Three Dividend Aristocrats for the New Decade

Includes: ABT, JNJ, KMB
by: Avi Morris

2010 was another great year for the stock market, coming off an outstanding year of recovery in 2009, with the Dow gaining over 1000. As usual, not all stocks participated in the recovery. Surviving Dividend Aristocrats (many were dropped in the last 3 years after raising annual dividends for more than 25 years) have mixed records of performance in the decade even though dividends were increased annually. Below are 3 high yielding Dividend Aristocrats which had modest declines in 2010. I have a personal bias for companies with higher yields, making it easier to earn a specific rate of return and those dividend increases are more meaningful because of higher beginning yields.

(1) Johnson & Johnson (NYSE:JNJ) has the most comprehensive base of health care businesses in the world. It operates in 3 segments: Consumer, Pharmaceutical and Medical Devices. Over 70% of revenues come from No. 1 or No. 2 global leadership positions. JNJ has had 26 consecutive years of adjusted earnings increases and 48 consecutive years of dividend increases. Below are sales results for the first 9 months of 2010 (in billions):

Med Devices & Diagnostics___18.2


The consumer division has been getting a lot of attention lately with product recalls costing hundreds of millions. Results were significantly impacted by the recalls of over-the-counter medicines such as Tylenol, Mylanta, Motrin and Rolaids along with the suspension of manufacturing at the McNeil Consumer Healthcare facility and the currency devaluation in Venezuela. But JNJ is financially strong and after Q3 raised its earnings guidance for full-year 2010 to $4.70 - $4.80 per share, reflecting recent currency exchange rates. Company guidance excludes the impact of special items. Analysts are estimating $5 for 2011.

(2) Abbott (NYSE:ABT) manufactures and sells health care products worldwide, operating in 4 segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. Sales for the first 9 month in 2010 are shown below (in billions):



Business was strong in 2010 with 55% of sales coming from outside the US. ABT completed acquisition of Piramal's Healthcare Solutions Business giving it market leadership in the Indian pharmaceutical market. ABT expects its pharmaceutical sales in India to exceed $2½ billion by 2020. The company confirmed double-digit ongoing EPS growth for 2010 of $4.16-4.18, excluding specified items estimated at $1.24. Analysts forecast $4.66 in 2011. The last dividend was the 347th consecutive dividend paid since 1924 and has been increased for 38 consecutive years. An increase in 2011 should raise the yield to nearly 4%.

(3) Kimberly-Clark (NYSE:KMB) manufactures and sells health care products worldwide. KMB operates in 4 segments: Personal Care, Consumer Tissue, K-C Professional & Other and Health Care with popular brands: Kleenex, Huggies, Scott paper products, Cottenelle, Depend and Kotex. Over half of sales are in North America, 16% from Europe and the rest of the world accounts for 31%. KMB sales and operating profits for the first 9 months of 2010 were (in billions):

Net sales
Personal care_________$6.5
Consumer tissue_______4.8
KC professional & other__2.3
Health care____________1.1

Operating profits
Personal care_________$1.3
Consumer tissue_______0.5
KC professional & other__0.4
Health care____________0.1

Company guidance is for sales growth of 3% in 2010 and adjusted EPS of $4.60-4.70 (up from $4.52 in 2009). Analysts are projecting $5.01 in 2011. The company expected to repurchase $800 million of stock in 2010. The dividend is well covered and offers a generous 4.2% yield.

These companies share major characteristics. All 3 were founded in the 19th century. Each stock fell in 2010 even though dividends were increased and only JNJ stock is higher over the last decade (concluded last week). Dividend increases are expected after 2010 results are announced in early 2011. They have strong finances providing funds for multi billion dollar share repurchase programs. Like most Dividend Aristocrats, they have been expanding globally to participate in the rapid growth of developing countries. They have low P/E's (10-12X) and high yields around 4%. When investing for income and long term growth in the new decade, consider attractive yields and price appreciation from these stocks to bring substantial gains.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.