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In a continued effort to expand the focus of my site's screens and hypothetical portfolios, this article is a fourth follow-up to an article written in early April focusing on the S&P 500 Dividend Aristocrats. The S&P 500 Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years. The current list has 43 constituents.

If an investor wanted to replicate the list the best option is probably SDY, the SPDR Dividend ETF, which is a variation of the Aristocrats - it seeks to replicate the “High Yield” Dividend Aristocrats Index. An alternative is to start with the Aristocrat list and then reduce the list of candidates through screens and/or fundamental analysis. I screened for Aristocrats which had a sustainable payout ratio, a high dividend yield, reasonable debt/equity ratio, and moderately positive return on assets and equity.

Using Finviz, I screened the Aristocrat list for:

    • Payout Ratio < 80%,
    • Dividend Yield > 3%
    • Return on Assets > 10%
    • Return on Equity > 10%
    • Total Debt/Equity < 1
Below is a list of 6 Aristocrats which are worthy of further consideration, especially if one is seeking yield or seeking to reduce exposure to non-dividend paying companies. All of the companies on the list are familiar names and they were also all on last month's list and the previous month's list which tells me this could be a relatively low turnover strategy. Another thought is to hedge the list with a short position in the S&P 500 which is below its 200 day moving average. One such vehicle for doing so is SH. Obviously, hedging could reduce returns but also reduce drawdowns and volatility. Or, an investor could only purchase stocks which are above its 200 day moving average. I have added the percent each stock is above/below its 200 day SMA. MCD was also featured in an article I wrote earlier this month about dividend growers.

Company Dividend Yield Payout Ratio Debt / Equity 200-Day SMA Price
ABT Abbott Laboratories 3.56% 48.89% 0.93 -2.73% 49.48
JNJ Johnson & Johnson 3.72% 40.96% 0.22 -6.12% 58.01
KO The Coca-Cola Company 3.16% 52.85% 0.46 3.09% 55.66
LLY Eli Lilly & Co. 5.77% 50.65% 0.67 -1.08% 33.97
MCD McDonald's Corp. 3.03% 48.30% 0.81 10.14% 72.72
MHP The McGraw-Hill Companies, Inc. 3.37% 36.17% 0.65 -12.36% 27.93
Disclosure: None
Source: 6 Dividend Aristocrats to Consider