Are These Dividend Aristocrats a Buy For Passive Income?

Dividend Aristocrats are S&P 500 Index ($SPX) companies that have increased their dividends for at least 25 consecutive years. These consistent dividend hikes reflect the companies' stable earnings and commitment to returning money to shareholders. 

Investors seeking passive income in the current market environment can rely on the three best-in-class dividend stocks below to provide consistent and stable income.

Dividend Aristocrat No. 1: General Dynamics

General Dynamics Corporation (GD) is one of the world's largest defense contractors, with a diverse portfolio including aerospace, marine systems, combat systems, and information technology. 

Valued at $81.2 billion, GD stock has surged 14.2% year-to-date, compared to the S&P 500 Index's ($SPX)gain of 16.5%.

Over the past several years, General Dynamics has demonstrated consistent financial performance that has allowed it to hike dividends consistently for the past 33 years. The credit goes to its diverse business segments and strong demand for its defense and aerospace products.

It pays a forward dividend yield of 1.92%, higher than the industrial sector average of 2.36%. Furthermore, its forward payout ratio of 34.5% suggests that dividends are sustainable, with room for growth. The company distributed $389 million in dividends during the second quarter.

In the second quarter of 2024, total revenue of $12 billion jumped 18% year on year, while diluted earnings per share (EPS) also rose by 20.7% to $3.26 from the year-ago quarter. Furthermore, the company's backlog stood at $91.3 billion, indicating that more revenue will be generated in the coming quarters.

Its aerospace segment, which is driven by Gulfstream business jets, is highly profitable and serves the corporate aviation market. Gulfstream delivered 37 aircraft in Q2, increasing segment revenue by 50.5%. Furthermore, the Marine Systems and Combat Systems segments are responsible for the construction and support of submarines, surface combatants, and other military vehicles, which are in constant demand and generate consistent profits. 

Analysts covering the stock expect its earnings to increase by 20.7% in 2024, further rising by 13.1% in 2025.

Out of 20 analysts covering GD stock, 15 have a “strong buy” rating, one has  a “moderate buy” rating, and four suggest it is a “hold.” Its mean target price is $326.89, which implies an upside potential of 10.2% from current levels. 

Plus, its Street-high estimate of $345 suggests that the stock could rise as high as 16.3% over the next 12 months. 

GD's diversified business model, strong financials, and strategic positioning in the defense industry will continue to benefit the company's financial performance. This makes GD an attractive long-term growth and income stock to buy now. 

Dividend Aristocrat No. 2: The Procter & Gamble Company

Founded in 1837, the Procter & Gamble Company (PG), commonly known as P&G, is a well-known name in the consumer goods industry. P&G has established a reputation for producing high-quality products in a variety of categories, including personal care, household cleaning, and healthcare.

Its popular brands include Gillette, Braun, and Head & Shoulders, among others. This global portfolio of widely recognized and trusted brands has provided significant pricing power and customer loyalty, resulting in consistent earnings growth. 

Valued at $396.3 billion, P&G stock has gained 14.6% YTD, not too far behind the overall market.

P&G has increased its dividend for 68 consecutive years. This has earned the company the title of Dividend King, as well - a group of companies that have raised their dividends for 50 or more consecutive years in a row.

PG stock offers an attractive forward yield of 2.4%, compared to the consumer staples sector average of 1.89%. Furthermore, the forward dividend payout ratio of 57.7% indicates that the company's earnings can support current dividend payments. Recently, the company hiked its dividend by 7% to $1.0065 per share, marking the 68th consecutive dividend hike. 

In fiscal 2024, P&G's adjusted organic sales increased by 4%, while core earnings per share (EPS) increased 12% year on year, despite a challenging economic and geopolitical environment. Management anticipates that core EPS will increase by 5% to 7% in fiscal 2025.

Furthermore, P&G intends to generate 90% of its earnings as free cash flow, which should allow it to pay out $10 billion in dividends and repurchase $5-$7 billion in stock. Analysts expect P&G’s earnings to increase by 5.6% in fiscal 2025 and 6.8% in fiscal 2026, respectively. 

Overall, Wall Street has rated P&G stock a “moderate buy.” Out of 24 analysts covering the stock, 14 have a “strong buy” rating, two have a “moderate buy” rating, and eight have a “hold” rating. Analysts have an average target price of $174.88 for PG stock. This indicates an upside potential of about 4.2% from current levels.

Plus, its Street-high estimate of $191 suggests that the stock could rise as high as 13.8% over the next 12 months. 

Dividend Aristocrat No. 3: McDonald's Corporation 

McDonald's Corporation (MCD) is one of the most renowned fast-food companies in the world. It is recognized for serving meals that are quick, convenient, tasty, and affordable. There are over 40,000 McDonald's locations in more than 100 countries.

It has a robust business model and strong brand equity, which has resulted in consistent financial performance. This has also enabled it to pay dividends consistently over the last 48 years, earning it the title of Dividend Aristocrat.

Valued at $198 billion, MCD stock has fallen 6% YTD, underperforming the broader market.

The stock offers a forward dividend yield of 2.4%, which exceeds the consumer discretionary average of 1.89%. Its 52.4% dividend payout ratio appears to be sustainable and scalable as earnings grow.

McDonald's financial performance has remained stable, reflecting its strong business model and global presence. However, inflationary pressures impacted the second-quarter results. Net revenue remained flat at $6.5 billion, while adjusted earnings fell 8% during the quarter. Analysts expect McDonald’s earnings to dip by 1.07% in 2024, before ultimately increasing by 7.8% in 2025. 

Despite the challenging quarter, the company declared a cash dividend of $1.67 per share, payable in September 2024. 

Overall, analysts have an average rating of “moderate buy” for MCD stock. Out of 31 analysts covering the stock, 16 have a “strong buy” rating, two have a “moderate buy” rating, and 13 suggest it is a “hold.” 

Analysts have assigned a mean target price of $297.76 to MCD, implying a roughly 7% upside from current levels. Its high target price of $355 implies the stock can go as high as 27.5% in the next 12 months. 

McDonald's stock remains a solid investment choice for those looking for consistent and safe dividends.