Investing in Dividend Aristocrats (Part 2)

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 |  Includes: FDO, GWW, HRL, JNJ, KMB, LEG, LOW, MCD, MKC, PBI, PEP, PG, PPG, SHW, SIAL, SPGI, SPY, SWK, TGT, VFC, WBA, WMT
by: Insider Monkey

<< Return to Part 1

In our previous article we compiled a list of 21 stocks that form the S&P 500 (NYSEARCA:SPY) Dividend Aristocrats Index and showed that they have beaten the SPY since the beginning of this year. The S&P 500 Dividend Aristocrats Index tracks the large-cap S&P 500 companies that have increased their dividends for at least 25 consecutive years. Since the beginning of 2011, 42 stocks in the S&P 500 Dividend Aristocrats Index returned 8.8% vs. 6.85% gain for the SPY. (The market data are sourced from Standard & Poors and Fidelity)

We believe investors should be cautious of the upcoming inflationary environment and play more defensively in the near future. We think the Dividend Aristocrats that are able to increase dividends may provide protection against inflation with a better risk-return combination.

Below, we compiled the remaining constituents of the S&P 500 Dividend Aristocrats Index and showed how they have performed this year:

Dividend Yield

Dividend Payout Ratio 2010

YTD Return

Pitney Bowes Inc

PBI

6.29%

66%

-2.47%

Leggett & Platt

LEG

4.35%

94%

8.95%

Kimberly-Clark

KMB

4.08%

58%

7.97%

Johnson & Johnson

JNJ

3.22%

46%

11.19%

Procter & Gamble

PG

3.03%

48%

2.53%

PepsiCo Inc

PEP

2.77%

47%

8.65%

McDonald's Corp

MCD

2.77%

52%

13.27%

Wal-Mart Stores

WMT

2.45%

33%

1.65%

PPG Industries Inc

PPG

2.39%

43%

10.96%

McGraw-Hill Cos Inc

MHP

2.25%

36%

17.85%

McCormick & Co

MKC

2.20%

42%

6.74%

VF Corp

VFC

2.19%

39%

33.25%

Target Corp

TGT

2.03%

27%

-14.14%

Stanley Black & Decker

SWK

1.99%

38%

12.62%

Lowe's Cos Inc

LOW

1.96%

33%

-5.07%

Sherwin-Williams Co

SHW

1.69%

33%

2.48%

Hormel Foods Corp

HRL

1.63%

32%

17.84%

Walgreen Co

WAG

1.59%

32%

14.02%

Grainger, W.W. Inc

GWW

1.42%

33%

17.38%

Family Dollar Stores Inc

FDO

1.22%

26%

10.39%

Sigma-Aldrich Corp

SIAL

0.90%

21%

14.34%

AVERAGE

2.50%

42%

9.07%

SPY

6.85%

Click to enlarge

Since the beginning of this year, the average YTD return of these 21 stocks was 9.07% vs. 6.85% for the SPY. All these stocks except LEG have dividend payout ratio of less than 75%. The average dividend pay-out ratio of those stocks is 42% and the average dividend yield is 2.50%.

Here are the 10 highest dividend yielding stocks in our list:

Pitney Bowes Inc (NYSE:PBI): Pitney Bowes Inc. is an American company that provides packaging and mailing hardware, software and related services worldwide. PBI has a 6.29% dividend yield but lost 2.47% since the beginning of this year. The stock has a market cap of $4.67B and a P/E ratio of 14.87. Daniel Bubis, John A. Levin, Jim Simons, David Dreman and Phill Gross are prominent PBI investors.

Leggett & Platt (NYSE:LEG): Leggett & Platt Inc. is an American manufacturer that mainly produces home and office furnishing and industrial materials. LEG has a 4.35% dividend yield and returned 8.95% since the beginning of this year. The stock has a market cap of $3.46B and a P/E ratio of 20.89. Steve Heinz’s Lansdowne Partners had more than $50 Million in LEG at the end of March 2011.

Kimberly-Clark (NYSE:KMB): Kimberly-Clark is an American corporation producing paper-based personal care products. KMB has a 4.08% dividend yield and returned 7.97% since the beginning of this year. The stock has a market cap of $26.17B and a P/E ratio of 15.14. Ric Dillon’s Diamond Hill had the largest position in KMB among the 300+ funds we are tracking. (Check out Ric Dillon’s top stock picks)

Johnson & Johnson (NYSE:JNJ): Johnson & Johnson is a US company providing consumer healthcare and pharmaceutical products worldwide. JNJ has a 3.22% dividend yield and returned 11.19% since the beginning of this year. The stock has a market cap of $185.22B and a P/E ratio of 15.32. Warren Buffett holds more than $2 Billion of JNJ. (See Warren Buffett’s other massive holdings) Jim Simons, Ric Dillon, Ken Fisher and Bill Miller are also among JNJ investors.

Procter & Gamble (NYSE:PG): Procter & Gamble is a large multinational company providing a wide variety of consumer goods worldwide. PG has a 3.03% dividend yield and returned 2.53% since the beginning of this year. The stock has a market cap of $181.24B and a P/E ratio of 17.09. Warren Buffett has the largest position in PG. Phill Gross, Ken Fisher, Ric Dillon and D.E. Shaw also had large PG positions in their portfolios at the end of March.

PepsiCo Inc (NYSE:PEP): PepsiCo Inc is a multinational corporation providing non-alcoholic beverages worldwide. PEP has a 2.77% dividend yield and returned 8.65% since the beginning of this year. The stock has a market cap of $110.54B and a P/E ratio of 18.75. Boykin Curry, Bill Miller and Ric Dillon are prominent PEP investors.

McDonald's Corp (NYSE:MCD): McDonald's Corp is a large fast-food chain operating worldwide. MCD has a 2.77% dividend yield and returned 13.27% since the beginning of this year. The stock has a market cap of $88.82B and a P/E ratio of 18.10. Both Peter J. Eichler Jr. and James Crichton hold more than $150 Million of MCD. Ric Dillon and Jim Simons are also among MCD investors. (See Jim Simons’s favorite stocks)

Wal-Mart Stores (NYSE:WMT): Wal-Mart Stores is a multinational corporation operating retail store chains worldwide. WMT has a 2.45% dividend yield and returned 1.65% since the beginning of this year. The stock has a market cap of $187.80B and a P/E ratio of 12.55. Warren Buffett had more than $2B of WMT at the end of March 2011.

PPG Industries Inc (NYSE:PPG): PPG Industries Inc is an American manufacturer providing coatings and speciality products to construction, industrial and transportation industries worldwide. PPG has a 2.39% dividend yield and returned 10.96% since the beginning of this year. The stock has a market cap of $14.57B and a P/E ratio of 15.75. Ken Fisher holds more than $600 Million of PPG. (Check out Ken Fisher’s other top holdings)

McGraw-Hill Cos Inc (MHP): McGraw-Hill Cos Inc is a US company providing publishing, broadcasting and media services worldwide. MHP has a 2.25% dividend yield and returned 17.85% since the beginning of this year. The stock has a market cap of $12.91B and a P/E ratio of 15.52. Barry Rosenstein’s Jana Partners holds the largest MHP position among the 300+ funds we are tracking.

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