High-Yielding Dividend Aristocrats Remain Appealing For Income And Appreciation

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 |  Includes: ABT, JNJ, KMB, LEG, PBI
by: Avi Morris

In April 2011, I wrote an article "The 5 Best High-Yielding Dividend Aristocrats Remain Appealing," which listed high-yielding Dividend Aristocrats (all raised annual dividends for at least the prior 25 years) investments for income with yields of at least 3½% and growth. Since then, the Dow Jones Industrials is up a modest 3%. The 5 stocks are listed below with current prices and yields:

Company

Price

Yield

Pitney Bowes (NYSE:PBI)

$14.61

10.3%

Leggett & Platt (NYSE:LEG)

$21.27

5.3%

Johnson & Johnson (NYSE:JNJ)

$68.04

3.6%

Kimberley-Clark (NYSE:KMB)

$84.00

3.5%

Abbott Labs (NYSE:ABT)

$64.83

3.1%

Click to enlarge

PBI was hit hard, falling 40% because of an army of short sellers who have already buried the company even though analysts are forecasting EPS of roughly $2 next year. This is "the company" supplying postal services and equipment around the world. Because of all the negative thinking, the stock is only suitable for investors who aren't afraid of playing with fire.

LEG produces engineered components and products found in homes, offices, automobiles and retail stores. Analysts are forecasting EPS of $1.31 in 2012 and $1.57 next year. The dividend was raised from $1.08 to $1.12 last year with another 4 cent increase expected in August.

KMB is a well-known paper company organized into four divisions: Personal Care, Consumer Tissue, K-C Professional and Health Care. Analysts are forecasting EPS of $5.15 this year and $5.52 next year. The dividend was raised from $2.80 to $2.96 for 2012.

JNJ is one of the largest healthcare companies in the world and has been able to keep its coveted AAA credit rating. In the last 5 years, the stock has been held back by flattish sales and its inability to solve its numerous recalls. Analysts are forecasting EPS of $5.14 this year and $5.52 next year. The dividend was increased from $2.28 to $2.44 in Q2.

ABT is one of the largest pharmaceutical companies, selling products globally. It is splitting into 2 companies (later this year) to enhance the stockholder value and the stock market has agreed. The stock rose 24% over this time span. Analysts are forecasting EPS of $5.04 this year and $5.36 next year. The dividend was increased from $1.92 to $2.04 in Q1.

My article concluded with:

Investments offering 3½% yields (or more) are a good way to start earning a targeted rate of return. Track records of raising dividends over the years (while other blue chip companies could not) show a commitment to bring rewards to shareholders. These 5 companies are investing overseas to provide greater earnings to extend dividend streaks. Higher yields bring added risks, smart investors can choose what is most appropriate for their own portfolios.

Fundamentals remain for these stocks but the sharp decline for PBI puts this stock in a class by itself, offering the highest yield by a wide margin, for a Dividend Aristocrat. I have a small position, which goes back a couple of decades when it purchased my shares of another company. I remain optimistic along with new buyers who are not afraid of the enormous short position in the stock. LEG has been offering 5-6% yields in the last year. It should liberalize dividend increases with significant increases in EPS, which could be in the next few years.

The other 3 stocks have done well. Investors attracted by high yields have been buying KMB and ABT, reducing their yields to 3.5% and 3.1% respectively, from 4% or more last year. JNJ has had more than its share of problems highlighted by an inability to get past numerous product recalls. However, some products are moving forward. This week JNJ announced it is testing a new medicine for fighting TB, which kills more than 1 million annually around the world. The stock has risen 5% since first discussed, attracting bargain hunters looking for higher yields.

The big picture of the first article and this one is that companies raising annual dividends for decades provide investment ideas for value-oriented investors. OK, PBI with its enormous yield has put it in a class by itself. But its dividend streak was maintained in the last 3 years when 20 Dividend Aristocrats were dropped because their dividend streaks ended. LEG, KMB, JNJ and ABT remain appealing with attractive yields for value investors. Over time, continued higher income should bring capital appreciation, which is the objective for successful investing.

Disclosure: I am long PBI.