/Deep Dive: Afraid of sky-high stock valuations? These ‘Dividend Aristocrats’ have yields over 3%

Deep Dive: Afraid of sky-high stock valuations? These ‘Dividend Aristocrats’ have yields over 3%


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

SPX, -0.26%

over the past 20 years:

FactSet

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.

Dividend Aristocrats

The S&P Dividend Aristocrats

SP50DIV, +0.41%

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 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, -0.33%

 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, -0.09%,

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:

Index1 year3 years5 years10 years15 years20 years
S&P 500 Dividend Aristocrats24%50%71%287%373%659%
S&P 50028%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

TMUBMUSD10Y, -1.37%.

There are 15 S&P 500 Dividend Aristocrats with dividend yields above 3%. Here they are:

CompanyTickerIndustryDividend yieldPrice change – 1 year through Jan. 12Total return – 1 year through Jan. 12
AT&T Inc.

T, -0.08%

Telecommunications5.39%25%32%
AbbVie Inc.

ABBV, -0.01%

Pharmaceutical5.30%1%7%
Exxon Mobil Corp.

XOM, -0.83%

Integrated Oil5.03%-4%1%
People’s United Financial Inc.

PBCT, -0.03%

Regional Banks4.35%7%12%
Franklin Resources Inc.

BEN, -0.67%

Investment Managers4.32%-18%-15%
Chevron Corp.

CVX, -0.42%

Integrated Oil4.09%3%8%
Cardinal Health Inc.

CAH, +2.00%

Medical Distributors3.80%6%11%
Consolidated Edison Inc.

ED, -0.06%

Electric Utilities3.38%15%19%
Walgreens Boots Alliance Inc.

WBA, +0.61%

Drugstore Chains3.38%-24%-22%
Federal Realty Investment Trust

FRT, -0.26%

Real Estate Investment Trusts3.34%2%5%
Leggett & Platt Inc.

LEG, +0.04%

Home Furnishings3.24%29%34%
3M Co.

MMM, +0.01%

Industrial Conglomerates3.19%-6%-3%
Archer-Daniels-Midland Co.

ADM, -0.16%

Agricultural Commodities/Milling3.19%2%5%
Genuine Parts Co.

GPC, -0.14%

Wholesale Distributors3.08%3%6%
Nucor Corp.

NUE, +0.25%

Steel3.05%-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

SPHYDA, -0.16%,

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

MID, -0.05%

 and the S&P Small-Cap 600

SML, -0.14%.

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, -0.17%,

which is weighted by dividend yield. 

Here are the 29 High Yield Dividend Aristocrats with dividend yields of more than 3%:

CompanyTickerIndustryDividend yieldPrice change – 1 year through Jan. 12Total return – 1 year through Jan. 12
Tanger Factory Outlet Centers Inc.

SKT, -1.55%

Real Estate Investment Trusts8.90%-28%-22%
Meredith Corp.

MDP, +0.79%

Publishing: Books/Magazines7.15%-43%-40%
Kontoor Brands Inc.

KTB, +0.58%

Apparel/Footwear5.48%N/AN/A
AT&T Inc.

T, -0.08%

Telecommunications5.39%25%32%
AbbVie Inc.

ABBV, -0.01%

Pharmaceutical5.30%1%7%
Exxon Mobil Corp.

XOM, -0.83%

Integrated Oil5.03%-4%1%
International Business Machines Corp.

IBM, -0.08%

Information Technology Services4.74%13%18%
Amcor PLC

AMCR, -0.56%

Containers/Packaging4.50%N/AN/A
People’s United Financial Inc.

PBCT, -0.03%

Major Banks4.35%7%12%
Franklin Resources Inc.

BEN, -0.67%

Investment Managers4.32%-18%-15%
Chevron Corp.

CVX, -0.42%

Integrated Oil4.09%3%8%
National Fuel Gas Co.

NFG, -0.67%

Integrated Oil3.87%-17%-15%
National Retail Properties Inc.

NNN, -0.33%

Real Estate Investment Trusts3.85%8%12%
Cardinal Health Inc.

CAH, +2.00%

Medical Distributors3.80%6%11%
United Bankshares Inc.

UBSI, -0.57%

Regional Banks3.76%10%14%
Realty Income Corp.

O, -0.35%

Real Estate Investment Trusts3.70%15%19%
Old Republic International Corp.

ORI, -0.11%

Property/Casualty Insurance3.60%6%15%
Bank OZK

OZK, -0.33%

Regional Banks3.42%15%19%
Consolidated Edison Inc.

ED, -0.06%

Electric Utilities3.38%15%19%
Walgreens Boots Alliance Inc.

WBA, +0.61%

Drugstore Chains3.38%-24%-22%
J.M. Smucker Co.

SJM, -0.34%

Food: Specialty/Candy3.37%2%5%
Federal Realty Investment Trust

FRT, -0.26%

Real Estate Investment Trusts3.34%2%5%
Leggett & Platt Inc.

LEG, +0.04%

Home Furnishings3.24%29%34%
3M Co.

MMM, +0.01%

Industrial Conglomerates3.19%-6%-3%
Archer-Daniels-Midland Co.

ADM, -0.16%

Agricultural Commodities/Milling3.19%2%5%
Eaton Vance Corp.

EV, -0.17%

Investment Managers3.18%30%35%
Genuine Parts Co.

GPC, -0.14%

Wholesale Distributors3.08%3%6%
Nucor Corp.

NUE, +0.25%

Steel3.05%-7%-4%
Cullen/Frost Bankers Inc.

CFR, -0.14%

Regional Banks3.01%1%4%
Source: FactSet

The table doesn’t include one-year price changes or returns for Kontoor Brands

KTB, +0.58%,

which was spun off from VF Corp.

VFC, +0.41%

 in May, or Amcor PLC

AMCR, -0.56%,

which began trading under its current ticker after the “old” Amcor completed its acquisitions of Bemis Co. in June. Both companies are included because of their predecessors’ dividend increases.

 Don’t miss:This basket of dividend growth stocks can help your portfolio stand out in 2020

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