S&P Dividend Aristocrats Getting Through the Credit Crisis

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 (PFE), General Electric (GE) and Masco (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 (MMM)
• Abbott Labs (ABT)
• Coca Cola (KO)
• Kimberly Clark (KMB)
• Eli Lilly (LLY)
• McDonald's (MCD)
• Pepsico(PEP)
• Procter & Gamble (PG)
• Wal-Mart (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 (CLX)
• Johnson & Johnson (JNJ)
• Walgreen (WAG)

However, the ones falling off the list are still troubling. Two years ago, Bank of America (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

Comments

[David Van K...:]

Avi,

You are correct to point out that the Dividend Aristocrat list is just a starting point in selecting worthy dividend growth stocks. The careful dividend investor needs to do his or her own further research before investing in any stock. Just because a stock is on the DA list does not mean that its dividend is not in peril--as many banks have demonstrated over the past year or two.

A couple of points of clarification:
--The DA list is reconstituted each December. Therefore, companies that have declared dividend cuts remain on the list longer than they should (in my opinion). This fakes people out...just in the past two days I have read otherwise well-researched articles that nevertheless missed the widely publicized fact that GE has announced a significant dividend cut to take effect later in 2009. GE is still on the DA list. It shouldn't be. The only way a company is removed from the DA list during a year is if the company itself is dropped from the S&P 500.
--The S&P 500 includes only companies headquartered in the USA. Thus, no foreign companies are on the DA list. As you well know, many terrific dividend-paying companies are headquartered outside the USA. None of them is eligible for the DA list.
--The DA list includes only companies that have declared dividend increases during the calendar year. A company can have a consecutive string of rising annual dividends without declaring an increase each year. In fact, this is exactly what happens if a company declares an increase in the middle of every other year. The DA list does not include such companies, even though (again, my opinion), it "should."

May 19 10:25 AM

[Dividend Gr...:]

Actually your article is a little out-dates as JNJ has already raised dividends for 2009. In addition to that there have been about 20 increases in the Dividend Aristocrats index in 2009 versus 7 cuts.

I did enjoy the article however. Always pays to know as much as possible about the Dividend Aristocrats!

May 19 10:59 AM

[jculley:]

See dividendgrowthinvestor, you posted right after the person you are copycatting on SA to shill your crappy book. Dividend Growth Investor is a valued member of SA who has helped many people, myself included, navigate the market.

May 19 09:38 PM

[Paul Price:]

The so-called 'book' by dividendgrowthinvestor [who copycatted the name name of Dividend Growth Investor] is a joke.

The man can't spell or write gramatically let alone give good advice.

All he does is tout MO and PM each and every day whether it's up, down or unchanged.

He gives daily advice on buying or shorting pre-market movers and takes credit for 'winning' if they move by even 1% anytime after he writes up the trades.

He has ZERO credibility.

May 20 08:55 AM

[jculley:]

Over and over you claim financial independence through dividend investing but you have never put up your portfolio, you have never mentioned a stock you own other then Altria. All you make are claims you haven't even attempted to back up, all in an attempt to sucker new investors into buying your crappy book.

You picked your screen name because of Dividend Growth Investor, you are trying to use his credibility, intelligence and hard work to sell your book.

Personally, I think SA should delete your account. You are a bane on this website and a danger to new investors. If you had ANY sense of decency, you'd start using a different screen name and put your portfolio up for everyone to see.


On May 20 07:22 AM dividendmachine wrote:

> Jculley I havent read your book youll have to send me a copy.lol
>
>
> Not one person has requested their money back or told me that after
> reading the book they didnt save more than the purchase price but
> many who havent read the book have slammed it
>
> Those bought the book were impressed and one of the readers has hooked
> me up with national news organization where my investment newsletter
> is exclusively carried
>
> I respect dividend growth investor or would not have chosen the name
> I have used
>
> The reason I call myself dividend growth investor is because I have
> achieved financial independence solely through dividend investing
> and have decided to share my wisdom with the SA readers
>
> They of course will decide who and what they want to read
>
>
>

May 21 12:53 AM

[jculley:]

Heh, I just noticed you did change your screen name.

May 21 01:00 AM