Dividend Aristocrats - A Few Truly Great Stocks

The S&P 500 Dividend Aristocrats are large cap, well known S&P 500 companies that have consistently increased dividends every year for at least 25 consecutive years. Many of the companies have above average dividend yields, price appreciation and dividend growth.

Currently, 59 companies from 10 sectors qualify as Dividend Aristocrats. The weightings by sector are:

• Financials, 23.35%
• Consumer Staples, 18.41%
• Consumer Discretionary, 18.20%
• Industrials, 11.74%
• Health Care, 9.97%
• Materials, 8.25%
• Utilities, 5.02%
• Telecommunication Services, 1.69%
• Energy, 1.69%
• Information Technology, 1.67%

The alphabetized list by stock symbol (Table 1) of the Dividend Aristocrats includes 10-year annualized total return, price appreciation, dividend yield and dividend growth for each stock. All returns are annualized using the close for the last trading day of 1997 and 2007. The dividend yield is the average of the yield for the last day of 1997 and 2007.

All 10-year annualized returns and dividend yields have been adjusted for inflation so they represent real values.

The next three sections analyze the performance of the Dividend Aristocrats by:

• Total return
• Dividend yield
• Dividend growth
  

The top three stocks ranked by total annualized total return (price appreciation plus dividend yield) are Nucor (23.46%), Questar (20.37%) and C.R. Bard (20.37%). Thirteen additional stocks have annualized total returns greater then 10 percent.

Nucor (NUE), a steel producer, is the star of the Dividend Aristocrats with the highest total return, the highest dividend yield (7.05%) plus an acceptable dividend growth rate of 6.57%.

For the 58 Dividend Aristocrats, the 10-year annualized total return break down is:

• 16 stocks have returns greater than 10 percent.
• 26 stocks have returns less than 10 percent but greater than 5 percent.
• 16 stocks have returns less than 5 percent. Three stocks have negative total returns.

Total return and price appreciation, as expected, are very highly correlated. In general, stocks high total returns tend to have high price appreciation. However, Consolidated Edison is one exception, with most of its total return due to its relatively high dividend yield.

Stocks with high total return tend to have relatively low dividend yields as well as relative low dividend growth. Of course, there are exceptions which are discussed following Table 2.

Stocks With Total Return Greater than 10 Percent and Price Appreciation Greater Than 10 Percent

Stocks with high price appreciation tend to have relative low dividend yields so most of their total return is due to price appreciation. Eight stocks qualify for high total return and high price appreciation:

• Nucor (NUE), steel producer - 23.46% total return and 16.41% price appreciation.
• Questar (STR), a natural gas producer - 20.37% total return and 17.99% price appreciation.
• C.R. Bard (BCR), medical device maker - 20.37% total return and 18.73% price appreciation.
• Johnson Controls (JCI) 23.46% total return and 16.41% price appreciation.
• AFLAC (AFL), insurance provider - 16.57% total return and 15.44% price appreciation. (Note: AFL has a dividend growth of 18.73%.)
• Exxon Mobil (XOM), integrated oil producer - 13.85% total return and 11.45% price appreciation.
• Becton, Dickinson (BDX), medical products - 12.77% total return and 11.55% price appreciation. (Note: BDX has a dividend growth of 11.43%.)
• Lowe's (LOW), household and construction products - 12.65% total return and 11.83% price appreciation. (Note: LOW has a dividend growth of 22.02%, but its dividend yield is only 0.82%.)

Stocks With Total Return Greater than 10 Percent and Yield Greater Than 5 Percent

Stocks with high total returns tend to have relative low dividend yields. But the exceptions to this general rule are:

• Nucor (NUE), steel producer, 23.46% total return and 7.05% dividend yield.
• Integrys Energy Group (TEG), electric utility, 14.20% total return and 6.91% dividend yield.
• Consolidated Edison (ED), electric utility, 11.38% total return and 6.81% (note: ED has -1.55% dividend growth.)

Stocks With Total Return Greater than 10 Percent and Dividend Growth Greater Than 10 Percent

Four stocks qualify for high total return and high dividend growth:

• AFLAC (AFL), insurance provider - 16.57% total return and 18.73% dividend growth.
• Becton, Dickinson (BX), medical products - 12.77% total return and 11.43% dividend growth.
• Lowe's (LOW), household and construction products - 12.65% total return and 22.02% dividend growth.
• State Street (STT), investment services - 10.34% total return and 11.97% dividend growth. (Note: STT has a dividend yield of only 0.97%.)

Top 20 Dividend Aristocrats by Dividend Yield

When ranked by dividend yield, Nucor (NUE) again tops the Dividend Aristocrats. Not surprisingly, eight of the top 20 are bank stocks.

Investors tend to give up total returns for higher dividend yields. For example, only four stocks (Nucor (NUE), Integrys Energy Group (TEG), Consolidated Edison (ED) and Anheuser-Busch (BUD)) have total returns greater than 10 percent. But only Nucor (NUE) has a price appreciation greater than 10%. Six stocks have total returns less than 3 percent, which do not keep up with inflation.

Stocks With Dividend Yield Greater than 3 Percent and Dividend Growth Greater Than 10 Percent

Income and dividend-reinvestment investors want both good dividend yield and steady dividend increases. A high dividend yield means that you are getting a good return on your investment, and high dividend growth means your dividends will keep up or exceed the rate of inflation.

A few stocks with high dividend yield have high dividend growth, but in general there is little correlation between these two dividend measures.

Here are five stocks with high dividend yield and high dividend growth:

• Synovus Financial (SNV), banking services, 5.58% dividend yield and 10.22% dividend growth.
• Bank of America (BAC), banking services, 4.56% dividend yield and 10.49% dividend growth.
• Fifth Third Bancorp (FITB), banking services, 4.06% dividend yield and 13.25% dividend growth.
• Kimberly-Clark (KMB), consumer products, 3.57% dividend yield and 12.37% dividend growth.
• Pfizer (PFE), pharmaceuticals, 3.15% dividend yield and 14.76% dividend growth.

Top 20 Dividend Aristocrats by Dividend Growth

McDonalds and M&T Bank are the top performing stocks for dividend growth, but their dividend yields do not exceed three percent. Nine stocks have annualized dividend growth greater than 10 percent.

For the top 20 dividend growth stocks, only Anheuser-Busch (BUD) had a total return exceeding 10 percent.

Stocks with high dividend growth rates tend to have relatively low total returns and price appreciation rates. So investors must make tradeoffs between total return and price appreciation for dividend growth.

Stocks With Dividend Growth Greater than 10 Percent and Dividend Yield Greater Than 3 Percent

The five stocks that qualify for high dividend growth and high dividend yield group were in the high yield, high dividend growth group, but here they are arranged beginning with the stock with the highest dividend growth.

• Pfizer (PFE), pharmaceuticals, 14.76% dividend growth and 3.15% dividend yield.
• Fifth Third Bancorp (FITB), banking services, 13.25% dividend growth and 4.06% dividend yield.
• Kimberly-Clark (KMB), consumer products, 12.37% dividend growth and 3.57% dividend yield.
• Bank of America (BAC), banking services, 10.49% dividend growth and 4.56% dividend yield.
• Synovus Financial (SNV), financial services, 10.22% dividend growth and 5.58% dividend yield.

Summary of Important Findings

The major finding from the analysis of the Dividend Aristocrats performance is that not all Dividend Aristocrats are top performers. Just because a company pays increasing dividends for many years, does not ensure that its overall performance merits investors loading up on the stock.

Therefore, as a prudent investor, you need to carefully evaluate a Dividend Aristocrat with the same scrutiny that you would apply to any other investment.

Also, be prepared to make tradeoffs between high total return, dividend yield an dividend growth. It is unusual for one stock to give you superior performance for all three measures.

Related Articles:

Dividend Aristocrats Can Soften the Blow of a Down Market
High Yield Dividend Aristocrats Offer Hefty Total Returns
Top 10 High Yield Dividend Aristocrats by Yield

Updated March 10, 2008.

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