At the end of 2022, I received a message from one of our members, Dan S., asking whether dividend stocks would continue to be an important way to generate income in 2023.
My answer was a resounding yes.
The stock market moves in volatile and unexpected ways. That means you simply cannot count on rising stock prices alone to bail you out.
You have to find ways to make the market pay you, and collecting dividends is a great way to do that.
If you’re looking for standout dividend stocks, you may want to check out an elite class called the Dividend Aristocrats. Because if regular dividend stocks offer a feeling of security, Dividend Aristocrats offer that feeling on overdrive.
To earn the title of “Dividend Aristocrat,” a company must:
- Be part of the S&P 500 — a symbol of prestige because investors use the S&P 500 as a benchmark for the health of the overall stock market.
- Pay and raise its dividend for 25 straight years — a sign of commitment from the company as well as financial health.
- Have a minimum market cap of $3 billion — a sign that a company has an established business with a long operating history.
- Have average daily trading volumes of at least $5 million — ensuring that there are people who would want to buy your shares if a time comes when you’d want to sell them.
Near the end of January, three new companies were crowned Dividend Aristocrats: J.M. Smucker Co. (SJM), C.H. Robinson Worldwide Inc. (CHRW), and Nordson Corp. (NDSN). As of this writing, SJM has a yield of 2.72%, CHRW has a yield of 2.35%, and NDSN has a yield of 1.05%.
Of course, Aristocrat status and dividend yield alone don’t paint the full picture of whether these stocks are worth owning now.
I want to show you how TradeSmith’s investing tools can provide more context to help with your investing decisions.
One of those tools is our Health Indicator, which you can think of as a green-, yellow-, red-light system.
If a stock is in the Green Zone, that means it’s in a healthy state and is considered a “buy”; if a stock is in the Yellow Zone, that means to “hold”; and if a stock is in the Red Zone, that means to “stop” and “stay away.”
Another tool is our Volatility Quotient (VQ), which can let you know the risk levels involved with an investment.
VQ Level Breakdown:
- Up to 15% = Low Risk
- 15%-30% = Medium Risk
- 30%-50% = High Risk
- 50% and above = Sky-High Risk
These tools get us one step closer to seeing whether something could be an investable opportunity. In the table below, you can see what our tools say about the health and risk of the three new Dividend Aristocrats:
According to our indicators, only one of these newly crowned Aristocrats is currently a buy: J.M. Smucker Co.
J.M. Smucker Co. is ingrained into many families’ daily lives, with Mom and Dad brewing a pot of Folgers Coffee every morning, the kids packing PB&Js created from Smucker’s strawberry jelly and Jif peanut butter in their lunchboxes, and the family dog placing its head on your lap and pulling at your heartstrings until it gets its daily Milk-Bone treat.
Even if you hear inflation is “cooling,” you know that after visiting the grocery store, it still doesn’t feel that way. The good news is that because it’s a consumer favorite, J.M. Smucker Co. has pricing power, which means it can raise prices without losing many customers because they know and love the company’s products.
You can see from the company’s presentation slide below just how big of a reach it has:
So, putting it all together, we have:
- A company that was crowned a Dividend Aristocrat because of its history of reliability and its focus on enhancing shareholder returns.
- A company that consumers love, with over 80% of U.S. households buying its brands.
- TradeSmith tools saying that this is a healthy, medium-risk company to invest in. That’s a powerful trifecta.
Even if you don’t plan on adding SJM to your own portfolio, this story shows how you can take a piece of news — like three companies becoming Dividend Aristocrats — and use our tools to find the strongest investing opportunity.
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