Dividend aristocrats are popular with investors. After all, what dividend investor wouldn’t want to own the stocks of companies with a history of growing their dividends consistently over time?

What is a dividend aristocrat?

Dividend aristocrats are defined as companies that’ve increased their dividends every year for 25 years or longer. There are currently more than 60 dividend aristocrats among the companies included in the S&P 500 index.

Investors often buy dividend aristocrats because they expect companies with a history of dividend growth to be able to continue to grow their dividends in the future. In addition, dividend aristocrats are mature companies with sufficient earnings to continue to increase their dividends and are run by management teams that prioritize dividends in the capital structure.

That being said, dividend aristocrats aren’t immune to dividend cuts. Early in 2024, for instance, onetime dividend aristocrat Walgreens Boots Alliance WBA cut its dividend nearly in half.

How can investors avoid those dividend aristocrats that may be more likely to cut their dividends?

“Companies with wide economic moats have been less likely to cut dividends than companies with narrow moats,” explains Morningstar Indexes strategist Dan Lefkovitz in his new research paper. “No-moat businesses are most likely to cut.”

To come up with our list of the best dividend aristocrats to buy, we screened on the following:

  • Dividend stocks included in the ProShares S&P 500 Dividend Aristocrats ETF NOBL (which trades in the US).
  • Dividend aristocrats with Morningstar Economic Moat Ratings of narrow or wide.

These are the dividend aristocrats from the screen that are trading at the largest discounts to Morningstar’s fair value estimates. Data is as of Aug. 16, 2024.

The 10 best dividend aristocrats to buy now

These undervalued stocks have wide or narrow economic moats and have grown their dividends for at least 25 consecutive years.

  1. Becton Dickinson BDX
  2. Medtronic MDT
  3. Brown-Forman BF.B
  4. Kenvue KVUE
  5. Chevron CVX
  6. Clorox CLX
  7. ExxonMobil XOM
  8. T. Rowe Price TROW
  9. Franklin Resources BEN

Here’s a little bit from the Morningstar analyst who covers each company, along with some key metrics for each dividend stock. All data is as of Aug. 16, 2024.

Becton Dickinson

  • Morningstar Price/Fair Value: 0.73
  • Morningstar Uncertainty Rating: Narrow
  • Morningstar Economic Moat Rating: Medium
  • Trailing Dividend Yield: 1.59%
  • Sector: Healthcare

Becton Dickinson is the lowest-yielding stock on our list of dividend aristocrats to buy. We think the world’s largest manufacturer and distributor of medical surgical products has carved out a narrow economic moat. Morningstar director Alex Morozov calls the company’s cash flow “fairly predictable” and its longevity of its strong returns on capital “particularly remarkable.” The stock looks attractive, trading 27% below our fair value estimate of $325.

After a tumultuous few years, Becton, Dickinson is undergoing a course correction. The covid-19 revenue windfall has been reinvested, which should lift the firm’s core business growth in the coming years as testing revenue has faded. With Alaris returned to the market, the last remaining uncertainty has been resolved, although it is still to be seen whether the damage experienced by the franchise will be long-lasting or whether the infusion system can rapidly regain its market-leading share. The initial trajectory is encouraging.

Historically, BD was considered a virtually recession-resistant business. The essential nature of many of BD's medical products had typically shielded the firm from any capital spending-related volatility, and this business continued to fare fine during the covid-induced hospital admission deceleration. However, many of the businesses acquired with Bard have exposed BD to revenue volatility. Combined with the setbacks and revenue deceleration in the peripheral segment, the Bard acquisition has not been a smashing success. We're not quite ready to call that deal capital-destructive, but the steep price paid has given BD very little margin for error.

The Alaris recall also represented a significant blemish on the company's previously very clean execution record. The magnitude of the damage to the pump franchise is still not certain, but based on early momentum, we think BD should retain many of its installations. The company needs almost flawless execution in the upcoming years to reverse investors' skepticism regarding its performance.

Alex Morozov, Morningstar director

Medtronic

  • Morningstar Price/Fair Value: 0.76
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Narrow
  • Trailing Dividend Yield: 3.27%
  • Sector: Healthcare

Medtronic stock looks 24% undervalued relative to our $112 fair value estimate. One of the world’s largest medical-device companies, Medtronic aims to return a minimum of 50% of its annual free cash flow to shareholders but has been in the 60% to 70% range in recent years, observes Morningstar senior analyst Debbie Wang. We think distributions have been appropriate.

Medtronic’s standing as the largest pure-play medical-device maker remains a force to be reckoned with in the med-tech landscape. Pairing Medtronic’s diversified product portfolio aimed at a wide range of chronic diseases with its expansive selection of products for acute care in hospitals has bolstered Medtronic’s position as a key partner for its hospital customers.

Medtronic has historically focused on innovation, designing and manufacturing devices to address cardiac care, neurological and spinal conditions, and diabetes. All along, the firm has largely remained true to its fundamental strategy of innovation. It is often first to market with new products and has invested heavily in internal research and development efforts as well as acquiring emerging technologies. However, in the postreform healthcare world where there are higher hurdles for securing reimbursement for next-generation technology,

Medtronic has slightly shifted its strategy to include partnering more closely with its hospital clients by offering greater breadth of products and services to help hospitals operate more efficiently. By collaborating more closely and integrating itself into more hospital operations, Medtronic is well positioned to take advantage of more business opportunities in the value-based reimbursement environment, in our view. In particular, Medtronic has been pioneering risk-based contracting around some of its cardiac and diabetes products, which we think is attractive to hospital clients and payers alike.

As with many devicemakers, Medtronic has augmented its internal innovation with acquisitions of technology platforms, running the risk of overpaying. The large acquisition of Covidien depressed returns for far longer than typically seen among devicemakers when engaging in mergers and acquisitions. We remain wary that Medtronic, by virtue of its size and cash flows, remains one of the few medical device competitors that could entertain another truly large acquisition.

Debbie Wang, Morningstar senior analyst

Brown-Forman

  • Morningstar Price/Fair Value: 0.82
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Trailing Dividend Yield: 1.90%
  • Sector: Consumer Defensive

The first wide moat stock on our list of undervalued dividend aristocrats, Brown-Forman trades 18% below our fair value estimate. The manufacturer of premium distilled spirits including Jack Daniel’s earns that wide economic moat rating because of its strong brand loyalty and tight client relationships, explains Morningstar analyst Dan Su. We expect dividend payments to grow alongside earnings. We think shares are worth $55.

We award a wide economic moat rating to Brown-Forman, based on strong brand intangible assets and cost advantages associated with the spirits maker’s premium American whiskey portfolio that makes up two thirds of its overall sales.

With over 150 years of distilling experience specializing in Tennessee whiskey and Kentucky bourbon, Brown-Forman has earned accolades and loyalty from drinkers for distinct flavors and consistent quality, building strong brand equity for its core Jack Daniel’s trademark in the US and globally.

We are constructive on the growth prospects of the premium spirits maker, as its high-end positioning in the structurally attractive whiskey category (where a lengthy maturation process creates significant entry barriers) aligns well with the industry’s premiumization trend. Beyond this, we surmise the firm is poised for volume expansion, thanks to a strong innovation pipeline promising new releases not only in whiskeys and tequilas, but also in the attractive fast-growing ready-to-drink category. In particular, close collaboration with wide-moat Coca-Cola for the global launch of the Jack and Coke premix cocktail should allow the distiller to capitalize on demand tailwinds and benefit from Coke’s distribution clout.

Additionally, recent entry into new categories of gin and rum via acquisitions of super-premium brands should broaden the appeal of Brown-Forman’s overall alcohol portfolio and add a new avenue of growth, though the revenue contribution will likely remain small in the near future.

Brown-Forman’s growth outlook is not without risks, though. The distiller and its spirits peers face growing tax and regulatory headwinds in developed countries, where rising excise taxes on alcohol products and health warning labels make spirits more expensive and less desirable. The proliferation of craft distillers, while not an immediate threat to well-liked and widely distributed brands such as Jack Daniel’s, could ultimately chip away at the firm’s loyal customer base by offering a refreshing alternative. That said, we expect Brown-Forman will continue to thrive thanks to its advantaged competitive position and the Brown family’s long-term focus.

Dan Su, Morningstar analyst

Kenvue

  • Morningstar Price/Fair Value: 0.83
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Trailing Dividend Yield: 3.71%
  • Sector: Consumer Defensive

At first glance, it doesn’t seem like consumer health powerhouse Kenvue should qualify for our list of the top dividend aristocrats: After all, it was only spun off from Johnson & Johnson JNJ last year. “It’s deemed an aristocrat because of J&J’s long history of dividend increases, even though Kenvue has only made three dividend payments during its existence,” explains David Harrell, editor of Morningstar DividendInvestor. J&J has averaged a payout ratio of 60% over the past 10 years, and Morningstar expects Kenvue to do the same. Kenvue stock is 17% undervalued relative to our $26 fair value estimate.

Kenvue is the world’s largest pure-play consumer health company by revenue, generating $15 billion in annual sales. Formerly known as Johnson & Johnson’s consumer segment, Kenvue spun off and went public in May 2023. We expect Kenvue, with the freedom to allocate capital and invest as a stand-alone entity, to prioritize growing its 15 priority brands (including Tylenol, Nicorette, Listerine, and Zyrtec) to drive future growth. We forecast the company to spend roughly 3% of sales in research and development, on par with some of its wide-moat competitors, to launch innovative products, specifically in digital consumer health. Recent examples include the Nicorette QuickMist SmartTrack spray and Zyrtec AllergyCast app.

Kenvue has been rationalizing its portfolio through a reduction in a number of stock-keeping units and business selloffs (15 divestitures from 2016-22). Now that most of this optimization is behind us, we expect a more agile portfolio. Macro factors such as an aging population, premiumization of consumer healthcare products, and growing emerging markets should provide tailwinds for Kenvue’s wide array of brands. We also expect Kenvue to benefit from an increasing digital investment—71% of the company’s marketing spending in 2022 was digital versus 44% in 2019—as this should fuel both e-commerce and in-person store sales.

We expect margin expansion from two channels: favorable pricing dynamics and improving supply chain efficiencies. Our analysis tells us that Kenvue has been able to stay ahead of its markets in terms of price hikes, and we expect this trend to continue thanks to its products’ strong brand power. Amid the current inflationary environment, we have seen Kenvue wisely pass along rising costs through robust price hikes, with 7.7% of sales growth achieved from price and mix during 2023. We also expect cost savings over the next five years from supply chain optimization initiatives as Kenvue dedicates roughly 60% of capital expenditures to automation and digitalization of its manufacturing and distribution network, improving end-to-end integration.

Keonhee Kim, Morningstar analyst

Chevron

  • Morningstar Price/Fair Value: 0.84
  • Morningstar Uncertainty Rating: High
  • Morningstar Economic Moat Rating: Narrow
  • Trailing Dividend Yield: 4.26%
  • Sector: Energy

Chevron is one of two oil giants on our list of dividend aristocrats to buy; it’s also one of the higher-yielding names in the group. Morningstar director Allen Good calls Chevron’s dividend levels “appropriate” and thinks there’s room for growth. Chevron stock trades at a 16% discount to our $176 fair value estimate.

We expect Chevron to deliver higher returns and margin expansion thanks to an oil-leveraged portfolio as well as the next phase of growth, which is focused on developing its large, advantaged Permian Basin position.

Its latest capital plan maintains its focus on capital discipline without sacrificing growth. Thanks to improved cost efficiencies, Chevron plans to increase production to nearly 4.0 million barrels of oil equivalent per day by 2027 from about 3.0 mmboe/d in 2023. New volumes will largely come from new production from its Permian Basin position (differentiated by size, quality, and lack of royalties), where it expects to grow volumes to 1.25 mmboe/d by 2027 from about 700 mboe/d in 2022 while delivering returns of nearly 30% and about $5 billion of free cash flow by 2027.

Permian growth will be supplemented by expansion projects at Tengiz in Kazakhstan, new developments in the Gulf of Mexico, potential new discoveries in Mexico and Brazil, and offshore gas fields in the Eastern Mediterranean.

Oil and gas prices will dictate Chevron’s earnings and cash flow for the foreseeable future. However, the company is investing in low-carbon businesses to adapt to the energy transition. It recently tripled its investment to $10 billion cumulatively by 2028, with this capital flowing to emerging low-carbon areas that fit with Chevron’s existing value chains and experience. Greenhouse gas reduction projects and carbon capture and offset will enable Chevron to achieve its emission targets while investments in hydrogen and renewable fuels will give it a toehold in emerging businesses that could expand in the future.

Although specific targets will probably change if the Hess acquisition closes, we expect Chevron to maintain its overall strategic direction. This means the combination of new higher-margin projects along with ongoing cost reductions and operational improvements will drive return on capital employed higher. Also, strong free cash flow will go toward steady dividend growth and repurchases, demonstrating management’s ongoing commitment to capital discipline and shareholder returns.

Allen Good, Morningstar director

Clorox

  • Morningstar Price/Fair Value: 0.86
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Economic Moat Rating: Wide
  • Trailing Dividend Yield: 3.31%
  • Sector: Consumer Defensive

The last of three consumer defensive stocks on our list of the best dividend aristocrats, Clorox stock trades 14% below our $170 fair value estimate. The consumer products giant has carved out a wide economic moat based on the strength of its eclectic brand mix, entrenched retail positioning, and cost advantage, says Morningstar director Erin Lash. Lash expects dividends to grow at a mid-single-digit rate each year through fiscal 2033, with a payout ratio around 60% long term.

The fruits of Clorox’s work to put pronounced inflationary headwinds and supply chain angst to rest were sidelined as a cybersecurity breach in mid-August forced it to take some information technology systems (including ordering) offline. Although this initially strangled sales and profits, we don’t surmise the firm’s competitive edge has been eroded. On the contrary, we think its entrenched standing with retailers will continue to enable it to build back its shelf position, similar to its inventory revival coming out of the pandemic.

Importantly, we expect management will continue investing to ensure its competitive edge holds. In light of the stepped-up e-commerce adoption that has taken hold since the onset of the pandemic, Clorox is investing $500 million over the next few years to bolster its digital capabilities and to look for additional productivity advancements within the organization, which we view as a prudent way to fuel added investments. And we’re encouraged Clorox's strategic playbook remains tethered to bringing consumer-valued innovation to market and touting its fare in front of consumers, which we view as particularly critical against the current backdrop of persistent inflation and intense competition.

More specifically, Clorox goes to bat against lower-priced private-label fare in most of the categories in which it plays, but we think investments in innovation and marketing should help its products stand out on the shelf and stifle trade down. This underpins our forecast, which calls for Clorox to direct 12% of sales annually, just north of $1 billion, toward research, development, and marketing.

While this episode could delay its path back to the 43%-44% historical gross margin levels that have characterized the business (up from the low-30s trough in the second quarter of fiscal 2022 when cost inflation took a toll), we don't posit the firm is sitting still. Rather, we believe Clorox will continue employing multiple tactics, including raising prices surgically and keeping a stringent eye on its cost structure, to blunt the hit from higher costs (particularly around agricultural products, diesel, and labor) as it builds back profits.

Erin Lash, Morningstar director

ExxonMobil

  • Morningstar Price/Fair Value: 0.86
  • Morningstar Uncertainty Rating: High
  • Morningstar Economic Moat Rating: Narrow
  • Trailing Dividend Yield: 3.22%
  • Sector: Energy

Trading 14% below our fair value estimate, ExxonMobil qualifies as an undervalued dividend aristocrat today. The oil behemoth struggled to pay and modestly raise its dividend in 2020 (it increased its debt to do so), but recent actions to reduce costs and capital spending should keep the dividend on track in the future, says Morningstar’s Good. We think ExxonMobil stock is worth $135.

While many of its peers are diverting investment to renewables to achieve long-term carbon intensity reduction targets, ExxonMobil remains committed to oil and gas. It has responded to calls to bring in more outside voices to its board and announced emission reduction targets. It’s also investing in low-carbon technologies, but these efforts are measured and keep oil and gas production at the core. While this strategy is unlikely to win praise from environmentally oriented investors, we think it’s more likely to be more successful and probably holds less risk.

The end of oil is likely to occur, but not anytime soon. Gas is likely to have an even longer life due to the relative attractiveness of its emissions intensity and the need to supplement intermittent renewable power. These trends and growing demand for chemicals are what drive Exxon’s investment strategy and will likely deliver superior returns.

To satisfy investors, Exxon capped spending with guidance of $20 billion-$25 billion a year for 2023-27, which should keep the dividend safe at $40/barrel. However, earnings should still grow with plans to double earnings and cash flow from 2019 levels by 2027. Meanwhile, the dividend break-even should fall to $30/bbl, thanks to structural cost efficiencies and high-margin new projects. This guidance excludes Pioneer Natural Resources.

Production will grow modestly through 2027, but portfolio profitability is set to improve due largely to high-margin Guyana volumes backfilling declines in North American dry gas production and lower-value divestments. Exxon's high-quality Permian position, further bolstered with the addition of Pioneer Natural, affords it capital flexibility and generates free cash flow; it should reach 2.0 million barrels of oil equivalent per day by 2027.

Exxon’s downstream and chemical segments had suffered from decade-low industry margins, but market conditions are reverting to or surpassing midcycle levels, boosting near-term earnings. Investments are focused on producing higher-value lubricants and diesel in its downstream segment and performance products in its chemical segment, which should lift midcycle returns and earnings capacity.

Allen Good, Morningstar director

Final thoughts

For many Australian investors some of the yields may appear low. Yet shares that continually grow their dividends are an important part of an income investing strategy. Unfortunately, dividend growh is hard to come by in Australia. Read about how we may be in the last days of ASX dividend dominance. 

Morningstar's Mark LaMonica wrote the following articles on building an income portfolio which you can read about below:

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.