3 Dividend Champions for Yield and Total Returns

Investors looking for the best dividend stocks for 2021 and beyond should take a closer look at the stocks with the longest histories of annual dividend increases. One group of attractive dividend growth stocks is known as the Dividend Champions, which have each raised their dividends for at least 25 consecutive years.

Through their long histories of consistent dividend growth, the Dividend Champions have demonstrated the ability to generate long-term growth, even during recessions. The strength of their business models allows them to continue raising dividends to shareholders, regardless of the economic climate. As a result, they are widely appealing for income investors.

The following three dividend stocks are particularly attractive due to their high dividend yields and low valuations.

  • Telephone & Data Systems (NYSE:TDS)
  • Walgreens Boots Alliance (NASDAQ:WBA)
  • First of Long Island Corporation (NASDAQ:FLIC)

Top Dividend Stocks: Telephone & Data Systems (TDS)

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Telephone & Data Systems is a telecommunications company that provides customers with cellular and landline services, wireless products, cable, broadband, and voice services across 24 U.S. states. Its cellular operating segment comprises roughly three-quarters of company revenue. The company generates more than $5 billion in annual revenues.

TDS is a highly recession-resistant stock because its business model generates steady revenue and cash flow, regardless of the economic environment. This is because consumers are extremely reluctant to give up their cellular, cable and broadband services even during a recession.

The company posted resilient financial results over the past year. In the most recent quarter, TDS increased revenue slightly to $1.32 billion, while diluted earnings per share soared 340% year-over-year. Lower postpaid churn helped keep the company growing, as its churn rate fell to 1.06% from 1.38% in the same period the year prior.

Future growth will likely be steady, which has been consistent with the company’s historical growth rate. In the past decade, the company grew its book value per share by 2% per year.

Investors should not expect high growth from telecoms like TDS. We expect 1%-2% annual earnings-per-share growth moving forward, consisting of customer additions as well as modest growth in average revenue per user through price hikes. Steady earnings growth combined with a low valuation and a high dividend yield of 3.6% could produce total returns above 10% per year going forward.

Walgreens Boots Alliance (WBA)

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Walgreens Boots Alliance is a pharmacy retailer with more than 21,000 stores in 11 countries around the world. Walgreens has increased its dividend for 45 consecutive years, a remarkable history of steady dividends which is due to the company’s recession-resistant business model. Even over the past year, the company has held up fairly well, and has even posted impressive sales growth during the pandemic.

For example, in the most recently reported quarter, total sales increased 5.7% to $36.3 billion, led by a 3.9% increase in the retail pharmacy USA segment and an 18.6% increase in the pharmaceutical wholesale division.  On an adjusted basis, earnings-per-share equaled $1.22, down from $1.37 in Q1 2020 as the company has absorbed higher costs related to the pandemic.

The company estimated adverse Covid-19 impacts of 26 cents to 30 cents per share. While Walgreens has not been able to completely avoid the impact of the pandemic, better days are ahead as the company maintained its fiscal 2021 guidance, anticipating low single-digit growth in adjusted earnings per share.

Walgreens faces a significant level of competition in pharmacy retail, not just from traditional competitors such as CVS Health (NYSE:CVS) but also from new competition in the form of online retailers. For example, Amazon (NASDAQ:AMZN) has demonstrated an intention to enter the pharmacy business, evident by its purchase of online pharmacy PillPack.

However, Walgreens has been able to keep growing its sales due to its widespread retail presence and strong brand perception. And, as consumers are extremely unlikely to go without their medications and health care supplies even during a recession, Walgreens sees its sales and profits hold up very well during economic downturns.

Walgreens stock trades for a P/E ratio just above 9x. We believe fair value for Walgreens stock is a P/E of at least 10x. We also expect 5% annualized EPS growth while the stock has a 4% dividend yield, leading to expected returns of 10% per year going forward.

First of Long Island Corporation (FLIC)

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First of Long Island is an under-the-radar stock that may not be immediately recognizable, as it is a small regional bank with a market cap of just $450 million. But despite its small size, First of Long Island has a well-established track record of dividend growth, having raised its dividend for 25 consecutive years. It has achieved this by steadily growing its loans and assets over time.

First of Long Island has 49 branches in New York. Over the past five years, First of Long Island has grown its earnings-per-share by nearly 9% per year, while increasing its book-value-per-share by nearly 8% per year in the same period.

The bank has maintained a long-term strategy of prudent growth through customer additions, along with a focus on operational efficiency and maintaining a strong credit quality. This has served the company well, particularly during recessions. In turn, this has allowed the company to continue raising its dividend through the Great Recession of 2008-2009 and also the coronavirus pandemic in 2020.

Low interest rates have weighed on the entire banking industry, including FLIC, as low rates suppress the net interest margin that banks are able to generate. However, if the economy continues to recover in 2021, it is possible that interest rates could begin to rise. This would be a positive growth catalyst for FLIC. And even if rates stay low, economic growth will be a positive catalyst for the company’s assets and loans growth.

Analysts currently expect FLIC to generate EPS of $1.64 in 2021. The stock has a P/E of 11x. We believe fair value for this stock is a P/E of 13x. In addition to positive returns from a higher valuation multiple, the 4.2% dividend yield and expected EPS growth of 5% per year leads to expected annual returns above 12% per year.

On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

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