S&P 500 Dividend Aristocrat High-Yielders Can Be Profitable

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 |  Includes: ABT, ADP, BMS, CINF, CLX, JNJ, KMB, KO, LEG, LLY, MCD, PBI, PEP, PPG, SPY, SYY, VFC, XOM
by: Avi Morris

Here is an excellent website which lists high yielding stocks for various stock groups around the world (including exchanges in the US).

Prominent US groups included are:

  • DJI
  • DJTA (Dow Jones Transportation)
  • Dogs of the Dow
  • Nasdaq
  • Nasdaq 100
  • S&P500 Dividend Aristocrats

My focus is on the S&P 500 Dividend Aristocrat list. All stocks are listed and arrayed with the highest yield stocks at the top of the list. Some of the highest yielding stocks are utilities and telephone companies which I don't follow. Excluding those stocks, the remaining ones with high yields (as of April 27, 2010) are:

.............................Price....Yield

PITNEY BOWES (NYSE:PBI)__________$21.46____6.78%

ELI LILLY (NYSE:LLY)_______________34.94____5.62%

CINCINNATI FINANCIAL (NASDAQ:CINF)___30.34____5.23%

LEGGETT PLATT (NYSE:LEG)________20.45____5.13%

KIMBERLY-CLARK (NYSE:KMB)_______62.35____4.14%

SUPERVALU (NYSE:SVU)____________10.68____4.09%

ABBOTT LABORATORIES (NYSE:ABT)_51.64____3.33%

JOHNSON & JOHNSON (NYSE:JNJ)____63.57____3.25%

CLOROX (NYSE:CLX)_______________66.36____3.16%

AUTOM. DATA PROC. (NASDAQ:ADP)____44.68____3.04%

PROCTER & GAMBLE (NYSE:PG)_____63.08____2.99%

PEPSICO (NYSE:PEP)_______________64.27____2.90%

VF CORP (NYSE:VFC)______________82.91____2.90%

COCA-COLA (NYSE:KO)_____________61.19____2.85%

MCDONALDS (NYSE:MCD)___________77.48____2.85%

PPG INDUSTRIESUS (NYSE:PPG)______76.77____2.83%

BEMIS (NYSE:BMS)________________33.18____2.76%

EXXON MOBIL (NYSE:XOM)__________65.67____2.62%

Those with the highest yields carry the highest risk, extra yield is compensation for added risk.

PBI suffers from the perception that its mail business will whither over time, but earnings cover the dividend and PBI should increase the annual dividend by 2 pennies next year.

LLY will be dropped in December because its dividend was not increased in 2010. But brave investors might be interested in its high yield even though the dividend could be frozen until new drugs bring higher earnings.

CINF is a medium size insurance company which I've hesitated to write about it because of its mediocre record (second-rate Q3 earnings were just released). Operating earnings barely cover the dividend and it has only declared 2¢ annual increases for its dividend in 2009 and 2010. But the company pointed out that the dividend increase last month reflected 50 consecutive years of annual increases.

LEG just reported earnings which disappointed some analysts. Q3 EPS declined 3¢ and the guidance for 2010 EPS was reduced to the low end of previous guidance. SVU cut its dividend this year and it will be dropped in December.

KMB with its yield leads the rest of the S&P 500 Dividend Aristocrats. KMB just reported poor earnings and 2010 guidance was reduced a little, costing the stock $4 in 2 days. The remainder are quality companies with strong finances which should keep them Dividend Aristocrats for many years.

A footnote, Brown-Forman (BF-B), at the bottom of the list, is a new member with a yield of 2%. But it's yield is listed as 0%, a mistake that needs to be corrected. Also, this list does not include mid-cap or small cap stocks even though a small number qualify as Dividend Aristocrats.

Investment performance is about gains coming from dividends and capital appreciation. In the last 10 years, the stocks of many companies (including Dividend Aristocrats) have not had appreciated. For example, the S&P 500 is below its value 10 years ago.

But Dividend Aristocrats kept increasing annual dividends, even through the worst recession in many decades. That's financial strength. Dividends (assuming each company is researched) providing at least 3% yields and growing dividends give an investor a good start on earning a desired total rate of return.

Disclosure: Author is long PBI, LLY, KO, VFC