The market remains near record highs with the best-ever presidential election year return and 13th-best S&P return through the first half of the year. Free cash flow yield is the best valuation metric since 1990, averaging 17.6% annual returns for the most undervalued companies over the last 33 years. Screening for high free cash flow yield dividend aristocrats can provide a diversified portfolio of quality, income dependability, growth, and value.
Realty Income is one of the most attractive high-yield aristocrats you can buy today. It's the 2nd highest A-rated aristocrat, 2nd only to EPD. Realty is a highly recession-resistant business. It had the most stable cash flows and balance sheet in the Great Recession. It was one of 18 REITs to raise its dividend through the GFC, and the only REIT in the S&P to grow during the Pandemic.
Federal Realty Investment Trust announces acquisition of a retail center in Northern Virginia, expected to increase funds from operations. The trust's portfolio includes open-air shopping centers, mixed-use offices, and residential properties, providing diversification of income streams. The low FFO-based dividend pay-out ratio and consistent dividend growth make Federal Realty Investment a compelling choice for passive income investors.
High-quality electric utilities offer a low-risk way to cash in on the ongoing artificial intelligence revolution. Alliant Energy is an electric and gas utility positioned to become a Dividend Aristocrat later this decade. The company just issued $375 million in unsecured notes at attractive terms.
Atmos Energy is a first-rate example of what owning an exceptional compounder can do for a portfolio. The demographics of its service areas are resulting in customer growth, which is helping to drive overall growth for the gas utility. ATO's interest coverage ratio was very high through the first half of fiscal year 2024.
With the SOLV divestiture completed as of April 01, 2024, we believe that MMM is well poised to invest in its long-term opportunities. Reader must note that MMM's balance sheet is much healthier now, with the new management team and the settled legal issues implying fresh start ahead. The nearly halved dividends are to be expected as well, as the management expects to intensify their "investments in high growth and attractive end markets."
Our initial report on Realty rated the shares a Hold. We liked the business and management team, but didn't see an attractive return profile. With the shares down ~6% since our initial report, and the Spirit merger completed, we wanted to take another look. The past 2 quarters have been reasonably strong for Realty, but share issuances related to Spirit have modestly pushed our NAV estimate down.