I own four S&P 500 Dividend Aristocrats which I bought years ago, before the lists were made public, providing an opportunity to examine long term results.
In 1993 I bought Eli Lilly (LLY) primarily because their yield was 5¼%. The stock was under pressure, fearing what would happen if Hillary Care became law. In the first year I added 10% to my investment with two stock purchases in their DRIP. The '90s were a good time for Lilly even though Prozac, their top drug, was losing patent protection at the end of the decade.
However despite rising earnings, this decade has been a tough time for the stock which dropped 50%. They face the loss of patent protection again for two big drugs including its #1 drug, Zyprexa. But other drugs are in the pipeline plus they recently purchased ImClone, a power house with cancer drugs. The threats are keeping buyers away from the stock which has raised its dividend yield to almost 6%. EPS is forecasted to rise above $4 next year allowing them to raise the dividend above $2 (from $1.96) in the next few weeks. My investment has grown over four times from higher stock prices in the 1990s plus reinvested dividends.
I acquired Pitney Bowes (PBI) from a stock swap at about the same time. Pitney Bowes provides management services and is best known for postage meter machines. The 1990s were a good time when PBI was proud to talk about their double digit (at least 10%) yearly dividend increases. But the current decade has been difficult for them with only flattish earnings.
While they continued raising the annual dividends, most were only token increases sufficient to qualify them for becoming a Dividend Aristocrat two years ago (my other Dividend Aristocrats have around 40 year streaks). The yield is high at 6½%. Lilly and Pitney Bowes have the highest yields of the Dividend Aristocrats. Even in a period of sluggish earnings growth, it is likely they will continue with another token increase in a few weeks. To do better, they need corporations to begin spending more on management services.
While their outlook is only so-so, the track record of dividend increases is encouraging for the future. My modest investment has only risen a little thanks to reinvested dividends.
In the early 1990s I saw a graph for Coca Cola (KO), the best known brand in the world, showing the stock had risen 10 fold over 10 years. Warren Buffett was a big investor, another encouraging sign. I bought some for my IRA. KO expanded their cola business, added new non cola drinks and claims to be in more countries than the UN. The stock shot up from 20 to the 80s in the mid 1990s after which it settled back to drift in the 40s and 50s. The dividend has increased 5 fold and should be in line for another increase in February. My investment has more than tripled.
Ten years ago I bought VF Corp (VFC) at 28. VFC is an old line clothing company, including Lee & Wrangler jeans, which has added casual business attire lines with greater growth potential in recent years (i.e. North Face). They declared token dividend increases for about 40 years. A couple of years ago, when the payout ratio was embarrassingly low, they almost doubled the dividend followed by more token annual increases. The stock is $75 and with reinvested dividends, my investment is approaching a four fold increase.
This was written to illustrate long term results of owning Dividend Aristocrats. There are an additional 39 remaining in the group (after substantial cutbacks in the last two years), all with impressive dividend track records.
Some that I like are:
- 3M (MMM)
- Abbott Laboratories (ABT)
- Clorox (CLX)
- Exxon Mobil (XOM)
- Johnson & Johnson (JNJ)
- Kimberly Clark (KMB)
- McDonald's (MCD)
- Merck (MRK)
- Procter & Gamble (PG)
- Stanley Works (SWK)
- Wal-Mart (WMT)
- Walgreen (WAG)
The future is uncertain. But years of dividend increases, which continued through the greatest financial crisis since the depression, are impressive and indicate the trend should continue. Higher dividends ought to lead the way to higher stock prices over time.
Disclosure: Author holds long positions in LLY. PBI, KO, VFC