Profit pillars: 5 Dividend aristocrats for reliable income

Key Points

• Top dividend aristocrats, including 3M, IBM, Realty Income, Target, and Southern Company, offer consistent shareholder payouts.
• These companies have a history of increasing dividends for 25 years or more, making them reliable choices for income-oriented investors.
• Dividends have historically contributed nearly a third of total equity return.

3M NYSE: MMM, International Business Machines NYSE: IBM, Realty Income Inc. NYSE: O, Target Corp. NYSE: TGT and the Southern Company NYSE: SO are among dividend aristocrats with a history of increasing shareholder payouts for a history of increasing shareholder payouts for  25 years or more.

These stocks are also tracked in the S&P High Yield Dividend Aristocrats Index, which measures performance of companies within the S&P that have followed a policy of consistently increasing dividends every year for at least 20 years.

The SPDR Portfolio S&P 500 High Dividend ETF NYSEARCA: SPYD is comprised of stocks in that index.

Dividends: One-third of total equity return

According to S&P Dow Jones Indices, the index creator, “since 1926, dividends have contributed nearly a third of total equity return while capital gains have contributed two-thirds.”

The S&P High Yield Dividend Aristocrats index is designed to capture both dividend income and capital appreciation, both key factors in investors’ expectation of their total return. 

Here’s a look at the top components and their dividend yields.

3M warns about earnings

Marketbeat’s 3M dividend data shows a yield of 6.62% and a 67-year history of increasing the shareholder payout.

Despite a recent warning about earnings and high potential costs for pending lawsuits, you can be sure the company is doing everything it can to maintain that track record. Canceling or slashing the dividend would signal to investors that management is losing confidence in the company.

Analysts expect the company to earn $9.60 a share this year, an increase of 4%, but revenue growth has been slowing for two years.

The 3M chart shows the gap-down after the most recent earnings report, which contributed to 3M stock’s high yield. 

IBM becoming an AI stock

IBM may not be the first name you think of when it comes to an artificial intelligence stock power player, but it's earning a growing share of revenue from AI. 

The IBM dividend yield is 3.67% and the company has increased the dividend in each of the past 28 years.

That yield puts IBM among the top technology stocks when it comes to shareholder payout.

IBM stock is up 19.92% in the past three months.

Realty Income 

It’s not a household name, compared with other stocks on this list, but you’re certainly familiar with the companies that lease properties owned by this real estate investment trust.  

The Realty Income dividend yield is 5.86%. The company has a 31-year history of increasing its dividend.

Realty Income focuses on acquiring freestanding, single-unit properties leased to industry-leading retailers under long-term, net lease agreements. It also owns industrial and distribution properties leased to Fortune 1000, investment-grade rated companies. 

Largest clients include Dollar General Corp. NYSE: DG, Walgreens Boots Alliance Inc. NASDAQ: WBA, 7-Eleven, Dollar Tree NASDAQ: DLTR and Wynn Resorts Ltd. NASDAQ: WYNN. 

Analysts' Realty Income price target is $61.29, an upside of 16.92%. 

Target shareholder return on point

Target analyst forecasts show an upside of 4.32% in the stock. 

MarketBeat’s Target dividend data reveal a yield of 2.96% and a 53-year history of increasing the dividend.

That's not a track record a company would put an end to very easily.

In a February 17 research note, CFRA analyst Arun Sundaram gave Target stock a risk factor of “low,” saying his risk assessment reflects the company’s “fairly consistent earnings track record, healthy balance sheet and cash flow, and strong shareholder returns via dividends.” 

He also cited share repurchases as a factor in his rating. Target repurchased  $2.6 billion in fiscal year 2023. 

Southern Company dividends head north

Atlanta-based Southern Company is one of the largest electricity producers in the U.S. and the largest wholesale provider in the Southeast.

The Southern Company dividend yield is 4.16% and the company increased its payout in each of the past 23 years.

Utility stocks are among the S&P's most reliable dividend payers, making them perennial choices among income-oriented investors.

The Southern Company analyst forecasts show a consensus view of “moderate buy” and a price target of $73.46, an upside of 9.24%.