Dividend Aristocrats and Champions With Low Yields

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 |  Includes: ABM, ABT, ADM, ADP, AFL, APD, AWR, BCR, BDX, BEN, BF.B, BMS, CB, CBSH, CL, CLC, CLX, CSL, CTAS, CWT, DOV, EGN, EMR, EV, FDO, FUL, GRC, GWW, HP, HRL, ITW, JNJ, KO, LANC, LOW, MDT, MMM, NDSN, NFG, PEP, PG, PH, PNR, RLI, SCL, SHW, SIAL, SJW, SPGI, STR, SVU, SWK, TDS, TFX, TGT, TNC, TR, VAL, VFC, WBA, WEYS, WSC, XOM
by: David Van Knapp
In a recent article, “Comparing Dividend Aristocrats to Dividend Champions,” I discussed two lists of US-based stocks that have raised their dividends for 25 years or more. Because of methodology differences, it turns out that the two lists, which sound like they should be identical, actually differ significantly. The Dividend Aristocrats list, produced by S&P, has 43 names. The Dividend Champions list, produced by the DRiP Investing Resource Center, sports 98 stocks.
Just because a company has raised its dividend annually for 25 years straight does not mean that the stock is a good bet for dividend investors. There can be many reasons for this. First, the company may be tottering and its dividend in peril. Second, the company may have too much debt, acting as a sort of bank, borrowing money at one end and passing it along as dividends at the other. Or it may be a company that should not be paying any dividend at all, because it needs every bit of its capital to take advantage of excellent growth opportunities within its areas of competence.
Some dividend investors mistakenly interpret mere presence on the Dividend Aristocrats or Dividend Champions lists as a sort of imprimatur, as if each stock had the Good Housekeeping Seal of Approval for a dividend-growth strategy. One reason that a stock may not be suitable would seem to be obvious: The stock’s yield may be too low. The initial yield one receives from a dividend stock on the day of purchase will forever after impact the investor’s yield on cost, which is the yield on every future date given the amount spent today.
I have suggested elsewhere (“10 by 10: A New Way to Look at Dividend Yield and Growth”) that a reasonable goal for dividend investors is to get stocks with combinations of initial yield and likely dividend growth such that the investor’s yield on cost reaches 10% within 10 years of purchase. That’s from dividend increases alone, without requiring re-investment of the dividends (which accelerates the process). It turns out that a 2% initial yield cannot clear the 10 x 10 hurdle under any reasonable rate of dividend growth, 3% can make it only with 13% or more annual dividend growth, and so on.
Reasonable dividend investors differ about what minimum initial yield they will accept. (I use 2.5% as a minimum for stocks in the 25-year club.) So below I have listed the Dividend Aristocrats [A] and Champions [C] that do not currently clear some common hurdles. Notes: (1) This listing only applies to new purchases. Some of these stocks may have been purchased years ago at fine yields, and after making sure they are still increasing their dividends regularly, most dividend-growth investors would probably hang on to them. (2) This listing says nothing about the growth prospects of any of these companies. It only addresses minimum yields for those following a dividend-growth strategy. (3) Yields change. If a stock's price falls, its yield goes up by mathematical definition. Sometimes a company's dividend increase will push the stock's yield higher, at least for a while, putting it beyond your minimum threshold. These yields are as of the beginning of March.
Aristocrats and Champions Yielding Less Than 2.5%
AFLAC (NYSE:AFL) [A,C] 2.3%
Archer Daniels Midland (NYSE:ADM) [A,C] 2.0%
BectonDickinson (NYSE:BDX) [A,C] 1.9%
Brown-Forman B (NYSE:BF.B) [A,C] 2.3%
Carlisle (NYSE:CSL) [C] 1.9%
Cintas (NASDAQ:CTAS) [A,C] 1.9%
Clarcor (NYSE:CLC) [C] 1.2%
Commerce Bancshares (NASDAQ:CBSH) [C] 2.3%
C. R. Bard (NYSE:BCR) [A,C] 0.8%
Dover (NYSE:DOV) [A,C] 2.3%
Eaton Vance (NYSE:EV) [C] 2.1%
Energen (NYSE:EGN) [C] 1.1%
Family Dollar Stores (NYSE:FDO) [A,C] 1.9%
Franklin Resources (NYSE:BEN) [C] 0.9%
Gorman-Rupp (NYSEMKT:GRC) [C] 1.8%
H.B. Fuller (NYSE:FUL) [C] 1.3%
Helmerich & Payne (NYSE:HP) [C] 0.5%
Hormel Foods (NYSE:HRL) [C] 2.0%
Lancaster Colony (NASDAQ:LANC) [C] 2.1%
Lowe’s (NYSE:LOW) [A,C] 1.5%
Medtronic (NYSE:MDT) [C] 1.9%
Nordson (NASDAQ:NDSN) [C] 1.2%
Parker-Hannifin (NYSE:PH) [C] 1.7%
Pentair (NYSE:PNR) [C] 2.3%
Questar (NYSE:STR) [A,C] 1.2%
RLI (NYSE:RLI) [C] 2.1%
Sherwin-Williams (NYSE:SHW) [A,C] 2.3%
Sigma-Aldrich (NASDAQ:SIAL) [A,C] 1.3%
Stanley Works (NYSE:SWK) [A,C] 2.3%
Stepan (NYSE:SCL) [C] 2.0%
Supervalu (NYSE:SVU) [A] 2.2%
Teleflex (NYSE:TFX) [C] 2.2%
Telephone & Data Systems (NYSE:TDS) [C] 1.4%
Tennant (NYSE:TNC) [C] 2.4%
Target (NYSE:TGT) [A,C] 1.3%
Tootsie Roll (NYSE:TR) [C] 1.2%
Valspar (NYSE:VAL) [C] 2.3%
W. W. Grainger (NYSE:GWW) [A,C] 1.8%
Walgreen (WAG) [A,C] 1.6%
Wal-Mart (NYSE:WMT) [A,C] 2.0%
Wesco Financial (NYSEMKT:WSC) [C] 0.4%
Aristocrats and Champions Yielding Less Than 3.0%
I would not personally eliminate these for initial investment, but some investors would.
ABM (NYSE:ABM) [C] 2.6%
Air Products & Chemicals (NYSE:APD) [A,C] 2.6%
Chubb (NYSE:CB) [A,C] 2.9%
Colgate-Palmolive (NYSE:CL) [C] 2.6%
Emerson Electric (NYSE:EMR) [A,C] 2.8%
ExxonMobil (NYSE:XOM) [A,C] 2.6%
Illinois Tool Works (NYSE:ITW) [C] 2.7%
McGraw-Hill (MHP) [A,C] 2.8%
National Fuel Gas (NYSE:NFG) [C] 2.7%
Pepsico (NYSE:PEP) [A,C] 2.9%
Procter & Gamble (NYSE:PG) [A,C] 2.8%
3M (NYSE:MMM) [A, C] 2.6%
Weyco Group (NASDAQ:WEYS) [C] 2.6%
Aristocrats and Champions Yielding Less Than 3.5%
Abbott Labs (NYSE:ABT) [A,C] 3.2%
American States Water (NYSE:AWR) [C] 3.2%
Automatic Data Processing (NASDAQ:ADP) [A,C] 3.3%
Bemis (NYSE:BMS) [A,C] 3.1%
California Water Service (NYSE:CWT) [C] 3.3%
Clorox (NYSE:CLX) [A,C] 3.3%
Coca-Cola (NYSE:KO) [A,C] 3.3%
Johnson & Johnson (NYSE:JNJ) [A,C] 3.1%
SJW (NYSE:SJW) [C] 3.0%
VF (NYSE:VFC) [A,C] 3.1%
Disclosure: Author is long PG, EMR, MMM, JNJ, CB, ABT, PEP, and SHW.