In August 2019, the Dividend Aristocrats (NOBL) managed to outperform the S&P 500 by 99bp, but the dividend growth strategy still lost 0.59% in a month where long duration fixed income instruments posted historically strong returns.
Despite the relatively modest outperformance in the August sell-off, we know that the Dividend Aristocrats tend to outperform in down markets. In the six most recent down years for the S&P 500 (1990, 2000-2002, 2008, and 2018), the Dividend Aristocrat Index has outperformed the broad market in each year. This ability to outperform in down markets and keep pace in rising markets has led to the long-run outperformance for the strategy pictured below.
The table below lists the 57 constituents, sorted descending by indicated dividend yield, and lists total returns, including reinvested dividends, over trailing 1-, 3-, 6-, and 12-month periods. Performance data is through August 30th.
Below are some observations from the monthly list of the performance of the Dividend Aristocrat constituents:
- The two best performers were brick-and-mortar retailers, Target (TGT) and Lowe's (LOW), which both produced better-than-expected earnings results, leading to strong stock rallies.
- After the double digits gains from these retailers, food and beverage companies Sysco (SYY), Brown-Forman (BF.B), and Pepsi (PEP) each posted 6-7.5% total returns. While there is modest broad-based stress in the Industrial segment of the market, blue chip consumer goods companies are still faring quite well.
- The worst performer on the month was Franklin Resources (BEN), which produced a -16.4% return. The asset management business continues to face pressures from the shift to passive flows, and suffered strain on the performance of a key active bond fund's exposure to pressured Argentine debt. Franklin Resources was also an underperformer during the Financial Crisis, but has continued its unabated streak of dividend growth, suggesting that it could manage around these secular pressures.
- Financials (XLF) lagged in August, driven by rate pressures and percolating credit concerns. People's United Financial (PBCT) and Aflac (AFL), facing an idiosyncratic issue in its Japanese business, also failed poorly.
- While some might view higher yielding stocks as a safe haven during the August market volatility, Dividend Aristocrats with yields above 3% actually underperformed with an equal-weighted return of -2.75%, and 13 of 16 companies with yields at that level falling on the month.
- As seen more broadly in the U.S. equity markets, it was a rough month for value stocks as well. The 15 Dividend Aristocrats with a trailing P/E of less than 16x produced an arithmetic average total return of -3.93%.
If we see a continued flight-to-quality into more defensive stocks, the Dividend Aristocrats could outperform. A little volatility could create opportunities for long-term focused Seeking Alpha dividend growth investors, and there are some companies on this list that are trading at relatively attractive earnings multiples, especially as lower multiple companies lagged in August. I hope this screen of the Dividend Aristocrats proved useful to Seeking Alpha readers trying to determine which dividend growers to build their portfolio around. I continue to prefer owning all of them through the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), and the automatic periodic rebalancing to equal-weights that vehicle affords.
Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties, and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.
Disclosure: I am/we are long NOBL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.