We recently compiled the list of 25 Best Dividend Aristocrats Stocks According to Analysts. Since The Sherwin-Williams Company (NYSE:SHW) is part of the list, we have analyzed the stock in detail.

The age-old debate of investing in dividend growth or high-yield stocks continues to reappear within the dividend investing realm. Between these two, dividend growth is currently the favored option in the market as investors seek out strategies to grow their income over time. In this regard, investors turn to dividend aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. These stocks have delivered strong returns over the years regardless of market conditions. Between February 2005 and December 2023, dividend aristocrats delivered a 12.50% return in falling interest rate periods and an 11.5% return in rising interest rate periods, according to data by Bloomberg.

Numerous analysts have pointed out the long-term potential of dividend growth stocks, a sentiment echoed by Warren Buffett’s investment in Coca-Cola. Back in August 1994, Berkshire Hathaway completed its acquisition of 400 million shares in the company, worth $1.3 billion. Berkshire initially received a cash dividend of $75 million from Coca-Cola in 1994, the amount which surged to $704 million in 2022. This shows a remarkable growth potential of dividend-paying investments over the long term.

With investors showing a growing preference for dividend-paying stocks, major tech companies started initiating their dividend policies this year. Mark Iong, an equity fund manager at Homestead Advisers, expressed his approval of this move by tech companies in one of his recent interviews with Bloomberg. Here are some comments from the analyst:

“Dividends will be table-stakes for big tech going forward. I think if you don’t pay one, it will now be taken as a sign your business is more volatile. What’s exciting is they are doing dividends and buybacks simultaneously, while also cutting costs and growing, which is them stepping on the pedal for profits across the board.”

Not limited to the tech sector alone, companies across the broader market are showing a strong commitment to dividends this year. Though these equities lagged behind the market last year, their outlook remains strong this year. According to a recent report by S&P Dow Jones Indices, in the first quarter of 2024, companies in the index paid $151.6 billion in dividends, up from $146.8 billion paid during the same period last year. In addition, 796 companies reported dividend hikes during the quarter, amounting collectively to $22.7 billion. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, expects that the index will report a 6% year-over-year increase in dividend payments in 2024.

Now, let’s take a look at some of the best dividend aristocrat stocks to buy according to analysts.

Our Methodology:

For our list, we first scanned a list of the best dividend aristocrat stocks, which are the companies that have raised their dividends for 25 consecutive years or more. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of May 26. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

The Sherwin-Williams Company (NYSE:SHW)

Upside Potential as of May 26: 14.72%

The Sherwin-Williams Company (NYSE:SHW) is an Ohio-based paint and coating manufacturing company that also specializes in the distribution of related products. In the first quarter of 2024, the company returned $728 million to shareholders through dividends and share repurchases. It offers a quarterly dividend of $0.715 per share and has a dividend yield of 0.94%, as of May 26. In February this year, the company raised its dividend for the 45th consecutive year, which makes SHW one of the best dividend aristocrat stocks on our list.

Insider Monkey’s database of Q1 2024, showed that 78 hedge funds held stakes in The Sherwin-Williams Company (NYSE:SHW), growing from 72 in the previous quarter. These stakes have a total value of over $4.2 billion. ClearBridge Large Cap Value Strategy made the following comment about The Sherwin-Williams Company (NYSE:SHW) in its Q2 2023 investor letter:

“We were fairly active in the quarter as market dislocations allowed us to be opportunistic, while focusing on companies with stronger moats, better pricing power, more predictable long-term growth and higher returns. In the materials sector we exited PPG Industries and initiated a position in The Sherwin-Williams Company (NYSE:SHW). While both companies operate in the paint and coating industry and are benefiting from improving margins as raw material prices have come down of late, we believe Sherwin-Williams’ dominant retail footprint affords it better pricing power through the cycle. The company provided conservative 2023 guidance and has been successfully gaining market share in the pro segment. While PPG has more European and industrial exposure, Sherwin-Williams’ residential and more domestic focus should also benefit the company as housing indicators appear to be troughing. Weak housing in the face of higher mortgage rates caused Sherwin-Williams stock to sell off in the first quarter, creating a compelling investment opportunity for long-term focused fundamental investors.”

In the past 12 months, The Sherwin-Williams Company (NYSE:SHW) is up by 33.44%, as of the close of May 24. The stock is consistently benefitting from its position as the market leader in the paint and coating industry. Moreover, its products and services are used in both commercial and residential markets, which enabled the company to expand its operations over the years. However, due to declining new residential sales, the company reported a 1.4% year-over-year drop in its consolidated net sales in the first quarter of 2024, but it observed positive momentum with homebuilder customers.

We like SHW as a company and as one of the best dividend aristocrat stocks, however, it isn’t a cheap stock at a forward P/E multiple of 26 for a company that is operating in a slow-growing industry. One can easily find other stocks that are growing at a faster clip than SHW but trading at a cheaper multiple.

Overall SHW ranks 19th among the 67 dividend aristocrat stocks according to analysts. You can visit 25 Best Dividend Aristocrats Stocks According to Analysts to see other dividend aristocrats that are on analysts’ radar. While we acknowledge the potential of dividend growth stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.