As a group, dividend aristocrats, companies that have raised dividends for more than 25 consecutive years, have produced higher average risk-adjusted returns than the broad S&P500 index. While the group consists of some of the best dividend-paying companies, dividend aristocrats also include several companies that boost their dividends at very low rates. Empirical research shows that companies raising dividends at high rates tend to outperform those companies that produce low or no dividend growth. And it is not that most dividend aristocrats with low dividend growth boast excessive payout ratios that cannot afford substantial expansion. For some companies, it's quite the contrary.
Below is a glance at five dividend aristocrats with the lowest rates of dividend growth in the overall S&P500 Dividend Aristocrats index. Four of these dividend aristocrats with low dividend growth have yields above their respective industries, whereas three feature yields higher than the average dividend yield for the index as a whole.
Consolidated Edison (NYSE:ED) is an $18 billion electric power and gas utility holding company. It pays a dividend yield of 3.8%, almost a percentage point above the average yield on the S&P500 Dividend Aristocrats index, but 70 basis points below the average industry yield. Its payout ratio is 70% of trailing earnings and 61% of last year's free cash flow. The company's rivals American Electric Power Co., Inc. (NYSE:AEP) and Pepco Holdings (NYSE:POM) pay dividend yields of 4.7% and 5.5%, respectively. The company has increased dividends at a low average annual rate of 0.9% over the past five years. While ConEd has increased dividends for 38 consecutive years, it has grown its dividend cumulatively by only 10% since 2000. The company's EPS growth has averaged 3.8% per year over the past five years, and will remain slightly below that rate for the next five years. It should not be expected that ConEd will change its low-growth dividend policy in the future. The company's stock is trading at $61.8, up close to 17% in a year. Billionaire Ray Dalio held a minor position in the company in the previous quarter.
HCP Inc. (NYSE:HCP) is an $18 billion real estate investment trust (REIT) that invests in the U.S. healthcare facilities. It boasts a dividend yield of 4.7%, the fourth-highest among dividend aristocrats and nearly two percentage points above the average yield for dividend aristocrats as a group. The yield is also 3.4 percentage points above the average yield for the REIT's peers. The REIT has a payout ratio of 131% of trailing earnings. It has been consistently boasting excessive payout ratios, well above the required 90%. The company seems to have sustained dividend growth through equity financing. The company's competitors Health Care REIT (NYSE:HCN) and Ventas (NYSE:VTR) pay dividend yields of 5.1% and 4.1%, respectively. Over the past five years, HCP, Inc. has grown its dividend at an average rate of 2.4% per year. This year, the company increased its quarterly payout by a somewhat higher 4.2%. HCP has increased dividends consistently since 1986. Still, the REIT's EPS grew notably over the past five years, while dividends increased meagerly. Analysts forecast that EPS will grow, on average, at a paltry 5% per year for the next five years. The stock is currently changing hands at $42.86 a share, up almost 14% in a year. This REIT is not closely followed by popular hedge fund managers.
Pitney Bowes (NYSE:PBI) is a $3 billion company providing mail processing equipment. The company pays a dividend yield of 10%, the highest among dividend aristocrats and more than 7 percentage points above the average yield on the S&P500 Dividend Aristocrats index. The yield also exceeds the average for the industry. The company's dividend payout ratio is 44% of trailing earnings and 40% of last year's free cash flow. Its peer Neopost SA is privately held, while competitor Xerox (NYSE:XRX) pays a dividend yield of 2.2%. Pitney Bowes has increased dividends for 30 consecutive years. It grew dividends at an average rate of 2.8% a year over the past five years. Interestingly, the company was boosting dividends as its EPS was contracting at an average annual rate of 7.1% a year over the past five years. Analysts estimate that Pitney Bowes' EPS will hardly grow in the next five years. Thus, dividend growth can be expected to remain low. The stock is currently trading at $15 a share, about $2 dollars away from its 52-week low. Guru fund manager Joel Greenblatt boosted his minor stake in the company in the previous quarter.
PPG Industries (NYSE:PPG) is a $16 billion manufacturer of protective and decorative coatings. The company pays a dividend yield of 2.3%, about 70 basis points above its peers, but some 55 basis points below the average yield on the S&P500 Dividend Aristocrats index. PPG Industries' payout ratio is 42% of trailing earnings and 36% of last year's free cash flow. The company's peers Sherwin-Williams Company (NYSE:SHW) and Akzo Nobel N.V. (OTCQX:AKZOY) pay dividend yields of 1.2% and 3.8%, respectively. PPG Industries has hiked dividends for 40 straight years. It has been increasing its dividend at a low average annual rate of 3.3% over the past five years. The company's EPS grew, on average, 10% per year over the past five years; EPS growth is forecast to accelerate to an average of 11.6% a year for the next five years. Consistent dividend increases at current rates could be expected in the future. The stock is trading at $106.42 a share, up 24.2% within a year. Billionaire Ken Fisher holds a stake in the company.
3M Co. (NYSE:MMM) is a $61 billion multinational industrial conglomerate selling some 55,000 different products, from adhesives and electronic materials to medical products and optical film. The company pays a dividend yield of 2.7%, about 110 basis points above that of its peers on average but a little below the average yield on dividend aristocrats as a group. 3M's payout ratio is 39% of trailing earnings and 44% of last year's free cash flow. Its rivals Tyco International (NYSE:TYC) and General Electric (NYSE:GE) pay dividend yields of 1.9% and 3.4%, respectively. The company has increased dividends for 54 consecutive years. Over the past five years, 3M's dividend grew at an average annual rate of 3.9%. At the same time, the conglomerate's EPS increased at a 3.3% average annual rate. As the economic recovery is expected to boost the company's EPS at an average annual rate of 11.5% for the next five years, a potential for higher future dividend increases is there. The company's shares are trading at $88 a share, down 5% in a year. Fund manager Jean-Marie Eveillard is bullish about the stock (check out First Eagle Investment Management's portfolio).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.