

It is also the Dividend Aristocrat with the lowest stock price volatility.

JNJ Stock Price

Source: Google Finance

The stability of Johnson & Johnson’s stock price comes from two sources. The first its incredible amount of inherent diversity. Johnson & Johnson is a massive company that has operations in more than 60 countries and owns more than 260 subsidiary companies.

These subsidiaries aren’t small, either – Johnson & Johnson owns the sixth-largest consumer health company, the sixth largest biologics company, and the fifth-largest pharmaceutical company.

The second contributor to Johnson & Johnson’s low volatility is its presence in the healthcare sector and its portfolio of strong brands. Johnson & Johnson owns many iconic brands such as Listerine, Tylenol, and Aveeno, among others.

JNJ Iconic Brands

Source: Johnson & Johnson CAGNY Presentation, slide 5

Aside from owning many individual products, Johnson & Johnson also has a presence in many product categories. This provides stability for the company because if there is a systemic decline in any one category, it will be protected due to its limited exposure.

JNJ Our Brands Are Clustered In 6 Broad Categories

Source: Johnson & Johnson CAGNY Presentation, slide 7

Johnson & Johnson’s growth is driven by their ‘megabrands’ – the company’s twelve brands with the highest sales.

Right now, Johnson & Johnson has three brands with $1 billion+ in sales – Johnson’s, Neutrogena, and Listerine. These three brands generated ~65% of the company’s 2016 revenues in the consumer products segment.

By 2020, the company expects to have six brands with $1 billion+ sales, adding OGX,  Tylenol, and Aveeno to this prestigious group.

JNJ Our 12 Megabrands Deliver 65% of Sales Today

Source: Johnson & Johnson CAGNY Presentation, slide 10

Johnson & Johnson also has an incredible amount of geographic diversification. Despite being an American company, only 45% of Johnson & Johnson’s sales come from the continent of North America.

JNJ With 50% of Sales Outside of North America

Source: Johnson & Johnson CAGNY Presentation, slide 12

Johnson & Johnson’s low volatility is also driven by the company’s consistent earnings record.

The company reports ‘operational’ adjusted earnings-per-share which excludes the effect of one-time items and currency fluctuations. Using this metric, Johnson & Johnson is on a 30+ year streak of consecutive earnings-per-share increases – which is longer than any I have seen.

Given the company’s recession-proof product portfolio, geographic diversification, and strong earnings record, it is not surprising that Johnson & Johnson is the Dividend Aristocrat with the lowest stock price volatility. Other articles from Sure Dividend on Johnson & Johnson can be seen below.

Final Thoughts

After investigating the top 15 Dividend Aristocrats with the lowest stock price volatility, certain patterns can be identified.

The first is the prevalence of the consumer staples and healthcare sectors. This is not surprising – both of these sectors create products and services that are needed regardless of the current economic environment, which means earnings tend to suffer less during recessions. Since earnings perform well during recessions, so do the company’s stock prices – which reduces their volatility.

The second major trend is that many of these company have products with brand recognition and consumer loyalty. Products like Coca-Cola soda, Colgate toothpaste, Listerine mouthwash, and Huggies diapers are known around the world, which creates recurring demand among consumers and produces consistent financial performance among these businesses.

Searching for each of these trends when looking for new investments can help identify low volatility stocks before doing any math.


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