Where Are the Original Dividend Aristocrats Now?

The Dividend Aristocrats index measures the performance of S&P 500 index members that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. (Source: S&P)

Since its inception 20 years ago, the dividend aristocrat’s index has outperformed the S&P 500.


The number of components in the index has ranged between 26 in 1989 to 64 in 2001. I used this list as a primary tool for identifying companies with strong brands, which have raised distributions through both good and bad economic conditions. Check this post Historical changes of the S&P Dividend Aristocrats Index for reference.

Some investors believe that the reason why the index has outperformed the S&P 500 is because of new stocks that have later been added to the index. In a previous post I discussed how the list of original S&P 500 components in 1957 outperformed the index over the next 50 years.

It would be interesting to note what happened to the original Dividend Aristocrats. Here’s a list with 26 of them from 1989. Next to each symbol is a brief outline of the events over the past 20 years, associated with each stock.

American Home Products became Wyeth (WYE) in 2002. The company was removed from the index in 2001 when it failed to increase dividends for 2 consecutive years in a row. The company began raising its distributions again in 2005. Currently it is in the process of being acquired by drug giant Pfizer (PFE). One dollar invested in AHP in 1989 would have turned out to $5.80 with dividends reinvested by June 2009. Yield on cost is 8.9%.

Fuse Maker AMP Inc. was acquired by Tyco (TYC) in 1998.

Baxter International (BAX) was part of the index until 1997. The company spun off Allegiance Healthcare Corporation in 1996, issuing a certain amount of stock in the new company to existing shareholders. As a result its distributions fell slightly for the past three quarters of 1997 in comparison to the same period in 1996. One dollar invested in BAX in 1989 would have turned out to $8.03 with dividends reinvested. The yield on 1989 cost is 8.3%.

Colgate Palmolive (CL) was deleted in the index in 1990 for no apparent reason. According to yahoo finance the company increased its distributions in 1989. In addition to that the company’s own web page claims that it has increased payments to common shareholders every year for 46 years. One dollar invested in CL in 1989 would have turned out to $16.94 with dividends reinvested. The yield on cost is 27.70%. (analysis)

CSR was deleted from the index in 1998. I couldn’t find any additional information on this stock.

Dover (DOV), which recently announced its 54th consecutive annual dividend increase, is still part of the index. A dollar invested in EMR in 1989 would have turned out to $5.45 with dividends reinvested. The yield on cost is 11.6%. (analysis)

Emerson Electric (EMR) is still part of the index. The company has increased its dividends for 52 years in a row. One dollar invested in EMR in 1989 would have turned out to $8.17 with dividends reinvested. The yield on cost is 17.7%. (analysis)

FPL Group (FPL) was deleted from the index in 1995, after the Florida Utility cut its distributions by one third, ending a 48-year streak of dividend increases. The company resumed its policy of regular dividend increases in 1995. One dollar invested in FPL in 1989 would have turned out to $7.56 with dividends reinvested. The yield on cost is 10.4%.

Genuine Parts Co (GPC) was removed from the index in 2002. It is unclear as to why the company was booted out, since both Yahoo Finance and the company’s website show no interruptions to the dividend increases. The company’s most recent dividend increase marked 53rd consecutive years of increased dividends paid to our shareholders. A dollar invested in GPC in 1989 would have turned out to $5.20 with dividends reinvested. The yield on cost is 12%.

HI was acquired by HSBC (HBC) in 2002. I couldn’t find any information about this component.

International Flavors and Fragrances (IFF) was removed from the index in 2001, after the company cut its dividends by 60% in 2000. While International Flavors and Fragrances started raising dividends in 2003, its current distribution rate is still lower than what it was in 2000. A dollar invested in IFF in 1989 would have turned out to $3.52 with dividends reinvested. The yield on cost is 6%.

Johnson & Johnson (JNJ), which recently announced its 47th consecutive annual dividend increase, is still part of the index. A dollar invested in JNJ in 1989 would have turned out to $10.84 with dividends reinvested. The yield on cost is 26.4%. (analysis)

Kellogg (K) was removed from the index in 2003 after the company failed to raise its quarterly dividend for 2.5 years in a row. Since 2005 the company has started to increase dividends once again. A dollar invested in K in 1989 would have turned out to $4.59 with dividends reinvested. The yield on cost is 8.9%.

Coca Cola (KO) is still a member of the dividend aristocrat’s index. The company has increased its dividends for 47 consecutive years. A dollar invested in KO in 1989 would have turned out to $7.15 with dividends reinvested. The yield on cost is 17%. (analysis)

(LDG) was booted out of the index in 1995. I couldn’t find any information about this component.

Lowe’s Companies (LOW) is still a component of the index after 20 years. The company has increased its dividends for 47 consecutive years. A dollar invested in MAS in 1989 would have turned out to $25.40 with dividends reinvested. The yield on cost is 39%.

Masco Corp (MAS) was booted out of the index in 1996. It is unclear as to why the company was booted out, since both yahoo finance and the company’s website show no interruptions to the dividend increases. A dollar invested in MAS in 1989 would have turned out to $1.31 with dividends reinvested. The yield on cost is 2.5% after the recent dividend cut; it went up to 7.7% in 2008.

3M (MMM) is one of seven original components still part of this elite dividend index. The company has consistently increased its dividends for 51 consecutive years.
A dollar invested in MMM in 1989 would have turned out to $5.33 with dividends reinvested. The yield on cost is 10.3%. (analysis)

NSI Company was kicked out of the index in 1998. I couldn’t find any information about this component.

Procter & Gamble (PG) is one of the original 26 members still present in the index. The company has raised dividends for over 53 consecutive years. A dollar invested in TMK in 1989 would have turned out to $9.05 with dividends reinvested. The yield on cost is 20%. (analysis)

Parker-Hannifin (PH) only stayed in the index for one year. The company failed to increase its dividend in 1989, which is why it was kicked out of the index in the first place. A dollar invested in PH in 1989 would have turned out to $11.13 with dividends reinvested. The yield on cost is 17%.

Rubbermaid was acquired by Newell to become Newell-Rubbermaid (NWL) in 1999.

Torchmark (TMK) was booted out of the index in 1996. It is unclear as to why the company was booted out, since yahoo finance shows dividend increases in 1995 and 1996. A dollar invested in TMK in 1989 would have turned out to $5.64 with dividends reinvested. The yield on cost is 4.3%.

Texas Utilities Company (TXU) was a member of the index until 1994 it failed to increase its dividend for a second year in a row in 1994. The company consequently cut its distributions the next year and after a brief increase it cut them again in 2002. The dividend payments briefly returned to 1994 levels in 2005, before an investor group led by Kohlberg Kravis Roberts & Co., TPG and Goldman Sachs Capital Partners bought out the company.

WIN was a member of the index until it filed for chapter 11 bankruptcy in 1999.

Warner Lambert was a component until Pfizer acquired it in 1999.

Seven of the original 26 components in the dividend aristocrat index are still part of it. The seven survivors have managed to outperform the index average over the past twenty years.
It seems that most of the companies that leave the index as a result of mergers and acquisitions. Sometimes companies take on too much debt in an acquisition, which proves costly over time, leading to freezing or cutting of the dividend payments. Blogger Yielder notes that:

Regardless of whether a company has a long history of dividend growth, a large acquisition financed by debt is cause for alarm bells to go off. Excessive debt can choke the company especially if the new asset requires "fixing". Unless a company has a great deal of experience with acquisitions, a quick & successful integration can be a problem especially if the company being acquired involves new areas of expertise.

It would have been next to impossible to predict which ones were to remain the index back in 1989. It would be almost impossible to predict which ones would remain in the index 20 years from now as well. However, by diversifying your risk by spreading your bets to several stocks from as many market sectors as possible, investors would have a higher chance of finding the best dividend stocks, which would generate the most returns for them for the future.

Disclosure: Long PG, JNJ, MMM, EMR, KO

Comments

[User 461674:]

Many of the aristrocrats continue to pay over a 3.0% yield and have value line dividend growth projections of > 5%. I like McDonalds in particular whose projected value line dividend growth rate is apx 10% for the next five years. It also pays over a 3.0% dividend and is a DOW 30 component..
Two issues for retired/near retired dividend investors is that many of the aristicrats pay small dividends of 1-2%. Further, many have very small rates of dividend growth. Perhaps less than half have dividends > 3.0% and D growth rates of GT 4% for the next 5 years according to value line projections.
The other issue is that many dividend growth stocks- especially the master limited partnerships - have not been around for more than 10-15 years and are, thus, automatically excluded.
My favorite such MLP stock is alliance resource partners (ARLP) which has had a dividend growth rate of 15% for the last five years and a projected DG rate of 15%. It is involved in the coal industry which has been taking off given expected revival of the world economy. It pays about a 8% yield.
An excellent detailed review for MLP's is MLP Weekly Report published by Barclays. It is available free to account holders at Fidelity Investments under their report search utility.
- steve of TROY
The "TROJAN"

Nov 11 11:22 AM

[No Free Cake:]

You have a minor typo for PG - you refer to TMK in the section on PG.

Nov 11 04:22 PM

[mbkelly75:]

You gotta love history. I use this list for the same reason - it is a great starting point for Due Diligence. I am a long-term holder of 5 of the original 7 - PG, DOV and EMR for over 50 years.

Nov 12 07:46 AM

[BlueOkie:]

Where can you find the return if all dividends are reinvested?

Nov 12 08:28 AM

[David Van K...:]

Terrific article. Thanks.

Nov 12 10:32 AM

[Anonymous 2:]

Most readers know that a growing number of MFs and ETFs currently use words in their names to infer that the manager buys and holds companies which have a history of increasing their dividend payouts each year for 10, 15 and 25 plus years.
Are there any studies - computer generated simulations or actually managed using rigid add/liquidate strategies - which show results of Initially buying and holding such a portfolio, and going forward, "immediately selling" (on day following public notice of a lowering of any dividend and or at the end of any trailing 12 month period of time not increasing the one year dividend payout), and, for additions, immediately purchasing an appropriately weighted new position on the day following the public announcement/release of a dividend payout which qualifies the company for having paid consecutively increased annual payouts of dividends.?
Which if any of the currently offered MFs and or ETFs offer such a closely defined or rigid investment strategy? and to what extent do such managers reallocate positions to provide "equal" weightings as the total portfolio increases in size based on the flows of investors in the MF or ETF?

Nov 12 02:19 PM

[No Free Cake:]

Anonymous2 - I think it highly unlikely you will find a mutual fund or ETF that will "immediately sell" or purchase a stock such as you decribe. Most of the larger MF/ETFs with a dividend focus rebalance their portfolio quarterly and reconstitute annually. That's why you'll see non-dividend payers in their portfolios for so long.

Keep in mind that MFs and ETFs generally grow fairly large and thus can only take positions in companies with enough trading activity to satisfy their volume. This means smaller and midsize companies make up a smaller component of an MF/ETF as it grows larger.

If you want to be nimble I"m afraid you'll have to do it yourself.

Nov 12 11:58 PM

[GotLife:]

And, you can add significant income through selling out-of-the-money covered calls on your dividend stocks, in some periods doubling your yield(or greater!). For example, during the last quarter, I picked up over a dollar a share on my PFE holdings (22.7% annualized) while retaining the shares and receiving my dividend. It takes a little work to monitor your positions but the time spent has been well worth the increased yield.

By the way, the PFE figure above reflects commisions. Make sure your broker fees and the size of your positions maximize your returns.

Nov 13 08:58 AM

[StockMaster...:]

Yes, MCD and ARLP are great stocks! I bought ARLP at 20 during the crash, I'll hold that til I die and as you can tell by my picture I'm a buff young guy.


On Nov 11 11:22 AM User 461674 wrote:

> Many of the aristrocrats continue to pay over a 3.0% yield and have
> value line dividend growth projections of > 5%. I like McDonalds
> in particular whose projected value line dividend growth rate is
> apx 10% for the next five years. It also pays over a 3.0% dividend
> and is a DOW 30 component..
> Two issues for retired/near retired dividend investors is that many
> of the aristicrats pay small dividends of 1-2%. Further, many have
> very small rates of dividend growth. Perhaps less than half have
> dividends > 3.0% and D growth rates of GT 4% for the next 5 years
> according to value line projections.
> The other issue is that many dividend growth stocks- especially the
> master limited partnerships - have not been around for more than
> 10-15 years and are, thus, automatically excluded.
> My favorite such MLP stock is alliance resource partners (ARLP) which
> has had a dividend growth rate of 15% for the last five years and
> a projected DG rate of 15%. It is involved in the coal industry which
> has been taking off given expected revival of the world economy.
> It pays about a 8% yield.
> An excellent detailed review for MLP's is MLP Weekly Report published
> by Barclays. It is available free to account holders at Fidelity
> Investments under their report search utility.
> - steve of TROY
> The "TROJAN"

Nov 15 09:54 AM

[Rainmaker986:]

DGI does it again. An outstanding article that is of great value to all who will read it. I see this article as a technical paper to help me better analyze my portfolio for safety with performance as a secondary consideration. Keep in mind that during this time in history the Federal, State and Local Gov. are hungarily eyeing our assets to feed their out-of-control appitites. That is risk enough for me. I would perfer safer albiet lower return. With one eye always on the Gov. I would perfer to have the other for seeing where I am going and not on risky investments.

Nov 17 08:42 AM