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Welcome to Episode #363 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, Tracey is going solo to discuss creating passive income by buying stocks. During the pandemic, many created passive income by starting a side hustle like a YouTube channel or becoming a TikTok influencer. But those side hustles take a lot of work and there’s no guarantee of any actual income.
What if you could get passive income by buying stocks that pay dividends? It’s still not easy, as you need cash to get started, but the dividends are paid out each quarter while you’re doing other things. That’s the very definition of “passive.”
The Dividend Aristocrats
But how do you know which company to buy shares in? There are some S&P 500 companies that are called “dividend aristocrats.” It usually means companies that have paid dividends for several decades AND have raised the dividend every year during that time.
In the case of ProShares S&P 500 Dividend Aristocrat ETF, the requirements include having paid dividends every year for 25 years AND having raised it every year during that time. The ProShares ETF currently has 66 companies that have this record.
But what if you were to add the Zacks Ranks of #1 (Strong Buy) and #2 (Buy) to the dividend aristocrats?
You’d hopefully get rising earnings estimates too.
Cintas, the uniform company, has raised its dividend each year since 1983. That’s 40 years of payouts. Cintas is currently paying a yield of 0.9%.
Cintas shares have outperformed the S&P 500 over the last 5 years. It’s up 157% versus just 60% for the S&P 500. Cintas isn’t a cheap stock, with a forward P/E of 35.1.
It’s a Zacks Rank #2 (Buy) stock.
Should Cintas be on your short list for the dividend?
Grainger is a true dividend aristocrat. The broad line distributor, with business in North America, Japan and the United Kingdom, has raised its dividend 52 consecutive years. In April 2023, it raised it again, by 8%. Grainger’s dividend is currently yielding 1%.
Over the last 5 years, shares of Grainger have outperformed the S&P 500, rising 134.7% compared to 60% for the S&P 500. It trades with a forward P/E of 20.4.
Grainger is a Zacks Rank #2 (Buy).
Should Grainger be on your short list for the dividend?
Caterpillar, the large equipment manufacturer, has paid, and raised, its dividend for 28 years. It also has the largest yield of these three stocks, at 2%.
Over the last 5 years, Caterpillar’s stock has jumped 72.7% which beats the S&P 500’s performance by 12.7%. It’s also cheap, with a forward P/E of just 13.9.
Caterpillar is a Zacks Rank #1 (Strong Buy).
Shares of Caterpillar are up just 0.8% in 2023. Should Caterpillar be on your short list?
2 Dividend Aristocrats with Big Dividend Yields
Investors looking for dividend paying stocks, should be alert for stocks that have high dividend payouts. Sometimes an extra-large dividend, with a company that is not a commodities play, can indicate something unfavorable is going on behind the scenes at the company. Big dividend payouts aren’t always best.
But what if a dividend aristocrat is also paying a big yield?
Walgreens Boots Alliance has paid, and raised, its dividend for 47 years, first as Walgreens Company and then as the joint merged Walgreens Boots Alliance which has pharmacies worldwide and owns No7 Beauty Company.
Walgreens Boots Alliance pays a dividend currently yielding 5.9%. Why so high? The shares have fallen 52% over the last 5 years, including 12.9% in 2023. It was recently trading at 5-year lows.
Walgreens Boots Alliance is cheap, with a forward P/E of just 7.3. It reports earnings next week, on June 27, 2023.
IBM is a dividend aristocrat which has raised its dividend 28 years in a row. The technology giant currently pays a dividend yielding 4.8%.
But shares of IBM are up just 1.2% over the last 5 years while the S&P 500 was up 60% and competitors like Apple and Sony were up 301% and 91.4%, respectively.
IBM is cheap with a forward P/E of just 14. Earnings are expected to be up just 2% in 2023, however.
What Else do you Need to Know about Passive Income and Dividend Aristocrats?
Listen to this week’s podcast to find out.
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Want Passive Income? Try Investing in Stocks
Welcome to Episode #363 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, Tracey is going solo to discuss creating passive income by buying stocks. During the pandemic, many created passive income by starting a side hustle like a YouTube channel or becoming a TikTok influencer. But those side hustles take a lot of work and there’s no guarantee of any actual income.
What if you could get passive income by buying stocks that pay dividends? It’s still not easy, as you need cash to get started, but the dividends are paid out each quarter while you’re doing other things. That’s the very definition of “passive.”
The Dividend Aristocrats
But how do you know which company to buy shares in? There are some S&P 500 companies that are called “dividend aristocrats.” It usually means companies that have paid dividends for several decades AND have raised the dividend every year during that time.
In the case of ProShares S&P 500 Dividend Aristocrat ETF, the requirements include having paid dividends every year for 25 years AND having raised it every year during that time. The ProShares ETF currently has 66 companies that have this record.
But what if you were to add the Zacks Ranks of #1 (Strong Buy) and #2 (Buy) to the dividend aristocrats?
You’d hopefully get rising earnings estimates too.
3 Top Ranked Dividend Aristocrats
1. Cintas Corp. (CTAS - Free Report)
Cintas, the uniform company, has raised its dividend each year since 1983. That’s 40 years of payouts. Cintas is currently paying a yield of 0.9%.
Cintas shares have outperformed the S&P 500 over the last 5 years. It’s up 157% versus just 60% for the S&P 500. Cintas isn’t a cheap stock, with a forward P/E of 35.1.
It’s a Zacks Rank #2 (Buy) stock.
Should Cintas be on your short list for the dividend?
2. W.W. Grainger, Inc. (GWW - Free Report)
Grainger is a true dividend aristocrat. The broad line distributor, with business in North America, Japan and the United Kingdom, has raised its dividend 52 consecutive years. In April 2023, it raised it again, by 8%. Grainger’s dividend is currently yielding 1%.
Over the last 5 years, shares of Grainger have outperformed the S&P 500, rising 134.7% compared to 60% for the S&P 500. It trades with a forward P/E of 20.4.
Grainger is a Zacks Rank #2 (Buy).
Should Grainger be on your short list for the dividend?
3. Caterpillar Inc. (CAT - Free Report)
Caterpillar, the large equipment manufacturer, has paid, and raised, its dividend for 28 years. It also has the largest yield of these three stocks, at 2%.
Over the last 5 years, Caterpillar’s stock has jumped 72.7% which beats the S&P 500’s performance by 12.7%. It’s also cheap, with a forward P/E of just 13.9.
Caterpillar is a Zacks Rank #1 (Strong Buy).
Shares of Caterpillar are up just 0.8% in 2023. Should Caterpillar be on your short list?
2 Dividend Aristocrats with Big Dividend Yields
Investors looking for dividend paying stocks, should be alert for stocks that have high dividend payouts. Sometimes an extra-large dividend, with a company that is not a commodities play, can indicate something unfavorable is going on behind the scenes at the company. Big dividend payouts aren’t always best.
But what if a dividend aristocrat is also paying a big yield?
1. Walgreens Boots Alliance (WBA - Free Report)
Walgreens Boots Alliance has paid, and raised, its dividend for 47 years, first as Walgreens Company and then as the joint merged Walgreens Boots Alliance which has pharmacies worldwide and owns No7 Beauty Company.
Walgreens Boots Alliance pays a dividend currently yielding 5.9%. Why so high? The shares have fallen 52% over the last 5 years, including 12.9% in 2023. It was recently trading at 5-year lows.
Walgreens Boots Alliance is cheap, with a forward P/E of just 7.3. It reports earnings next week, on June 27, 2023.
2. IBM (IBM - Free Report)
IBM is a dividend aristocrat which has raised its dividend 28 years in a row. The technology giant currently pays a dividend yielding 4.8%.
But shares of IBM are up just 1.2% over the last 5 years while the S&P 500 was up 60% and competitors like Apple and Sony were up 301% and 91.4%, respectively.
IBM is cheap with a forward P/E of just 14. Earnings are expected to be up just 2% in 2023, however.
What Else do you Need to Know about Passive Income and Dividend Aristocrats?
Listen to this week’s podcast to find out.