Dividend Aristocrats Stand Tall

9/10/2012


If there were a Mount Rushmore for dividend stocks, the tickers of the S&P 500 Dividend Aristocrats would be etched on the peak's face. Each January, Standard & Poor's compiles its index of aristocrats, stocks that have raised their dividend for at least 25 straight years.

The current crop includes 51 companies that represent all 10 market sectors. Check them out at www.DowTheory.com/Go/Aristocrats. Chevron ($111; CVX), which raised its dividend for a 25th consecutive year in June, figures to join the ranks of aristocrats next year.

Dividends remain a focus among both investors and U.S. companies. For August, cash dividend payments totaled $34 billion, an all-time monthly record, reports Barron's.  Within the S&P 500 Index, 402 companies currently pay a dividend, the most since December 1999, according Standard & Poor's.

As a group, the aristocrats suffer from subpar operating momentum and rich valuations, averaging Quadrix® Momentum scores of 47 and Value scores of 49. And concerns about a potential rise in the dividend-taxation rate could be weighing on the shares. For the year, the aristocrats' total return of 6% trails the broader S&P 500's 13% return. But as shown in the tables below, investors seeking dividend growth, attractive yields, and strong operating gains still have some good options among the aristocrats.

S&P 500 ARISTOCRATS
Sector (No. Of Cos.)
% Of
Cos.
Avg.
Div.
Yield
(%)
10-Yr.
Avg.
Div.
Yield
(%)
10-Yr.
Avg. Div.
Growth
(Annual.)
(%)
Avg. Div.
Payout
Ratio
(%)
Cons. Discret. (9)
18
2.7
2.3
20
44
Consumer Staples (13)
25
2.7
2.2
18
46
Energy (1)
2
2.6
2.2
16
29
Financials (6)
12
2.8
2.8
20
53
Health Care (5)
10
2.5
1.8
20
33
Industrials (7)
14
3.6
2.4
16
40
Technology (1)
2
2.7
2.2
13
58
Materials (7)
14
2.3
2.2
18
41
Telecom Services (1)
2
4.8
5.1
13
77
Utilities (1)
2
4.0
5.1
8
66
S&P 500 Aristocrat Average (51)
2.8
2.4
18
45
S&P 500 Dividend Payers Avg. (402)
2.5
2.1
15
40
BIG, STEADY GROWTH
----- Annualized Dividend Growth -----
Company (Price; Ticker)
1 Yr.
(%)
5 Yrs.
(%)
10 Yrs.
(%)
Quadrix
Quality
Score
Abbott Laboratories ($65; ABT)
8
10
16
82
Aflac ($47; AFL)
9
14
28
88
Wal-Mart Stores ($74; WMT)
9
20
26
78
RISING YIELDS
------------ Dividend Yield ------------
Company (Price; Ticker)
Current
(%)
5-Year
Average
(%)
10-Year
Average
(%)
Quadrix
Value
Score
Aflac ($47; AFL)
2.8
2.5
1.8
98
Exxon Mobil ($87; XOM)
2.6
2.2
2.2
77
Walgreen ($36; WAG)
3.1
1.8
1.2
80
MOMENTUM PLAYS
Company (Price; Ticker)
Free Cash
Flow, Last
6 Mos.
($Bil.)
6-Month
Growth,
Free Cash
Flow
(%)
Est. EPS
Growth,
Next 6 Mos.
(%)
Quadrix
Momentum
Score
Aflac ($47; AFL)
6.9
69
15
93
Medtronic ($41; MDT)
1.7
42
11
58
Wal-Mart ($74; WMT)
3.4
126
7
61
Note: Quadrix scores are percentile ranks, with 100 the best.

Below, we review three recommended dividend aristocrats.

Abbott Laboratories ($65; ABT) has raised its dividend for 40 consecutive years, with annualized growth of 16% over the past decade. The shares have delivered a 19% total return so far this year in advance of a spin-off expected to occur Jan. 1. Abbott will retain its nutritionals, medical-device, and generic-drug units (about $22 billion in annual sales), while AbbVie will produce blockbuster rheumatoid-arthritis drug Humira and other branded pharmaceuticals ($18 billion).

Abbott says the combined dividend of the two companies will at least equal the existing distribution. AbbVie will likely pay the larger dividend, but with overseas markets accounting for a significant portion of operations, the company could incur a tax bill to repatriate profits to cover the distribution. Both companies appear likely to maintain investment-grade balance sheets. Abbott Laboratories is a Long-Term Buy.


As Exxon Mobil ($87; XOM) showed during the recession, when it continued to spend as others cut back, the energy giant is focused on the long haul. The company has spent $99.66 billion on capital projects over the last four years, boosting spending by at least 15% each year.

While cap-ex could keep rising, Exxon also plans to grow the quarterly dividend. The yield of 2.6% still trails several of Exxon's peers, and the company hopes to bring that yield in line with the industry. In April, Exxon hiked its dividend 21%, more than twice its annualized growth rate of 9% over the last five years.

Exxon can afford more big dividend hikes. The company generated more than $13 billion in free cash flow over the last four quarters. And among the 51 S&P 500 Dividend Aristocrats, only seven stocks pay out less than Exxon's 29% of profits as dividends. Boasting 30 straight years of dividend growth, Exxon Mobil is a Buy and a Long-Term Buy.


In the first half of the fiscal year ending January 2013, Wal-Mart Stores' ($74; WMT) free cash flow soared 126% to a record $3.38 billion. A combination of higher profits and tighter inventories boosted operating cash flow, while spending on capital projects declined. Over that six-month period, the retailer returned about $6 billion to investors through dividend distributions and share repurchases, roughly in line with last year. About $7.9 billion remains from a $15 billion buyback plan approved in June 2011, enough to allow Wal-Mart to lower outstanding shares by 3%. The retail titan raised its dividend 9% in April, continuing its streak of higher dividends in every year since its first payout in 1974.

Same-store sales at U.S. Wal-Mart locations have now advanced in four straight quarters, even as shoppers are constrained by tight budgets. Seeking to continue its momentum, Wal-Mart is rolling out its holiday layaway plan one month earlier than last year and offering discounts on gasoline for customers who use its branded credit and debit cards through Dec. 24. Yielding 2.2%, Wal-Mart Stores is a Long-Term Buy.

MONITORED ARISTOCRATS
The Forecasts covers 20 of the 51 S&P 500 Dividend Aristocrats. Four, the ones presented in bold, are recommended for purchase. Stocks qualify as dividend aristocrats after 25 consecutive years of higher dividends.
Ind.
Div.
($)
Yield
(%)
5-Yr.
Annual.
Div.
Growth
(%)
Div.
Payout
Ratio
(%)
No. Of
Years
With
Div.
Hikes
Last
Div.
Hike
---------- Quadrix Scores ----------
Company (Price; Ticker)
Momen-
tum
Value
Quality
Overall
Sector
Advice
3M ($92; MMM)
2.36
2.6
4
38
54
2/12
36
52
76
66
Industrials
B (average)
Abbott Labs
($65; ABT)
2.04
3.1
10
42
40
2/12
45
48
82
67
Health Care
L-T Buy
Aflac ($47; AFL)
1.32
2.8
14
20
30
10/11
93
98
88
99
Financials
Focus Buy
AT&T ($37; T)
1.76
4.8
5
77
28
12/11
45
36
32
38
Telecom
Svcs.
C
(below avg.)
Auto Data Process.
($58; ADP)
1.58
2.7
20
58
37
11/11
39
29
77
44
Technology
B (average)
Coca-Cola
($37; KO)
1.02
2.7
9
52
50
2/12
31
31
84
42
Cons.
Staples
B (average)
Colgate-Palmolive
($107; CL)
2.48
2.3
12
48
49
3/12
39
22
87
50
Cons.
Staples
B (average)
Emerson
($50; EMR)
1.60
3.2
4
49
56
11/11
31
60
73
56
Industrials
B (average)
Exxon Mobil
($87; XOM)
2.28
2.6
9
29
30
4/12
26
77
78
76
Energy
Buy
Johnson & Johnson
($67; JNJ)
2.44
3.6
9
48
50
4/12
31
47
63
48
Health Care
C
(below avg.)
Kimberly-Clark
($84; KMB)
2.96
3.5
7
58
40
2/12
53
33
70
56
Cons.
Staples
B (average)
Lowe's ($28; LOW)
0.64
2.3
23
37
32
6/12
25
55
57
38
Cons.
Discret.
C
(below avg.)
McDonald's
($89; MCD)
2.80
3.1
22
53
35
9/11
24
37
91
42
Cons.
Discret.
B (average)
Medtronic
($41; MDT)
1.04
2.5
17
30
39
6/12
58
70
79
83
Health
Care
A
(above avg.)
Nucor ($37; NUE)
1.46
3.9
(10)
80
39
12/11
27
55
32
28
Materials
C
(below avg.)
PepsiCo
($72; PEP)
2.15
3.0
16
50
40
5/12
21
35
75
39
Cons.
Staples
C
(below avg.)
Procter & Gamble
($67; PG)
2.25
3.3
11
58
56
4/12
27
33
61
37
Cons.
Staples
C
(below avg.)
Target ($64; TGT)
1.44
2.3
20
33
41
6/12
63
60
74
84
Cons.
Discret.
A
(above avg.)
Walgreen
($36; WAG)
1.10
3.1
23
42
37
6/12
48
80
79
88
Cons.
Staples
A
(above avg.)
Wal-Mart Stores
($74; WMT)
1.59
2.2
20
34
38
3/12
61
50
78
74
Cons.
Staples
L-T Buy
Note: Quadrix scores are percentile ranks, with 100 the best.

 


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