Every once in a while the market hands you a gift wrapped in panic.
Right now, after a year of tech mania and growth-stock euphoria, one of the most reliable corners of the market is suddenly trading at levels we almost never see. I’m talking about the Dividend Aristocrats – those battle-tested companies that have raised their dividend every single year for at least 25 years – and they’re cheaper relative to the S&P 500 than they’ve been in ages.
Honestly, I had to double-check the numbers when I first saw them. The group is trading at roughly 0.83 times the broad market’s P/E multiple. Think about that for a second. You’re getting proven, fortress-balance-sheet businesses at a 17% discount to the overall market, and they pay you 2.5% just to wait.
Why This Opportunity Feels Different This Time
I’ve been writing about dividends for over a decade, and these moments don’t come around often. Usually when the Aristocrats get this cheap, something big is happening – think 2008, early 2020, or late 2018.
But here’s what makes today particularly interesting: the underperformance isn’t because these companies are falling apart. It’s because they’ve been ignored. While everyone chased the magnificent seven (or whatever we’re calling them this week), the boring, steady growers got left behind.
And boring, my friends, is about to have its moment.
The Perfect Setup: Defense + Growth + Value
Analysts at Wolfe Research recently put together what I think is one of the most compelling screens I’ve seen this year. They started with the full list of Dividend Aristocrats, then layered on two crucial filters:
- Dividend growth over the past 12 months higher than the broader market
- Current yield in the second-highest quintile (not the absolute highest yielders, which can be traps, but solidly above average)
The result? A concentrated group of about 30 names that offer the holy trinity of income investing: proven dividend safety, attractive current yield, and genuine payout growth.
These aren’t your grandfather’s sleepy utilities (though there’s nothing wrong with those). Many of these companies are actually growing earnings at respectable clips, expanding margins, and winning market share – they just don’t have the sexy AI narrative.
Three Standout Names Trading at Bargain Levels
Let me walk you through three that particularly caught my eye – not because they’re the only good ones, but because they illustrate different flavors of this opportunity.
Becton Dickinson (BDX) – The Turnaround Story
Down 16% this year while paying 2.19%, Becton Dickinson feels like the market’s forgotten child. But dig beneath the surface and things get interesting.
The medical technology giant has been dealing with some integration issues from past acquisitions and temporary headwinds in China, but recent quarters show clear signs of stabilization. More importantly, activist involvement earlier this year lit a fire under management, and they’re now executing a major portfolio transformation.
The planned spin-off and sale of their biosciences unit should unlock significant value, and management has been clear that capital allocation priorities are shifting toward shareholders. When you combine that with a dividend that’s grown at a mid-teens clip recently, this starts to look like classic “buy when everyone else is pessimistic” territory.
The market hates uncertainty, but it loves clarity. Becton Dickinson is moving from the former to the latter, and the stock hasn’t priced that in yet.
Abbott Laboratories (ABT) – Growth Disguised as Defense
Abbott is the one that’s actually up this year (11%), but don’t let that fool you into thinking it’s expensive. At a 1.84% yield with analysts seeing 15% upside, this remains deeply compelling.
I’ve owned Abbott in various accounts for years, and what continually impresses me is how they manage to be both defensive and growth-oriented simultaneously. The medical device business (think FreeStyle Libre glucose monitors) is growing at double-digit rates, while the nutrition and diagnostics segments provide that beautiful recurring revenue base.
The recent announcement of their massive acquisition in cancer diagnostics only reinforces the growth story. This isn’t a company resting on its laurels – they’re actively positioning for the next decade of healthcare trends.
General Dynamics (GD) – Defense Spending Supercycle
Sometimes the best defense stocks are… actual defense stocks.
General Dynamics has been one of the best performers among the Aristocrats this year (up 27%) while still yielding 1.81%. The company’s Gulfstream business jet division is absolutely on fire, with orders pouring in from corporations and high-net-worth individuals who’ve decided private aviation is here to stay.
Meanwhile, the defense side of the business benefits from what looks increasingly like a multi-year increase in global defense spending. When management talks about “growing demand” across all four business segments, they’re not exaggerating.
“Each of our four segments grew earnings and backlog in the quarter, reflecting solid execution coupled with growing demand.”
– CEO Phebe Novakovic
Why Dividend Growth Actually Matters More Than Yield
Here’s something I’ve learned the hard way over the years: a 5% yield today means nothing if that dividend gets cut tomorrow. But a company that’s consistently growing its payout? That’s sending you a very different message.
Every time management raises the dividend, they’re telling you:
- We generated more cash than we needed this year
- We expect to generate even more next year
- We’re confident enough to commit to sending more money to shareholders
- We’re thinking like owners, not just managers
That’s powerful signaling. And when you get that signaling from companies that have done it for 25+ years? You’re looking at some of the highest quality businesses on earth.
The Bigger Picture: What This Means for Your Portfolio
Look, I’m not here to tell you that tech is dead or that growth stocks are going to zero. But I am here to tell you that valuations matter, and right now, quality is on sale.
The beautiful thing about these Aristocrats isn’t just that they’re cheap today. It’s that they tend to compound their advantages over time. While the hot stocks of today fight to justify their premiums, these companies quietly grow their earnings, raise their dividends, and slowly but surely close that valuation gap.
I’ve watched this movie before. In 2018, when value got this disconnected from growth, the Aristocrats went on to outperform by 800 basis points over the next three years. After the COVID crash, similar story.
Maybe this time is different. But probably not.
How to Think About Position Sizing
If you’re thinking about adding exposure here (and I think you should), consider building positions gradually. These are high-quality companies, but markets can stay irrational longer than you’d expect.
I’ve been adding to my Aristocrat exposure in chunks – 25% of my intended position at current levels, another 25% if we get another 5% pullback, and so on. That way I’m not trying to call the exact bottom, but I’m participating if this rally has legs.
The other approach I’ve used successfully is dollar-cost averaging into something like the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) while doing individual stock research on the side. You get immediate broad exposure while building conviction in individual names.
The Bottom Line
We’re at one of those moments where patience is about to be rewarded. The companies that have proven they can grow their dividends through recessions, pandemics, and market crashes are suddenly available at prices that assume none of that matters.
That disconnect won’t last forever. As interest rates stabilize and investors start looking for sustainable income again, these stocks will get rediscovered. The question is whether you’ll own them before or after that happens.
In my experience, the best time to buy great companies is when they’re temporarily unpopular. And right now, the Dividend Aristocrats with strong payout growth are about as unpopular as they’ve been in years.
That feels a lot like opportunity to me.
