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3 Dividend Aristocrats We Wouldn't Buy

Dividend aristocrats are among the most renowned dividend stocks in the market. Among other requisites, a company needs to have at least 25 years of consistent dividend growth under its belt to be included in that select group of dividend paying corporations.

On the other hand, not every dividend aristocrat is necessarily a good purchase right now. In fact, our contributors believe that investors should better stay away from names such as McDonald's , McCormick , and Target .

Steve Symington (McDonald's) : McDonald's has increased its payout every year since it began paying dividends in 1976, effectively cementing its status as a dividend aristocrat. But McDonald's has notably had trouble capturing the attention of younger consumers, whose dining tastes have increasingly shifted toward the higher-quality wares offered by up-and-coming fast casual concepts.

Source: McCormick.

With a strong brand and attractive long-term growth prospects, McCormick may seem like a slam dunk. While the company is top notch, the stock is expensive, and the dividend actually leaves a lot to be desired. Over the past 12 months, McCormick has generated net income of $3.08 per share, putting the price-to-earnings ratio at a lofty 27. Quality companies are naturally more expensive, but McCormick has now reached its highest P/E ratio in about 20 years. EPS has doubled over the past decade, but that's only an annualized rate of about 7%.

Because the stock is so expensive, the dividend yield is a paltry 1.9%. The dividend has grown a bit faster than earnings over the past decade, about 9% annually, but there are many other dividend aristocrats that offer a better combination of dividend yield and dividend growth. McCormick is a great company, and incredibly consistent, but the price seems too high to justify buying the stock.

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The article 3 Dividend Aristocrats We Wouldn't Buy originally appeared on Fool.com.

Andrés Cardenal has no position in any stocks mentioned. Steve Symington has no position in any stocks mentioned. Timothy Green has no position in any stocks mentioned. The Motley Fool recommends McCormick. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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