S&P Dividend Aristocrats Getting Through the Credit Crisis

by: Avi Morris

Picking stocks during the credit crisis has been unusually challenging for yield sensitive investors, especially with numerous companies cutting dividends. The importance of the S&P 500 Dividend Aristocrats, companies in the S&P 500 with a minimum of 25 consecutive years of increased annual dividends, can be more helpful than ever. However, they have not been spared suffering. The elite group has lost (or will lose) all banks. In addition industrial giants, Pfizer (NYSE:PFE), General Electric (NYSE:GE) and Masco (NYSE:MAS), with a 50 year track record of higher dividends, had large dividend cuts. In spite of this negative news, all is not gloom.

Dividend Aristocrats typically contain about 55 (out of 500) companies. The new list will probably be reduced to around 45 when reported later in the year. However, the smaller group remains an excellent source for investment ideas (i.e. investing for the long term). Dividend Aristocrats already announcing dividend increases in 2009 include:

  • 3M (NYSE:MMM)
  • Abbott Labs (NYSE:ABT)
  • Coca Cola (NYSE:KO)
  • Kimberly Clark (NYSE:KMB)
  • Eli Lilly (NYSE:LLY)
  • McDonald's (NYSE:MCD)
  • Pepsico(NYSE:PEP)
  • Procter & Gamble (NYSE:PG)
  • Wal-Mart (NYSE:WMT)

Others have not reached their regular time for increasing dividends (3rd or 4th quarter). But many of these companies have strong finances suggesting they will declare increases later this year.

  • Clorox (NYSE:CLX)
  • Johnson & Johnson (NYSE:JNJ)
  • Walgreen (WAG)

However, the ones falling off the list are still troubling. Two years ago, Bank of America (NYSE:BAC), a Dow stock, issued a press release which bragged about increasing their annualized dividend to a record $2.56. A few months later they bought Countrywide, and later on Merrill Lynch. That was followed by recognition that they were caught up in the credit crisis which required reducing the dividend to only 4¢ (annualized). A bank which was recently considered to have strong finances, has been told to raise another $35 billion in capital to be better prepared for greater financial stress if the economy worsens. The lesson is clear, no matter how big & strong the company is, every dividend carries risk. Even Dividends Aristocrats are mortal, subject of negative macro economic forces.

Nevertheless, remaining Dividend Aristocrats should have strong financials, especially those declaring dividend increases in 2009. In 1953, Louis Engel, a partner in a leading investment firm and former editor of Business Week, in his book "How to Buy Stocks" gave simple financial advice, investigate before investing. That recommendation is still valid.

Disclosure: I have owned KO & LLY for many years