S&P Dividend Aristocrats have increased dividend payments for at least 25 consecutive years.
While decades of consecutive dividend increases are great, they only matter if the underlying stocks have actually outperformed the benchmark on a total return basis. What we seen over the past decade is that the Dividend Aristocrats index/ETF has shown out-performance over the past decade, and the performance for the actual index rather than ETF is even stronger, given no fees. Not only has this basket of stocks outperformed the S&P 500, it has done so with a lower beta. The dividend aristocrats are a great place to pick up some good companies and an excellent starting point for additional reseach into high quality dividend stocks with strong histories of returning capital to shareholders. While the chart below demonstrates that holding all S&P dividend aristocrats outperforms the market, Smart Dividend Stocks seeks to pick the strongest of the bunch to invest in, resulting in even better returns.
Joining the Dividend Aristocrats List isn’t easy, which is why there are currently only 50 stocks that qualify. These S&P Dividend Aristocrats are large businesses across all the major industry groupings, but they have one thing in common, a large moat with a huge brand that has allowed them to continue profitable operations spanning decades. Everyone should be familiar with most of the companies on this list, such as 3M, McDonald’s and Johnson & Johnson. But there are also some less familiar names that make the list as well, including Aflac and Genuine Parts.
The Dividend Aristocrats List tracks all the qualifying stocks, and gives many important financial metrics for each.
S&P Dividend Aristocrats are coveted by investors because of their strong business models and consistently increasing dividend payments. Smart Dividend Stocks has examined every dividend aristocrat currently on the list and compared them across standard metrics such as P/E and EV/EBITDA.
Average yield for the Dividend Aristocrats is ‘just’ 2.5%, which seems low given the minimum 20 years that the company has raised its dividend. The reason for a somewhat low yield is that companies have raised dividends along with earnings, and the value of the company increased in step. While a basket of dividend aristocrat stocks may not bring you the highest yield, it does bring high quality businesses that tend to be safe investments.
The average payout ratio for the group is 57%, meaning just over half of the companies earnings are used to pay dividends, this is a reasonable level. Leverage and interest coverage are both very strong for the group, in fact at 1.0x Net Debt/NTM EBITDA the group is actually under-levered and would obtain a more optimal capital structure by adding debt at current rates, perhaps choosing to repurchase shares with the debt. Most of these stocks score well on our Dividend Safety Score, often in the 80% or higher range.
As we would expect with a highly coveted group of strong companies, the valuations are not cheap, but you get what you pay for. The average P/E for the group is 21.9x and the average EV/EBITDA for the S&P Dividend Aristocrats is 12.3x. While the average is high, there are still some bargains within the group. Most of these stocks will continue to raise their dividends in the coming years, but some are at risk, they have low Dividend Safety Scores, and are likely to cut their dividends.
|AIR PRODUCTS & CHEMICALS INC||APD|
|AUTOMATIC DATA PROCESSING||ADP|
|BECTON DICKINSON AND CO||BDX|
|BROWN-FORMAN CORP-CLASS B||BF.B|
|CARDINAL HEALTH INC||CAH|
|CINCINNATI FINANCIAL CORP||CINF|
|CONSOLIDATED EDISON INC||ED|
|CR BARD INC||BCR|
|EMERSON ELECTRIC CO||EMR|
|EXXON MOBIL CORP||XOM|
|FRANKLIN RESOURCES INC||BEN|
|GENUINE PARTS CO||GPC|
|HORMEL FOODS CORP||HRL|
|ILLINOIS TOOL WORKS||ITW|
|JOHNSON & JOHNSON||JNJ|
|LEGGETT & PLATT INC||LEG|
|LOWE’S COS INC||LOW|
|MCCORMICK & CO-NON VTG SHRS||MKC|
|PPG INDUSTRIES INC||PPG|
|PROCTER & GAMBLE CO/THE||PG|
|S&P GLOBAL INC||SPGI|
|STANLEY BLACK & DECKER INC||SWK|
|T ROWE PRICE GROUP INC||TROW|
|WALGREENS BOOTS ALLIANCE INC||WBA|
|WAL-MART STORES INC||WMT|
|WW GRAINGER INC||GWW|