With record low yields on Treasury securities and investment grade bonds, investors are looking for alternatives which earn high yields. The S&P 500 Dividend Aristocrats list provides attractive yields and expectations of growing dividends. Below is a list of the best Dividend Aristocrats yielding more than 3% (as of November 10, 2010).
1) Pitney Bowes (PBI) 6.2%
2) Leggett & Platt (LEG) 5.3%
3) Kimberley-Clark (KMB) 4.3%
4) RPM (RPM) 3.9%
5) Abbott (ABT) 3.5%
6) Clorox (CLX) 3.4%
7) Genuine Parts (GPC) 3.5%
8) Johnson & Johnson (JNJ) 3.4%
Investment earnings come from dividends and capital appreciation. Dividends are paid every year and have been increased annually for each stock in this group. PBI has the highest yield which brings the greatest risk. The stock has declined from the high $20s 10 years ago to the mid $20s, but for believers in their business, the high yield can go a long way towards achieving a required rate of return. Earnings cover the dividend even if annual increases will probably be limited to $0.02 or $0.04 until significant progress is made for EPS.
LEG has an attractive yield and a surprisingly decent track record. It has been making inner products for seating and furniture for over 120 years. The financials are strong, allowing stock repurchases to continue even though business was hit hard by the recession. The stock has risen from a depressed $16 10 years ago to more than $20. KMB is a quality company manufacturing paper products, providing a yield of 4+%, with a stock that is about where it was 10 years ago. The remaining stocks have substantial gains in the last 10 years except for ABT which has been flattish.
The financial strength of these companies is impressive. Each one continued raising annual dividends through the worst recession in decades when big name companies such as General Electric (GE), Pfizer (PFE), Bank of America (BAC) and Masco (MAS) did not. This year, Eli Lilly (LLY) failed to increase the dividend and will be dropped from the group next month. In the last 10 years, capital appreciation has been difficult to earn for many stocks, including some of the most famous companies. On the 10th anniversary of Nov. 10, 2000, the Dow is 7% higher while the S&P 500 is 11% lower. To achieve excellent rates of return, dividends, especially growing dividends, are of greater importance. Stocks with different degrees of risk are presented to allow an investor a choice in what degree of risk and reward is most appropriate for a portfolio.
Disclosure: PBI, LLY