22 Stocks on the Dividend Aristocrats List That May Spell Trouble

I have written several recent articles and comments on the potential for dividend investors to be misled by S&P’s general statistics and lists. One very popular S&P document that can be hazardous to your portfolio is the Dividend Aristocrats list.

S&P describes their Dividend Aristocrats thusly:

S&P 500 Dividend Aristocrats is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years.

Naturally, many dividend investors assume that if a stock is a Dividend Aristocrat, it must be a paragon of long-term dividend safety and growth, and a worthy component in any dividend portfolio. They shouldn’t assume that.

There are two main reasons. First, some of the Aristocrats have yields so low that, even with annual increases, they do not return enough to make a logical starting point for a dividend portfolio.

Second, S&P’s regular update schedule for the list is only once per year, each December. That means the list ignores events that happen during the year, such as dividend cuts. Given that the stated purpose of the list is to present stocks that have increased dividends for 25 consecutive years, the annual updating can be very misleading. It’s not as if S&P is not capable of removing a stock on the spot: That’s exactly what they claim to do if the stock is removed from the S&P 500 index itself during the year.

The current Dividend Aristocrats list has 52 members. There are 22 stocks on the current list that do not pass these two simple tests:

• Current yield greater than or equal to 2.5%; and
• Has not cut or frozen its dividend in 2008-2009.

(Current yield figures are from Morningstar.)

1. Archer Daniels Midland (ADM). This agricultural processor has a current yield of just 2.1%.
2. Avery Dennison (AVY). This manufacturer of pressure-sensitive labels and office products usually raises its dividend in its last quarterly payment of each year. But it kept its dividend frozen throughout 2008. It has now made 7 consecutive quarterly payments without an increase.
3. Becton, Dickinson (BDX). The world's largest manufacturer and distributor of medical surgical products, such as needles, syringes, and safe disposal units, has a current yield of under 2%.
4. BB&T (BBT). This regional bank holding company cut its dividend by 32% with their third (July) payout of 2009. It still yields almost 3%.
5. C. R. Bard (BCR). This manufacturer of medical, surgical, diagnostic and patient-care devices has a current yield of less than 1%.
6. Cincinnati Financial (CINF). This group of insurance companies, which usually increases its dividend with its first payout each year, held its payout flat throughout 2008 and its first two payouts of 2009. It has now made 6 consecutive quarterly payments without an increase.
7. Family Dollar Stores (FDO). This chain of low-price stores has a current yield of about 1.7%.
8. Gannett (GCI). This dying newspaper company cut its dividend by 90% earlier this year, to $0.04 per share.
9. General Electric (GE). This iconic American company, the only remaining member of the original Dow Jones Industrial Average, cut its dividend 68% with its second quarterly payment this year.
10. W. W. Grainger (GWW). This maker of facility maintenance products has a current yield of about 2.3%.
11. Johnson Controls (JCI). This supplier of HVAC controls, auto parts, and batteries usually increases its dividend with its fourth quarterly payment each year. But it held its dividend flat throughout 2008 and through its first three payments in 2009. It has now made 7 consecutive payouts without an increase.
12. Leggett & Platt (LEG). This diversified manufacturer usually increases its second payout each year. But after breaking the pattern with two increases in 2007 (2^nd and 4^th payouts), it has held its dividend flat ever since. It has made 7 consecutive quarterly payouts without an increase.
13. Legg Mason (LM). This large asset manager slashed its dividend payment by 87% earlier this year and now yields barely over a half percent.
14. Lowe’s (LOW). The well-known home improvement chain is currently yielding under 2%.
15. M&T Bank (MTB). This bank has broken its former pattern of dividend increases twice in the past three years. In 2007, it delayed its usual dividend increase to the third quarterly payment (rather than the second), then it has held its payment flat ever since, making 8 consecutive identical payments with no increase.
16. Pfizer (PFE). Cut its dividend in half earlier this year to help fund its acquisition of Wyeth.
17. Rohm & Haas (ROH). Acquired earlier this year by Dow Chemical. Paid final dividend in April. .
18. Sigma-Aldrich (SIAL). Current yield 1.2%.
19. Questar (STR): Current yield 1.8%.
20. State Street (STT): This large trust bank slashed its dividend by 96%, to a penny per share, and currently yields less than 1/10^th of 1%.
21. US Bancorp (USB). Another financial giant that ran aground, USB cut its dividend by 88% this year and now yields a little over 1%.
22. Wal-Mart (WMT). Current yield is about 2.3%.

Disclosure: None.

Comments

[donzelion:]

Good review of the basic problems with several dividend achievers. I'd also be curious what the pension liabilities look like; seems that for many of these older companies, replenishing serious losses to the pension will squeeze dividends even more.

That said, picking from the best companies that are also stable dividend payers seems to make good sense to me. I still like ADM and WMT; there's relatively few good options among dividend payers in their respective sectors, and to me, diversification is almost as important as healthy dividend payouts.

Jul 10 08:17 AM

[BlueOkie:]

The group overweights Consumer Discretionary, underweights Energy and Info Technology. Overall it mirrors the S&P 500. Not a bad group to pick stocks from. Thru Dec 08, it out performed the S&P500

Jul 10 08:38 AM

[a. palmer jr.:]

Some of these companies waste so much money, it would be nice if they were forced to pay a certain percentage of their gross in dividends. I say gross rather than profits because they would fix it so they didn't have any profits if they wanted. Charitable giving is ok but I feel that the shareholders should get something for their risk first. I know it's not that way though. I guess our only choice is whether to buy the stock or not.

Jul 10 09:35 AM

[TLassen:]

Thanks David, saved me a lot of time. Was planning to go through the list of 52 aristocrats to eliminate the companies which had cut it's dividends within the last 2 years.
Once again, thanks for a great article. BTW, recently read your article "Why the rally is sustainable", excellent work, written in plain English. Very few investors left on SA, it seems, who clearly understand the difference between lagging and leading indicators.
You are quickly becoming a favorite of mine.

Jul 10 12:13 PM

[13958:]

Nice article write-up............BTw, I am trimming my dividend portfolio stocks to those of at least 2.5% and stable or rising dividends, mostly with a "payout" in the 40-60% range.
Of course, there are exceptions............

Jul 10 01:25 PM

[Cautious in...:]

The Dividend aristocrats may be getting lots of money for their advice without saying anything about the down side u have analysed so well. Perhaps You should go on CNBC and point it out to the general public,THANKS.

Jul 10 03:20 PM

[wallyo35:]

PFE has reduced its dividends by 50 % 3 times since the first of the year. I am a retiree existing off of many years of splits and looking forward to retirement and they now do this after making a damn stupid acquisition of WYE. What the devil is loyalty anymore. I worked for them many years before moving to Europe and thinking those dividends would be the "spark" in my retirement plans. Well, this DUMMY was mistaken while the biggies cart off their specials ..(Divs were 1.25 and are now at 0.16 cents per sh qtrly.)

Jul 10 06:33 PM

[mbkelly75:]

Nice work thank you - this will save me some time going over the lists to find some good, dependable stocks for my housekeeper.

Oct 04 09:41 PM