By Philip van Doorn, MarketWatch
The group is known as a growth investment, but they provide steady income too
U.S. stock indexes are at record highs, and valuations relative to earnings are very high. So it may be a good time to take a different approach with some of your investment portfolio, and dividend stocks may fit the bill.
This chart shows forward price-to-earnings valuations (based on consensus earnings estimates for the following 12 months) for the benchmark S&P 500 Index over the past 20 years:
The forward P/E for the index has increased to 18.5 from 15.2 a year ago. Except for a short period in early 2018, the market's current valuation to estimated earnings is at its highest level since June 2002.
One reason you might dedicate part of your portfolio to higher-yielding dividend stocks, especially those with very long track records for raising payouts, is that you would enjoy getting paid while waiting out a market decline. Another might be that you are looking to earn income from your investments without having to draw down capital.
The S&P Dividend Aristocrats are companies that have raised their regular dividend payouts consistently. The group as a whole tends to be considered a growth investment, because many of the dividend yields are low and the group has outperformed the broader market over very long periods.
But today we're going to focus on current income by simply listing the Aristocrats with the highest dividend yields.
The financial media are understandably fixated on investment growth, but income has its place, especially if you need it and if you understand the incredible dividend tax advantage (link) that U.S. investors enjoy.
The S&P 500 Dividend Aristocrats Index is a subset of the benchmark S&P 500 Index. The 57 Dividend Aristocrats have raised their regular dividend payouts for at least 25 consecutive years. It makes no difference how high or low the dividend yield may be. For example, Roper Technologies (ROP) has a dividend yield of only 0.55%.
An easy way to invest in the Dividend Aristocrats as a group is the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), which holds all 57 stocks with an equal weighting. The ETF was established in 2014.
Let's go further back and compare the performance of the S&P 500 Dividend Aristocrats Index to the entire S&P 500 for various periods, with dividends reinvested, through Jan.12:
Index 1 year 3 years 5 years 10 years 15 years 20 years S&P 500 Dividend Aristocrats 24% 50% 71% 287% 373% 659% S&P 500 28% 53% 78% 254% 276% 236% Source: FactSet
The Dividend Aristocrats Index has trailed for one, three and five years, but that underperformance is modest compared with how much it has outperformed the benchmark for 10, 15 and 20 years.
The difference may be put down to the compounding effect of reinvested dividends, but also to the dominance of technology companies during the extended bull market and the incredibly stimulative policies of central banks around the world. Negative or very low interest make U.S. stocks a haven. The S&P 500 has a weighted aggregate dividend yield of 1.83%, nearly the same as the current yield on 10-year U.S. Treasury notes .
There are 15 S&P 500 Dividend Aristocrats with dividend yields above 3%. Here they are:
Company Ticker Industry Dividend yield Price change - 1 year through Jan. 12 Total return - 1 year through Jan. 12 AT&T Inc. US:T Telecommunications 5.39% 25% 32% AbbVie Inc. US:ABBV Pharmaceutical 5.30% 1% 7% Exxon Mobil Corp. US:XOM Integrated Oil 5.03% -4% 1% People's United Financial Inc. US:PBCT Regional Banks 4.35% 7% 12% Franklin Resources Inc. US:BEN Investment Managers 4.32% -18% -15% Chevron Corp. US:CVX Integrated Oil 4.09% 3% 8% Cardinal Health Inc. US:CAH Medical Distributors 3.80% 6% 11% Consolidated Edison Inc. US:ED Electric Utilities 3.38% 15% 19% Walgreens Boots Alliance Inc. US:WBA Drugstore Chains 3.38% -24% -22% Federal Realty Investment Trust US:FRT Real Estate Investment Trusts 3.34% 2% 5% Leggett & Platt Inc. US:LEG Home Furnishings 3.24% 29% 34% 3M Co. US:MMM Industrial Conglomerates 3.19% -6% -3% Archer-Daniels-Midland Co. US:ADM Agricultural Commodities/Milling 3.19% 2% 5% Genuine Parts Co. US:GPC Wholesale Distributors 3.08% 3% 6% Nucor Corp. US:NUE Steel 3.05% -7% -4% Source: FactSet
Click on the tickers for more about each company, including profiles, news, price ratios, analysts ratings and financials.
You can see that a long record of dividend increases and an attractive yield don't necessarily mean the sailing is always smooth. Being an Aristocrat also doesn't necessarily mean a company isn't in trouble or headed for it. As with any investment, you should do your homework and decide whether you think a company is poised for continued competitiveness for the next decade.
Expanding the Aristocrats list
S&P Dow Jones Indices also developed the S&P High Yield Dividend Aristocrats Index , with somewhat different criteria. The 112 stocks are drawn from the S&P Composite 1500 Index, which is made up of the large-cap S&P 500, the S&P 400 Mid-Cap Index and the S&P Small-Cap 600 . High Yield Dividend Aristocrats need to have increased regular dividend payouts for at least 20 years. So all S&P 500 Dividend Aristocrats are also High Yield Dividend Aristocrats.
You can invest in the High Yield Aristocrats as a group through the SPDR S&P Dividend ETF (SDY), which is weighted by dividend yield.
Here are the 29 High Yield Dividend Aristocrats with dividend yields of more than 3%:
Company Ticker Industry Dividend yield Price change - 1 year through Jan. 12 Total return - 1 year through Jan. 12 Tanger Factory Outlet Centers Inc. US:SKT Real Estate Investment Trusts 8.90% -28% -22% Meredith Corp. US:MDP Publishing: Books/Magazines 7.15% -43% -40% Kontoor Brands Inc. US:KTB Apparel/Footwear 5.48% N/A N/A AT&T Inc. US:T Telecommunications 5.39% 25% 32% AbbVie Inc. US:ABBV Pharmaceutical 5.30% 1% 7% Exxon Mobil Corp. US:XOM Integrated Oil 5.03% -4% 1% International Business Machines Corp. US:IBM Information Technology Services 4.74% 13% 18% Amcor PLC US:AMCR Containers/Packaging 4.50% N/A N/A People's United Financial Inc. US:PBCT Major Banks 4.35% 7% 12% Franklin Resources Inc. US:BEN Investment Managers 4.32% -18% -15% Chevron Corp. US:CVX Integrated Oil 4.09% 3% 8% National Fuel Gas Co. US:NFG Integrated Oil 3.87% -17% -15% National Retail Properties Inc. US:NNN Real Estate Investment Trusts 3.85% 8% 12%
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