These 2 shares are Dividend Aristocrats. Which should I buy this March?

Our writer likes the business model of this pair of FTSE 100 Dividend Aristocrats. So why would he only consider buying one at the moment?

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A Dividend Aristocrat is a company that has increased its dividend annually for 25 years or more.

The term is most commonly applied to US stocks like Coca-Cola and Procter & Gamble. But some British shares also fit the definition.

Here I discuss two. I like both of the businesses, but would only consider adding one of them to my portfolio for now.

Diageo

Although Diageo (LSE: DGE) may not be a household name, many of its products are. From Guinness to Johnnie Walker, Diageo is the company behind many of the bottles found in drinks cabinets across the globe.

That has turned out to be a great business. Demand is large and fairly resilient. As it owns brands that are both premium and unique, Diageo has pricing power. That helps explain how it was able to make a £3.7bn post-tax profit last year.

The shares yield 2.6%. Higher yields are certainly available at the moment from other FTSE 100 firms but I do like Diageo’s track record. The Dividend Aristocrat has raised its shareholder payout annually for over three decades.

As with any share, that does not necessarily indicate what may happen in future. The company has been wrestling with weaker demand in Latin American markets. If the world economy gets worse, pricy tipples may be less in demand elsewhere too.

But I think Diageo has a strong, proven business model and long-term cash generation potential.

Spirax-Sarco

The other FTSE 100 Dividend Aristocrat I’m discussing is even less of a household name than Diageo.

Spirax Group (LSE: SPX) (the new name announced last week for Spirax-Sarco) is an engineering business that sells to industrial customers rather than consumers.

Its commercial model is well-designed in my view. By selling to businesses, it taps into a market with ongoing demand and potentially large budgets.

Spirax offers a range of bespoke solutions. That helps build customer loyalty, as once it has proven its expertise in designing a solution for a specific customer need, I reckon it will be top of mind when that customer next needs similar work done.

The business does face challenges. A slowing economy could lead clients to delay non-essential work in some cases, potentially hurting revenues and profits for the firm.

Recently, for example, the company has noted “weak demand” for semiconductor wafer fabrication equipment and biotech products.

Operating profits at the interim stage this year fell 7% year on year despite double-digit revenue growth. But the company boosted its interim dividend 8%. That followed last year’s full-year increase of 12%, continuing a run of annual dividend growth stretching back to the late 1960s.

I’d buy one

At the right price, I would be happy to add both of these Dividend Aristocrats to my portfolio if I had spare cash to invest.

But the Spirax valuation is too rich for me right now. Its price-to-earnings ratio of 36 is markedly steeper than Diageo’s.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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