The Greatest Investments EVER?
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Dividend stocks are a great investment… but could they be some of the greatest investments EVER? When it comes to dividend stocks, as an investor, consistency matters.
You want a consistent track record of dividends not just being paid, but also dividend growth.
When this dividend growth takes place quarter after quarter and year after year, a company solidifies its position and earns a well-deserved reputation.
Meet The Dividend Aristocrats
Dividend Aristocrats are dividend stocks that are in the S&P 500 and have increased their dividend payouts for 25 years or more… to say it’s an elite group is an understatement.
Investors tend to think of dividend stocks as value stocks, and in many cases, this is accurate. But the Aristocrats can include a handful of growth stocks, which we don’t often associate with consistent and growing dividends.
The Dividend Aristocrats typically deliver a total return, including both dividends and price appreciation, that outperforms the broader market.
The consistent performance and pattern of a company that reliably pays a growing dividend allows a stock to become what is known as a Dividend Aristocrat.
When you think about the shifts we’ve seen in the market over the past 25 years, this is quite an accomplishment. It is why these companies command premium pricing, with P/E ratios on the high side.
It is also why they tend to fall into just a handful of different industries.
The Aristocrats are in ten different industries. The top three categories are:
- Consumer Staples
- Industrials
- Health Care
When investors think about safe and reliable dividend stocks, they usually think about financial stocks or utility stocks.
But as we have seen over the past decade, both these industries have been shaken. On the 2013 lineup of Aristocrats, firms such as Wells Fargo, JP Morgan Chase, and Citigroup are missing.
Some of the stocks are household names. Coke, Pepsi, Wal-Mart, and McDonald’s are Aristocrats.
But many of these companies aren’t so well known.
Pentair Ltd. (PNR) is in the business of valves, fittings, pumps, and filters. It is a Swiss company with extensive operations here in the U.S.
Leggett & Platt (LEG) manufactures springs, casters, frames for seats and beds, and other engineered components.
C.R. Bard (BCR) is a health care company that manufactures and markets medical supplies such as catheters and vascular grafts.
Aristocrats Come And Go
Companies check in and check out on the S&P 500 lineup of dividend aristocrats. Mostly, they check out. One newcomer to the list, which made its debut in 2013, is Abbott Laboratories (ABT).
Emerson Electronics (EMR) has been an Aristocrat since 1957. 3M (MMM) has been on the lineup since 1959 and Proctor & Gamble (PG) has been an Aristocrat since 1957.
The market plunge in 2008 rattled more than a few Aristocrats. Twenty-four stocks fell from the list. Twelve of them were in the financial sector.
- Bank of America (BAC)
- Comerica (CMA)
- Fifth Third Bancorp (FITB)
- KeyCorp (KEY)
- Progressive (PGR)
- Regions Financial (RF)
- BB&T (BBT)
- General Electric (GE)
- Legg Mason (LM)
- M&T Bank (MTB)
- State Street (STT)
- U.S. Bancorp (USB)
When a stock is stripped of Aristocrat status, does this present an investor with an attractive buying opportunity? Because the reputation of the stock has been damaged, does this mean that the underlying value has been damaged as well?
Like most things in the world of investing, the answer is, “It depends.”
Most investors consider General Electric (GE) to be a well-run company with solid operations and a promising future. While it has lost its status as an Aristocrat, it has not lost its ability to pay dividends.
But not every fallen Aristocrat is a GE. Some companies that stumble and are forced to cut a dividend are experiencing something more ominous that a cyclical downtown.
Take a look at Pitney Bowes (PBI), which was shown to the exit in 2013. The firm was founded in 1920 and had been an Aristocrat for years.
On Apr. 30, 2013, the firm slashed its dividend payment by 50%. The stock took an immediate hit, instantly plunging 10%.
Even though the stock has crawled back from its 2013 lows, this is clearly a firm that is in trouble. It is literally watching its business vanish.
As fewer pieces of snail mail go through the postal system because of email, and as the demand for metered mail slides, Pitney Bowes is witnessing the evaporation of its core business. It remains to be seen if its attempts to offer digital solutions will prove profitable.
The Aristocrat Everybody Knows
Whether it’s Tide detergent or a Gillette razor, most of us have a Procter & Gamble product or two in the house.
And most investors who depend on reliable dividend payments have some P&G in their portfolio. P&G has been paying dividends since the company was launched in 1890. The firm has been increasing its dividend every year since 1956.
The P&G dividend yield is 3.15% and the payout ratio is 61.1%.
P&G has recently been one of the higher yielding Aristocrats. The yields for the Aristocrats are typically in the 1-3% range. High yields are difficult to achieve, and even more difficult to maintain, so it is rare to see an Aristocrat with a yield higher than 4%.
How To Invest In The Aristocrats
You can spend your time looking for individual Dividend Aristocrats to invest in… or you can take a short cut…
Investors who are looking for a simple way to invest in the Aristocrats can buy shares in the State Street High Yield Dividend Aristocrats (SDY).
This ETF tracks the S&P High Yield Dividend Aristocrats Index. It follows roughly 60 stocks, all high-quality companies where the dividend has been increased for at least 25 years in a row.
A similar ETF is the ProShares S&P 500 Aristocrats ETF (NOBL).
So when it comes to dividend investing, consider some of the aristocrats; they could be the greatest investments ever!
Category: Dividend Stocks To Buy?
