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10 Companies That Are Likely to Be Dividend Aristocrats by 2050

Income investors love dividends, and for good reason. Over time, dividend payments have proven to be a meaningful part of the equity market’s total returns. That is because, when stock prices decline, dividends provide a real return and a valuable margin of safety that help to limit downside. And, when bull markets reign and stock prices rise, dividends are simply icing on the cake and a boost to total returns.

Moreover, since the U.S. economy remains in the Federal Reserve’s zero-interest-rate policy, yield is hard to find. Dividends in the equity market are competitive with yields on fixed income securities such as bonds. That means investors should look at the stock market as a way to generate income.

Target Payout Ratios

One of the most important financial metrics used to determine whether a company can continue to grow its dividend is the payout ratio. This is a simple equation: Dividends per share/Earnings per share. It is expressed as a percentage and tells investors how much of a company’s profits are distributed to shareholders.

Ideally, investors should seek companies with low payout ratios. This is because the lower the payout ratio, the better the chance that a company can grow its dividend in future years. For example, an ideal dividend payout ratio would be 50% of earnings or less—that level allows the company to reinvest half of its profits back into the business, to help drive future earnings growth, and leaves half of its earnings to return to shareholders as a dividend.

In addition, the investor should look at the dividend yield itself. In general, stocks that have lower dividend yields now are the best candidates to raise their dividends over time, since they are not distributing too much of their earnings. Stocks that exhibit very high yields are often struggling companies in troubled financial position.

With that said, here are 10 of the likeliest Dividend Aristocrats by 2050.

Starbucks {% dividend SBUX %}

Dividend Yield: 1.3%
Payout ratio: 44%

Starbucks is enjoying strong earnings growth. Earnings per share rose 35% in fiscal 2015. This is due to the combination of rising comparable sales (a measure of sales at store locations open at least one year), which were up 7% in fiscal 2015. Starbucks is also opening new stores to drive top-line growth. That, plus its low current yield and low payout ratio, leave lots of room for dividend growth. Starbucks recently increased its dividend by 25%.

Nike {% dividend NKE %}

Dividend Yield: 1%
Payout ratio: 32%

Nike is benefiting from the health and wellness trend across the globe. This is particularly true for women’s apparel. Nike’s low payout ratio and solid cash flow generation leave plenty of room for dividend growth. Earnings grew 25% in fiscal 2015, which allowed Nike to raise its dividend by 14% in 2015..

Disney {% dividend DIS %}

Dividend Yield: 1.3%
Payout ratio: 29%

Disney has large media networks, resorts, cruise line, movie studio and consumer products businesses that all contribute to earnings growth. The company owns valuable properties across its business segments that give the company great pricing power.

Apple {% dividend AAPL %}

Dividend Yield: 1.8%
Payout ratio: 22%

Apple is one of the most valuable brands in the world. Apple generated $70 billion of free cash flow in fiscal 2015, up 40% year-over-year—this was due to strong sales of the iPhone, which rose 36% for the year. In addition, Apple has an enormous amount of cash on the balance sheet. It holds $205 billion in cash, short-term marketable securities and long-term marketable securities.

Microsoft {% dividend MSFT %}

Dividend Yield: 2.6%
Payout ratio: 53%

Microsoft is one of the strongest cash-generating businesses around and holds an excellent balance sheet. It is one of three U.S. companies to hold the ‘AAA’ credit rating from Standard & Poor’s. The company holds $99 billion in cash and short-term investments with just $27 billion of long-term debt.

Johnson & Johnson {% dividend JNJ %}

Dividend Yield: 2.9%
Payout ratio: 57%

J&J is currently a Dividend Aristocrat, with more than 50 consecutive dividend increases under its belt. By 2050, that trend should remain fully intact. It is one of three U.S. companies to hold the ‘AAA’ credit rating from Standard & Poor’s. And, it has an enormous and diversified business model—approximately 70% of revenue comes from No. 1 or No. 2 global leadership positions in its respective markets. J&J generated $6.7 billion of free cash flow over the first half of the year, and going forward, should continue to generate plenty of cash flow to continue growing its dividend.

Gilead Sciences {% dividend GILD %}

Dividend Yield: 1.7%
Payout ratio: 15%

Gilead has a large pipeline of new drugs in critical areas, which should fuel future earnings growth. Earnings grew 63% through the first three quarters of the year. Gilead also has a very low payout ratio and $25 billion in cash on the balance sheet. This should pave the way for many years of dividend growth.

Procter & Gamble {% dividend PG %}

Dividend Yield: 3.4%
Payout ratio: 67%

P&G is one of the world’s biggest consumer staples company. It has increased its dividend for 59 years, and because it has such a large and strong product portfolio, it should keep increasing dividends until 2050 and beyond. P&G’s massive portfolio includes 21 brands that each generate at least $1 billion in annual sales.

3M {% dividend MMM %}

Dividend Yield: 2.6%
Payout ratio: 53%

3M has paid a dividend for 99 years. It is a diversified industrial conglomerate, with large businesses across a wide range of sectors. That provides the company steady earnings growth and diversification. Over the last five years, 3M has increased its dividend by 14% per year.

Exxon Mobil {% dividend XOM %}

Dividend Yield: 3.9%
Payout ratio: 61%

Exxon Mobil is the largest integrated energy company in the world. As such, it has the financial strength to navigate difficult business environments, such as what investors have seen transpire in 2015. Its robust cash flow and balance sheet strength allowed the company to increase its dividend by 6% this year while other oil and gas companies are cutting dividends to stay afloat.

The Bottom Line

Dividends are a valuable component of total return investing. The task for investors is to pick companies that can sustain, and grow, their dividends over time. By utilizing the payout ratio and dividend yield metrics, an investor can accurately assess which companies have the best dividend growth prospects. Because of their low payout ratios, modest dividend yields, and strong underlying businesses, the 10 stocks mentioned above have excellent odds of becoming dividend stalwarts by 2050.

Find a list of current dividend aristocrats here