With the S&P 500 is it's 2nd year of a bull run, many investors are looking at buying hot stocks and commodities to ride the wave up. 

I hate to be a downer here, but bull runs don't run forever. We don’t know when—we just know that it will happen, and the bears will come out to play. So, gearing a portion of your portfolio towards safe, reliable, income-generating stocks can be an excellent way to prepare for a reset. With over 25 years of dividend increases, Dividend Aristocrats are among the best choices for that direction. 

But which ones should you buy? Companies with elevated dividend increases while maintaining low dividend payout ratios are great candidates- they offer safety and security throughout any bear market. 

How I Came Up With The Following Stocks

As usual, I went to my Dividend Aristocrat watchlist to get this analysis started. Then, I came up with the following filters: 

• Current Analyst Rating: 3.5 (Moderate Buy) to 5 (Strong Buy)
• Annual Dividend Yield: 1.5%
• 5-Year Dividend Growth: 50% or more. As the name indicates, 5-year dividend growth tracks dividend increases over half a decade. I set this to 50% to represent a 10% increase yearly, resembling the average return on the S&P 500.
• Dividend Payout Ratio: 50% or less. The payout ratio is the portion of a company’s net earnings paid to shareholders. You’d think that higher is better here, but no; growing companies need to use a part of their net earnings to grow. So, a good dividend-growth company maintains a balance between shareholder value and operational viability. That’s why the commonly accepted “safe” payout ratio is between 35% to 55%.

The analysis yielded four Dividend Aristocrats, which I arranged from highest to lowest yield. I usually only cover three stocks in my articles, but all four deserve a part of the spotlight this time. 

Let’s start with the highest-yielding Dividend Aristocrat on the list: 

Target (TGT)

Target is a retail company known for offering various products, including household goods, clothing, electronics, groceries, and more. Unlike its close competitor, Walmart, the company positions itself as a more stylish, trendy, and higher-end alternative, attracting a broad customer base through a mix of exclusive brands and collaborations with designers.

2024 is the company’s 53rd consecutive year of increasing dividends, while Q4 2024 marks the company’s 229th consecutive dividend payment. The quarterly payout is $1.12 or $4.48 annually, representing an impressive 3% forward yield. 

TGT stock also has a relatively low 45.27% dividend payout ratio and a 73.02% 5-year payout increase, on top of its moderate buy rating. This makes it an excellent choice for stable income amidst volatile market conditions. 

Atmos Energy (ATO)

Atmos Energy is one of the largest natural gas distributors in the United States, serving millions of customers across various regions. The company primarily delivers natural gas to residential, commercial, and industrial customers and provides pipeline and storage services.

Atmos Energy pays 46.15% of its net earnings in dividends, giving it ample headroom to increase them without stretching its balance sheet. It also has a 52.58% 5-year increase and has bumped up dividend payments for 40 years, so it’s safe to say we can expect more in the future. 

As for dividends, ATO pays 81 cents quarterly or $3.24 annually, which translates to a 2.28% yield. If history is to repeat itself, investors can expect a dividend increase next quarter. Thus, its moderate buy rating from analysts is likely well-deserved. 

Abbott Laboratories (ABT)

Next is Abbott Labs, a global healthcare company that develops and manufactures diagnostics, medical devices, nutrition, and branded generic pharmaceuticals. Abbott’s mission centers around improving the quality of life through technological advancements and accessible healthcare solutions.

Abbott Labs has increased its dividend payments for 53 years and maintains a 47.28% dividend payout ratio. Meanwhile, its 5-year dividend growth is impressive at 82.14%, which makes it attractive to income investors with long-term growth aspirations. Analysts seem to agree, as ABT stock is the only one on this list with a strong buy consensus rating. 

The company pays a $2.20 annual dividend, which, based on the stock's last trading price, translates to a 1.89% yield. 

Lowe's Companies (LOW)

Home improvement retailer Lowe’s comes last on this list. The company sells tools, appliances, building materials, paint, garden supplies, and more to do-it-yourself (DIY) homeowners and professional contractors. 

Now, this is where I usually cut the results, but I feel that LOW offers a few things that I can’t ignore: it has the highest 5-year dividend growth rate at 135.14% and the lowest dividend payout ratio at 36.92% out of the four companies. 

Granted, it’s also the lowest in terms of yields, but not by much. Its annual dividend is $4.60, reflecting a 1.69% yield based on the stock's last trading price. It also has a moderate buy rating based on 30 analysts, making it a great potential buy. 

Final Thoughts

Dividend Aristocrats are some of the best stocks for income investing. However, not all of them are equal, and some might be paying out of pocket to hike their dividend rates and appear more attractive. So, be mindful of payout ratios and dividend growth rates to ensure that the company you’re eyeing isn’t a bust. 

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On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.