Examining Parker-Hannifin Corporation (PH): Is It Among the Top Dividend Aristocrats According to Wall Street Analysts?

We recently compiled a list of 10 Best Dividend Aristocrats According to Wall Street Analysts. In this article we are going to take a look at where Parker-Hannifin Corporation (NYSE:PH) stands against the other aristocrat dividends.

Shifts in investment trends have revealed new insights for investors in recent years. Certain times call for specific investments, and it’s often experienced investors who can spot these opportunities. However, it’s clear that the value of a good investment remains steady, even amidst ongoing changes. This is where the long-standing dividend aristocrats play a role. These companies are strong dividend payers, having raised their payouts for at least 25 consecutive years.

The extended periods of dividend increases have significantly boosted the impressive returns of these stocks over time. Since its inception in 2005, the Dividend Aristocrats Index has outperformed the broader market with lower volatility, according to a report by ProShares. In addition, these stocks demonstrated strong performance in all market conditions, capturing 90% of market gains while only experiencing 82% of market declines. Also read: 10 Best Dividend Aristocrats with Over 3% Yield.

Achieving 25 consecutive years of dividend growth is quite an accomplishment. Out of approximately 6,000 stocks listed on the NYSE and Nasdaq, only 67 are part of the prestigious Dividend Aristocrats index in 2024. This highlights that only a small number of companies have reached this milestone. Maintaining a record of annual dividend increases for 25 years means the company has managed to boost shareholder payouts through various challenges, including the dot-com bubble, the 2007 financial crisis, and the pandemic. This reflects a robust business model, strong cash flow visibility, and disciplined management of capital. Even dividend aristocrats can struggle with consistency, as we’ve seen recently. Companies like Walgreens and 3M were unable to sustain their decades-long dividend growth streaks and have been removed from the Dividend Aristocrats club this year. This highlights the importance of financial strength for dividend aristocrats. The Great Financial Crisis exposed the financial vulnerabilities of these dividend-growers, as 17 out of the 60 Aristocrats in the S&P 500 were removed in 2008 and 2009.

As mentioned before, dividend aristocrats have consistently outperformed the broader market since their inception, even during market downturns. Don Kilbride, a senior managing director and portfolio manager at Wellington Management, has noted this performance, particularly with the Vanguard Dividend Growth fund, which he manages. This fund focuses on companies that have reliably increased their dividends annually, some for decades. During the 2008 market crash, while the market fell 37%, Vanguard Dividend Growth only lost about two-thirds of that amount, thanks to its dividend-generating stocks. As the market recovered, the fund quickly made up for its losses, outperforming many of its peers. Kilbride further mentioned that dividend growth is crucial for weathering tough markets and achieving long-term success, stating that its benefits are substantial and enduring.

According to analysts, for those building their portfolios, incorporating dividend investments can be beneficial, particularly if the dividends are reinvested. By using dividends to purchase additional shares each time they are received, investors create a cycle where payouts increase with the number of shares owned, leading to the ability to acquire even more shares. In this article, we will take a look at some of the best dividend aristocrat stocks 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 August 7. 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).

A robotic arm in a factory demonstrating the application of motion control technologies.

Parker-Hannifin Corporation (NYSE:PH)

Analyst Upside Potential as of August 7: 17.4%

Parker-Hannifin Corporation (NYSE:PH) is an Ohio-based manufacturing company that mainly specializes in motion and control technologies. The company has experienced steady growth in recent years by acquiring new companies and focusing more on products with longer life cycles that benefit from long-term trends such as electrification and digitalization. In the past five years, the stock has gained over 211%, outperforming the broader market, which returned a little over 78% during this period. That said, the industrial sector is facing headwinds currently, which is a cause of concern for investors. This was also mentioned by Madison Investments in its Q2 2024 investor letter. Here is what the firm has to say:

“Parker-Hannifin Corporation (NYSE:PH) is a leading diversified industrial manufacturer. The company continues to execute well with respect to improving margins and integrating the recent acquisition of Meggitt. However, the industrial economy is slowing, which weighed on investor sentiment.”

Parker-Hannifin Corporation (NYSE:PH) is a strong dividend payer with impressive cash flow generation. For fiscal 2024, year-to-date cash flow from operations rose by 20% to a record $2.1 billion, representing 14.6% of sales, up from $1.8 billion or 12.8% of sales the previous year. The company achieved notable improvements in adjusted segment operating margins, with the Aerospace Systems Segment having an exceptional quarter. This strong performance resulted in record year-to-date operating cash flow. Moreover, the company expects a 50% increase in its free cash flow and aims to double its dividend over the next five years. This growth is expected to result in larger dividends for shareholders each year, which should also positively impact the stock’s price. According to Street analysts, the stock has an upside potential of 17.4%.

Parker-Hannifin Corporation (NYSE:PH) pays a quarterly dividend of $1.63 per share, having raised it by 10.1% in April this year. This marked the company’s 68th consecutive year of dividend growth, which makes PH one of the best dividend aristocrat stocks on our list. The stock has a dividend yield of 1.68%, as recorded on August 7.

Of the 920 hedge funds tracked by Insider Monkey at the end of Q1 2024, 63 funds owned stakes in Parker-Hannifin Corporation (NYSE:PH), which remained unchanged from the previous quarter. These stakes are collectively valued at nearly $2.3 billion. Among these hedge funds, Diamond Hill Capital was the company’s leading stakeholder in Q1.

Overall PH ranks 6th on our list of the best dividend aristocrats to buy according to Wall Street Analysts. While we acknowledge the potential of PH as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than PH but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

 

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