The Best Consumer Staple Dividend Aristocrats For Total Return And Dividend Growth

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Includes: ADM, BF.B, CL, CLX, HRL, KMB, KO, MKC, PEP, PG, SDY, SPY, SYY, WBA, WMT, XLP
by: Brian Ditchek

Summary

The consumer staples sector has many attractive investment opportunities.

The total return of 12 consumer staples stocks that are also dividend aristocrats are evaluated over the last 20 years.

The dividend aristocratic consumer staples stocks are found to have delivered consistent and impressive performance.

The best 3 stocks for total return and dividend growth rates are revealed.

Dividend aristocrats are generally defined as stocks that have increased their dividends for at least each of the past 25 years and are generally sought after by dividend growth investors. In 2014, according to Sure Dividend there were 54 dividend aristocrats. One way to invest in dividend aristocrats is through an ETF like SPDR S&P Dividend ETF (SDY). This ETF, however, expands the definition in that it sets the dividend increase requirement to 20 years and consequently has more stocks in it. This ETF, started on November 8, 2005, holds 96 stocks. The list of stock holdings can be found here. Since that time, its performance slightly exceeded the performance of the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) such that the total return for SDY from November 8, 2005 to January 23, 2015 was 87.9% to SPY's 84.9%, suggesting it is somewhat better to hold the dividend aristocrats than the broader market.

To take a deeper dive into the relative performance of dividend aristocrats, I decided to select one sector out of the many in SDY. The consumer staples sector was selected in part based on the sector's reputation for being less volatile and with 13 consumer staple stocks within SDY, it was a list of stocks that I could properly assess in the space of a SA article.

The 13 consumer staple dividend aristocrats within SDY are shown in the following table. In order to provide some sense of consistency or volatility, I show columns with the total return for the 20-year period from the beginning of 1995 to the end of 2014, as well as the total returns for each of the four 5-year periods that make up this 20-year span of time. This time period is large enough to show 4 very different periods for the market. From 1995 through 1999, the market boomed and the technology sector went into a bubble; from 2000 to 2004, the tech bubble burst and 9/11 occurred; from 2005 through 2009 stocks went through the bottom of the Great Recession; and the last 5 years, 2010 to 2014 saw the recovery from the Great Recession. The table also shows the current dividend yield for these stocks, (CDY), total returns for SPY, the Consumer Staples Select SPDR Fund (NYSEARCA:XLP) and SDY for the available periods and the final December 31, 2014 value of a starting investment of $10,000 in each aristocratic consumer staple. Total returns are all sourced from YCharts.

Total Returns for Consumer Staple Dividend Aristocrats in SDY
TR% 1995 to 2014 TR% 2010 to 2014 TR% 2005 to 2009 TR% 2000 to 2004 TR% 1995 to 1999 Final Value of Initial $10,000 investment CDY
SDY SPDR Div Aristocrat ETF 102.0 2.3
XLP SPDR Consumer Staple ETF 102.9 16.1 6.4 2.3
SPY SPDR S&P500 459.3 100.7 2.5 -10.5 284.4 $55,930 1.9
WBA Walgreens Boots Alliance 1620 128.8 -4.5 37.4 449.3 $172,000 1.8
BF.B Brown Foreman Co B 1620 186.7 57.4 87.2 103.8 $172,000 1.4
CL Colgate Palmolive 1210 88.4 83.5 -11.7 353.9 $131,000 2.1
MKC McCormick & Co 1170 127.8 7.1 204.0 84.3 $127,000 2.1
HRL Hormel Foods 1150 198.7 37.8 70.1 85.5 $125,000 1.9
CLX Clorox 1080 99.8 18.5 33.6 282.5 $117,000 2.7
WMT Walmart 980.8 79.1 9.0 -18.5 584.8 $108,080 2.2
SYY Sysco Corp 860.5 67.6 -13.7 113.6 228.5 $96,050 3.0
PG Proctor and Gamble 822.4 74.4 23.4 13.9 281.0 $92,240 2.8
PEP Pepsico 765.0 80.4 31.3 51.9 129.3 $86,500 2.7
KMB Kimberly Clark 752.5 125.7 17.2 16.7 185.8 $85,250 2.9
ADM Archer Daniels Midland 398.6 84.2 53.8 123.4 -19.5 $49,860 2.0
KO Coca Cola 397.6 71.1 58.2 -18.1 137.2 $49,760 2.8
average TR % 971.6 108.9 32.7 50.1 213.5
Total value of final investments $1,401,740

The following conclusions can be drawn from the Total Return table.

  1. Overall, these consumer staple dividend aristocrats significantly exceeded the returns of SPY. The only 5-year period in which the average performance did not exceed that for SPY was in the first 5-year period, when technology stocks were bubbling over and taking the S&P with it. With $10,000 in each of these twelve stocks at the beginning of the period, the investor would have more than doubled the return of the S&P500. Considering we are covering a long 20-year period, the improvement relative to the broader market is impressive. As an investor always trying to find stock sectors that beat the S&P this is a big find.
  2. The two best performers were BF.B and WBA, which both yielded a 1620% return, even though their dividend yields are the lowest in the group. Both stocks pushed $10,000 into $172,000 over this 20-year period. Of the two stocks, BF.B had the more consistent performance, with no 5-year period generating a total return of less than 57.4%.
  3. The two worst performers, both returning less than the SPY over this period, were KO and ADM. KO performed worse than SPY in each 5-year period with the exception of the Great Recession containing period. (KO's performance really surprised me and I decided to sell upon the results of this research).
  4. Seven of the stocks had no negative return over the 5-year periods examined. They are BF.B, MKC, HRL, CLX, PG, PEP and KMB and are considered the most consistent performers of the dividend aristocratic consumer staples.
  5. These consumer staple dividend aristocrats had higher returns than XLP for each of the three 5-year periods we can compare, suggesting that the dividend aristocratic XLP components (all 13 are included in XLP which has 40 components) lead that sector.

As these stocks are dividend aristocrats, the dividend growth rates of these stocks are evaluated in a similar manner, over the total 20-year period, as well as over each 5-year period to assess consistency. The results are shown in the following table. The table also shows the 1995 dividends for a $10,000 investment in each of the 13 stocks and the 2014 dividends that the buy, hold and reinvest dividend stockholders received in the last year of this period. Some of the companies have awarded additional special dividends, but they are not included in these numbers. All dividends analyzed here were sourced from Yahoo Finance.

Average Annual Dividend Growth Rates (%)
20 year average 2010-2014 average 2005-2009 average 2000-2004 average 1996-1999 average Dividends in 1995 Dividends in 2014
WMT 17.3 12.1 16.2 21.7 19.4 $47 $2,421
WBA 14.7 21.2 21.2 8.1 6.8 $185 $2,941
ADM 14.1 11.6 13.3 11.6 21.1 $61 $922
SYY 13.3 3.8 12.6 21.1 16.3 $179 $2,833
PEP 10.6 7.4 16.0 10.3 8.3 $215 $2,318
PG 10.6 8.1 12.0 10.1 12.7 $244 $2,564
CL 10.5 6.4 12.9 14.2 7.9 $287 $2,686
CLX 9.8 8.6 12.5 7.4 10.8 $343 $3,253
HRL 9.7 16.1 11.2 6.5 3.7 $232 $1,863
MKC 9.6 9.0 11.1 10.8 7.2 $290 $2578
KO 9.5 8.3 10.4 9.4 9.9 $171 $1,438
BF.B 8.2 8.8 10.5 8.2 4.5 $329 $2,322
KMB 7.3 7.3 8.4 9.1 3.7 $364 $2,404
Totals $2,946 $30,544

The following may be concluded from the table on average dividend increases:

  1. All 13 of these aristocratic consumer staple stocks have given hefty annual dividend increases. Even the worst of the lot, KMB, has given an average annual dividend increase of 7.3%. 7 out of 13 of the stocks have averaged double-digit dividend increases annually. WMT leads in this category with a 17.3% average annual dividend increase.
  2. WBA has tended to grow its dividend increases faster than the other contenders, going from 6.8% in the first 5-year period to 8.1% in the second 5-year period and then averaging a stunning 21.2% over the past 10 years. Similarly, HRL has also grown its dividend steadily.
  3. The stocks that have most consistently increased dividends, meaning the 5-year averages had the smallest deviations from the overall 20-year average are PG, CLX, MKC and KO. The first three on this consistency list were also on the list of most consistent for total returns (see point 4 above).
  4. Overall, an investor with $10,000 in each stock at the starting period would have had $2,946 in dividends 1995 (2.3% portfolio dividend yield) and $30,544 in dividends in 2014 (2.2% portfolio dividend yield) or a 23.5% yield on cost. On an individual stock basis, CLX delivered the highest dividend dollars in 2014 and the second highest in 1995.
  5. All 13 stocks qualify as High TIGRs. By definition, High TIGRs have an average dividend yield and an average dividend growth rate (the sum of which is the average Total Income Growth Rate, TIGR) of 10% or more over the last 10 years and no decreases in dividends awarded during any of those years. (the reader can learn more about High TIGRs in these sources 1,2).

Conclusions

After a review of the performance and dividend growth over the past 20 years for the 13 dividend aristocrat, consumer staple stocks within the ETF SDY, I hope the reader can take away some of the following important conclusions.

  1. For the buy, hold and reinvest dividend investor, the 13 stocks in the consumer staple sector that are 20-year dividend aristocrats have been a great place to invest. Over the time periods we can compare, investors holding these 12 stocks in equal starting values have significantly beaten the S&P 500 and its overall consumer staple sector.
  2. An investor starting with $10,000 in each of the 13 stocks at the beginning of 1995 increased his initial investment of $130,000 by more than a factor of 10 and his dividend income by more than a factor of 10 by the end of 2014.
  3. The three best performers from the viewpoint of total return were WBA, BF.B and CL. From the viewpoint of dividend income growth rates, WMT, WBA and ADM led.
  4. For the long-term investor who doesn't like volatility, PG, CLX and MKC were among the most consistent performers for both total return and dividend growth rates.

The bottom line is consumer staples that are also dividend aristocrats have been rewarding investments over the past 20 years and may point to future rewarding, low volatility investments.

Note: For readers who found this article interesting, I would like to point out a SA article I recently wrote that performed a similar analysis for utilities. The article can be found here.

Disclaimer: In this article, the past total returns and dividend growth rates for dividend aristocrat consumer staple stocks have been reviewed. Any comments made regarding these stocks represent the opinion of the author and may be considered by the reader. But readers should make their own decisions on investments and should consider the use of a financial planner.

Disclosure: The author is long CL, CLX, SDY.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.