Best And Worst Performing Dividend Aristocrats Since The Coronavirus Outbreak
- The Coronavirus, COVID-19, continues to rapidly spread across the globe.
- Bearish market sentiment is spreading even faster, with all relevant stock market indexes down, and with the S&P 500 posting the fastest correction on record.
- High-quality low-risk stocks are poised to outperform in these difficult times, and there are no higher-quality or lower-risk stocks than the Dividend Aristocrats.
- A look at some of the best and worst performing Aristocrats since the outbreak.
COVID-19 continues to spread around the world, with confirmed cases in all continents, over fifty countries, and with several instances of community spread in the United States. As the virus spreads, so does bearish market sentiment, with most market indexes plummeting in the past few days. The past week was the quickest correction in the S&P 500 on record, with investors and the broader equities market concerned about the economic havoc that the outbreak could have, and has had, on the global economy.
Conditions in China, where a significant chunk of world manufacturing takes place, are particularly bad, with the country posting the worst PMI in its history. A global recession, centered on particularly fragile countries, industries, and companies, seems likely.
I've already written about what I believe will be the implications of the above, mostly widespread supply chain disruptions leading to factory shutdowns and declining production in several industries, meaning reduced corporate revenues and profits, ultimately resulting in significant shareholder losses and market volatility. Investors seem to agree with my assessment, at least if the stock market's performance is any indication.
In my opinion, investors should strongly consider pivoting towards higher-quality lower-risk holdings, to minimize their losses during these volatile times. Dividend investors and retirees doubly so, to ensure that their dividend payments are as safe as can be, and to minimize the possibility of dividend cuts. Dividend Aristocrats (NOBL), S&P 500 components that have paid and increased their dividends every year for at least twenty-five consecutive years, seem like particularly strong investments today, as they generally consist of companies with strong, time-proven business models, with the capacity to perform adequately even under tough economic conditions. Dividend Aristocrats have managed to grow their dividends for their decades and will, I believe, continue to do so in the future.
Due to the above, I wanted to take a look at the performance of the different Aristocrats during the outbreak. I've calculated results for the past month, since the spread of the virus, and the past week, since market sentiment turned decisively bearish. Investors could consider investing in the worst-performing Aristocrats, as these are offering good yields, value, and could bounce back if/once markets recover. These are as follows:
(Source: Seeking Alpha - Sure Dividend - Chart by author)
As can be seen above, there are several Aristocrats down by double-digits, with Exxon Mobil (XOM) and Leggett & Platt (LEG) down by more than 20%.
Some assorted comments:
- Exxon Mobil has posted the worst results in its peer group, due to the aforementioned bearish market sentiment, and due to plummeting energy prices, mostly due to weak Chinese demand. XOM currently offers investors a 6.8% dividend yield, the highest yield in the company's history, albeit not fully covered. A closer look seems warranted, although the company does seem to be exposed to more downside if the outbreak worsens.
- Chevron (CVX) has also significantly underperformed, for basically the same reasons as XOM, but less so. CVX currently offers investors a 5.5% dividend yield, the highest it has been in decades, but seems to be unsustainable, with a payout ratio of 312%. A quick look at the company's financials shows significant distress, with declining earnings, interest rate coverage ratios, and an unsustainable dividend. I can't say I'm deeply knowledgeable about the company, but I don't like what I've seen.
- Leggett & Platt has posted the second-worst results in its peer group, partly due to concerns about the company's supply chains and production capabilities. LEG's stock price had surged by about 30% in prior months, so the company is still trading at reasonable levels, even after its sizable drop.
- Manufacturing firms have generally underperformed, most likely for the same reasons as LEG. I think a closer look at most of these firms might prove useful for investors, it might be the case that some are less exposed to China, and will outperform in the coming months.
Finally, a table with information about all Dividend Aristocrats. Companies are organized by their 1-month returns, lowest to highest:
(Source: Seeking Alpha - Sure Dividend - Chart by author)
Dividend Aristocrats are some of the strongest, safest, and most worthwhile investments available in the market today, and are particularly well-positioned to navigate periods of significant economic and market stress, such as now. Readers should consider investing in these stocks during periods of momentary price weakness, to boost yields and returns alike. Hopefully these lists are useful for investors looking to do the same.
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This article was written by
Juan has previously worked as a fixed income trader, financial analyst, operations analyst, and economics professor in Canada and Colombia. He has hands-on experience analyzing, trading, and negotiating fixed-income securities, including bonds, money markets, and interbank trade financing, across markets and currencies. He focuses on dividend, bond, and income funds, with a strong focus on ETFs, and enjoys researching strategies for income investors to increase their returns while lowering risk.
I provide my work regularly to CEF/ETF Income Laboratory with articles that have an exclusivity period, this is noted in such articles. CEF/ETF Income Laboratory is a Marketplace Service provided by Stanford Chemist, right here on Seeking Alpha.
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.
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