In fact, many Dividend Aristocrats are mature businesses with solid foundations. Some may be going through temporary periods of weakness. However, that presents an opportunity to scoop them up at attractive valuations since they’re unlikely to remain depressed for long. All you need to do is reinvest those steady dividend payments and watch your portfolio compound over time.
Let’s delve into the three Dividend Aristocrat stocks that will generate passive income and high rewards.
Atmos Energy (ATO)
Atmos Energy (NYSE:ATO) is a natural gas utility company serving over 3 million customers across eight states. Despite natural gas prices languishing at bargain-basement levels for an extended period, this company has managed to remain profitable. ATO delivers steady and consistent returns for shareholders. While Atmos Energy’s top-line figures have been flat, the upside potential going forward hinges more on natural gas price dynamics.
Importantly, ATO represents a solid bet for both the short and long term. Natural gas prices are likely to readjust higher in the long run, and we’ve already seen a slight rebound in May. With Russia still supplying billions of cubic meters of gas to Europe, pressure will mount on the U.S. and Qatar, especially if we witness a cold winter. Nevertheless, natural gas prices don’t impact this company as much as one might think. Atmos Energy makes its money through the volume of natural gas distributed. This is why, despite lower revenue, net income grew 14.5% in the recent quarter.
Also, the company invested $770 million in capital expenditures, earning a robust 9.8% return. And, it benefited from $129 million in regulatory gains, with 82% of investments focused on safety and reliability. Atmos Energy appears well-positioned for continued regulatory approvals and earnings growth. Investors like the dividend yield that stands at an attractive 2.57%, with 40 consecutive years of dividend hikes.
International Business Machines (IBM)
One of the world’s oldest and largest tech companies, International Business Machines (NYSE:IBM) has witnessed record performance in recent months. It was benefiting from the broader rally in software and tech companies.
This uptrend didn’t last too long, however, as the stock has corrected again. Trading at around $169, IBM is down roughly 15% from its March peak.
My biggest bull case for IBM stems from management’s focus on many high-growth sectors to reignite the stock, thus far a successful approach. As I mentioned in a February 2022 article, “IBM will likely grow much faster in the future as it is making a turnaround by shifting its focus to cloud computing, AI, and blockchain, which will position it as a dynamic tech company.” That is precisely what has transpired, with the stock up 36% over the past year.
Hence, this performance is likely to continue. IBM has solid recurring revenue and a cash cow segment as a foundation from which it can build into some of the hottest sectors right now. Further, quantum computing will drive as much hype as artificial intelligence (AI)is doing in the coming decades. And IBM is ahead of its peers by miles in this field.
Also, its $6.4 billion acquisition of HashiCorp will give it a strong foothold in the cloud sector. Finally, the forward dividend yield stands at a solid 3.97%, with 29 consecutive years of dividend increases.
Stanley Black & Decker (SWK)
Stanley Black & Decker (NYSE:SWK) has been one of the worst-performing names over the past three years, with the stock trading sideways after the 2021/22 selloffs. Many remain bearish here, but I see this as a prime once-in-a-decade buying opportunity. The company’s decline is mostly due to rate hikes. Those had Stanley Black & Decker paying around $145 million per quarter in interest expenses. More importantly, a lot of the bad news has been priced in, and I see very little downside risk left.
In addition, the infrastructure and construction boom is providing tailwinds to this company, and management has been executing well. The bloated inventory has come down from $6.6 billion in Q2 of 2022 to $4.7 billion in Q4 of 2024. And, over $1 billion in pre-tax run-rate cost savings since 2022 is expected to reach $2 billion next year. Accordingly, analysts estimate EPS to rise from $4 in 2024 to $6.8 in 2026.
Thus, we could see much higher earnings if rate cuts happen faster than expected. The forward dividend yield is 3.71%, with consecutive dividend hikes for the past 57 years.
On the date of publication, Omor Ibne Ehsan 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.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.