The Dividend Aristocrats Ranked By Quality Scores

May 31, 2022 9:00 AM ETABBV, ABT, ADM, ADP, AFL, ALB, AMCR, AOS, APD, ATO, BDX, BEN, BRO, CAH, CAT, CB, CHD, CINF, CL, CLX, CTAS, CVX, DOV, ECL, ED, EMR, ESS, EXPD, FRT, GD, GPC, GWW, HRL, IBM, ITW, JNJ, KMB, KO, LIN, LOW, MCD, MDT, MKC, MKC.V, MMM, MTB, MTB.PH, NEE, NUE, O, PEP, PG, PNR, PPG, ROP, SHW, SPGI, SWK, SWT, SYY, TGT, TROW, VFC, WBA, WMT, WST, XOM122 Comments100 Likes
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Summary

  • The annual rebalancing and subsequent changes to the S&P 500 Dividend Aristocrats Index have produced a new list of 64 dividend growth stocks called the Dividend Aristocrats.
  • I rank the 64 Dividend Aristocrats using the quality scoring system of DVK Quality Snapshots.
  • Recent market turmoil has created great opportunities to buy high-quality dividend growth stocks at discounted valuations. I identify the top opportunities for income, growth, and total return investors.
  • I provide a downloadable spreadsheet with fundamental and added value data of all the Dividend Aristocrats, courtesy of Portfolio Insight.
Vintage old dishes from cupronickel, of different sizes. Antique spoonsDishes of the aristocrats of the past. Antique dishes for food, spoons. .

Maksymenko Nataliia/iStock via Getty Images

Graphic depicting Dividend Aristocrats

Source: Created by the Author

Recently, I ranked the Dividend Kings, which are companies that have increased their annual dividend payouts for 50 or more consecutive years!

In this article, I rank the 64 Dividend Aristocrats in the S&P 500 that have paid higher dividends every year for at least 25 consecutive years.

I provide key metrics, quality indicators, and my risk-adjusted Buy Below prices, as well as a downloadable spreadsheet with fundamental and added value data for all Dividend Aristocrats. Additionally, I select Dividend Aristocrats with safe dividends and superior growth and income outlooks for your consideration.

The last time I covered the Dividend Aristocrats, there were 65 constituents.

In December 2021, Leggett & Platt (LEG) was dropped from the S&P 500 and automatically removed from the list of Dividend Aristocrats. Then, on January 24, 2022, the S&P Dow Jones Indices announced the annual rebalancing results for the S&P 500 Dividend Aristocrats Index, adding two companies and deleting one:

2022 Additions and Deletions to Dividend Aristocrats

S&P Dow Jones Indices

With the addition of Brown & Brown (BRO) and Church & Dwight (CHD), and the deletion of AT&T (T), the number of Dividend Aristocrats briefly increased to 65. However, on March 29, 2022, People's United Financial (PBCT) got deleted because M&T Bank Corp. (MTB) acquired PBCT.

So, now there are 64 Dividend Aristocrats.

About the Dividend Aristocrats

The S&P 500 Dividend Aristocrats Index is a list of companies in the S&P 500 that have paid higher dividends every year for at least 25 consecutive years. Only regular cash dividends count.

To be included in the list, constituents must meet several criteria:

  • Universe: Must be a member of the S&P 500.
  • Selection: Must have increased dividends every year for at least 25 consecutive years.
  • Market Cap: Must have a float-adjusted market cap of at least $3 billion on the rebalancing date.
  • Liquidity: Must have an average daily value traded of at least $5 million for the trailing three months on the rebalancing date.
  • Diversification:
    • Stock: At each rebalancing, there must be at least 40 members.
    • Sector: No GICS sector can exceed 30% of the index weight.

If a company suspends or cuts its dividend or if it is removed from the S&P 500 index, the company is removed from the list of Dividend Aristocrats as well.

Special rules apply for spin-offs, particularly those occurring after January 1, 2013. To learn more, visit this page, scroll down, and click on "Methodology" under "Documents".

Quality Assessment

DVK Quality Snapshots employs five quality indicators and assigns 0-5 points to each quality indicator, for a maximum of 25 points. Developed by David Van Knapp, the system provides a simple yet elegant way to assess the quality of dividend growth [DG] stocks.

My rating system maps to different quality score ranges. Ratings are Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Furthermore, Investment Grade ratings correspond to quality scores in the range of 15-25, while Speculative Grade ratings have quality scores below 15 points.

DVK Quality Snapshots scoring system and my rating system

Created by the author

Recently, I decided to change how quality scores are calculated when Value Line doesn’t cover a stock. In such cases, I’m multiplying the stock's quality score by 23÷15 (and ignoring the decimal digits in the result).

If Value Line doesn't cover a stock, it misses out on 10 of the possible 25 points! I think that's overly punitive. It is nearly impossible for such stocks to qualify as Investment Grade stocks.

With the adjustment, stocks not covered by Value Line are not penalized as much as before, but they do get penalized a little because I’m still limiting the maximum score they can achieve to 23 points.

How I Rank Stocks

To rank stocks, I sort them by quality score and break ties by considering up to three factors, in turn:

  1. SSD Dividend Safety Scores
  2. S&P Credit Ratings
  3. Dividend Yield

When two stocks with the same quality score have the same Dividend Safety Score, I next compare their S&P Credit Ratings, ranking the one with the better Credit Rating higher. I rarely need to break ties with the Dividend Yield.

Key Metrics and Valuation

The following sections present all 64 Dividend Aristocrats ranked by quality score.

Each table presents key metrics of interest to dividend growth investors, along with quality indicators and my valuations:

  • Yrs: years of consecutive dividend increases
  • Qual: DVK Quality Snapshots quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price (see below)
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price

Color-coding

  • Ticker: highlighted for stocks I own in my DivGro portfolio
  • Qual: for color scheme, see DVK Quality Snapshots
  • Fwd Yield: green if Fwd Yield ≥ 5-Avg Yield
  • 5-YOC: green if 5-YOC ≥ 4.0%, yellow if 5-YOC ≥ 2.5% (but less than 4.0%), and red if 5-YOC < 2.5%
  • C#: colored based on the likelihood of delivering annualized returns of 8%, according to the Chowder Rule: green means likely, yellow means less likely, and red means unlikely
  • Price: green if Price ≤ Buy Below

I use a survey approach to estimate fair value. I collect fair value estimates and price targets from several online sources, including Portfolio Insight, Morningstar, and Finbox. Additionally, I estimate fair value using each stock's 5-year average dividend yield. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:

How I risk-adjust my Buy Below prices

Created by the author

Dividend Aristocrats rated Exceptional

The first table contains the highest-quality Dividend Aristocrats. These stocks have perfect quality scores, having scored the maximum possible points for all quality indicators.

Dividend Aristocrats rated Exceptional

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Rank Company (Ticker) Sector Supersector
1 Johnson & Johnson (JNJ) Health Care Defensive
2 Procter & Gamble (PG) Consumer Staples Defensive
3 Automatic Data Processing (ADP) Information Technology Sensitive
4 Walmart (WMT) Consumer Staples Defensive

Dividend Aristocrats rated Excellent

The next table contains high-quality Dividend Aristocrats with quality scores of 23-24.

Dividend Aristocrats rated Excellent

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Rank Company (Ticker) Sector Supersector
5 Medtronic plc (MDT) Health Care Defensive
6 General Dynamics (GD) Industrials Sensitive
7 PepsiCo (PEP) Consumer Staples Defensive
8 Ecolab (ECL) Materials Cyclical
9 Air Products and Chemicals (APD) Materials Cyclical
10 Colgate-Palmolive (CL) Consumer Staples Defensive
11 Illinois Tool Works (ITW) Industrials Sensitive
12 Coca-Cola (KO) Consumer Staples Defensive
13 Emerson Electric (EMR) Industrials Sensitive
14 3M (MMM) Industrials Sensitive
15 Abbott Laboratories (ABT) Health Care Defensive

Dividend Aristocrats rated Fine

The next table contains quality stocks with quality scores of 19-22.

Dividend Aristocrats rated Fine

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Rank Company (Ticker) Sector Supersector
16 W.W. Grainger (GWW) Industrials Sensitive
17 Hormel Foods (HRL) Consumer Staples Defensive
18 Chubb (CB) Financials Cyclical
19 NextEra Energy (NEE) Utilities Defensive
20 Brown-Forman (BFB) Consumer Staples Defensive
21 Expeditors International of Washington (EXPD) Industrials Sensitive
22 Roper Technologies (ROP) Information Technology Sensitive
23 Atmos Energy (ATO) Utilities Defensive
24 T. Rowe Price (TROW) Financials Cyclical
25 Caterpillar (CAT) Industrials Sensitive
26 Lowe's (LOW) Consumer Discretionary Cyclical
27 Becton, Dickinson (BDX) Health Care Defensive
28 Sherwin-Williams (SHW) Materials Cyclical
29 McDonald's (MCD) Consumer Discretionary Cyclical
30 Cintas (CTAS) Industrials Sensitive
31 PPG Industries (PPG) Materials Cyclical
32 Dover (DOV) Industrials Sensitive
33 Kimberly-Clark (KMB) Consumer Staples Defensive
34 McCormick (MKC) Consumer Staples Defensive
35 Linde plc (LIN) Materials Cyclical
36 West Pharmaceutical Services (WST) Health Care Defensive
37 Brown & Brown (BRO) Financials Cyclical
38 Archer-Daniels-Midland (ADM) Consumer Staples Defensive
39 Chevron (CVX) Energy Sensitive
40 Consolidated Edison (ED) Utilities Defensive
41 Clorox (CLX) Consumer Staples Defensive
42 Stanley Black & Decker (SWK) Industrials Sensitive
43 Exxon Mobil (XOM) Energy Sensitive

Dividend Aristocrats rated Decent

The next table contains lower-quality stocks with quality scores of 15-28.

Dividend Aristocrats rated Decent

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Rank Company (Ticker) Sector Supersector
44 Aflac (AFL) Financials Cyclical
45 Target (TGT) Consumer Discretionary Cyclical
46 V.F. (VFC) Consumer Discretionary Cyclical
47 International Business Machines (IBM) Information Technology Sensitive
48 Church & Dwight (CHD) Consumer Staples Defensive
49 Albemarle (ALB) Materials Cyclical
50 S&P Global (SPGI) Financials Cyclical
51 Nucor (NUE) Materials Cyclical
52 Pentair plc (PNR) Industrials Sensitive
53 Cardinal Health (CAH) Health Care Defensive
54 Franklin Resources (BEN) Financials Cyclical
55 Realtyome (O) Real Estate Cyclical
56 AbbVie (ABBV) Health Care Defensive
57 Sysco (SYY) Consumer Staples Defensive
58 A. O. Smith (AOS) Industrials Sensitive
59 Genuine Parts (GPC) Consumer Discretionary Cyclical
60 Essex Property (ESS) Real Estate Cyclical
61 Walgreens Boots Alliance (WBA) Consumer Staples Defensive

Dividend Aristocrats rated Poor

The stocks in the last table are the lowest-quality Dividend Aristocrats and stocks I consider to be speculative-grade.

Dividend Aristocrats rated Poor

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Rank Company (Ticker) Sector Supersector
62 Amcor plc (AMCR) Materials Cyclical
63 Cincinnati Financial (CINF) Financials Cyclical
64 Federal Realty Investment (FRT) Real Estate Cyclical

Dividend Aristocrats: Top Opportunities

Let's now use some screens to isolate Investment Grade Dividend Aristocrats with compelling metrics and favorable valuations.

Investment grade dividend aristocrats (quality scores: 15-25)

DVK Quality Snapshots (Data Sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends)

By compelling metrics, I look for stocks with superior growth and income outlooks, and stocks offering safe dividends. Stocks with strong recent performance may have the momentum to propel future performance.

As for favorable valuations, I mean stocks trading below my risk-adjusted Buy Below prices. In the tables, these are the stocks with green cells in the Price column.

Let's consider the top candidates in each compelling metrics category while ensuring they also are discounted (trading below my risk-adjusted Buy Below prices).

Best Total Return Prospects

The Chowder Number is a popular metric for screening dividend growth stocks. It sums a stock's forward yield and 5-year DGR and measures the likelihood that a stock will deliver annualized total returns of at least 8%, according to the Chowder Rule.

Here are the Investment Grade Dividend Aristocrats sorted by their Chowder Numbers:

Chowder numbers of investment grade Dividend Aristocrats

Data Source: Portfolio Insight

Let's consider the top discounted Investment Grade Dividend Aristocrats by C#:

Top discounted Investment Grade Dividend Aristocrats by C#

Data Sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

T. Rowe Price (TROW) and Lowe's (LOW) top the list with C#'s of 19.

High Chowder Numbers are often due to high 5-year dividend growth rates. When using the Chowder Number to predict total returns, it is important to remember that future dividend increases may be more modest. Not many stocks can maintain high dividend growth rates for an extended time.

TROW non-GAAP EPS and dividends paid (<a href='https://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>), with stock price overlay

Portfolio Insight

TROW's dividend growth history is very impressive, indeed, and its earnings are growing at a 5-year CAGR of 21.8%! TROW's stock price has dropped about 42% from its 52-week high, much more than the S&P 500 has dropped over the same period. Given TROW's fundamentals, the stock looks quite attractive at today's price levels. Portfolio Insight proposes an upside of 21% on a 1-year target price of $157.70.

Best Income Prospects

The 5-year Yield on Cost [YOC] is an income-oriented metric indicating what your YOC would be after you buy a stock and hold it for five years, assuming the same 5-year DGR is maintained. I look for a 5-year YOC of at least 4.0%.

To calculate the 5-year yield on cost is easy:

5-YOC = Fwd Yield × (1 + 5-DGR)5

Here are the Investment Grade Dividend Aristocrats sorted by the 5-year yield on cost metric:

5-year YOC of Investment Grade Dividend Aristocrats

Data Source: Portfolio Insight

Let's consider the top discounted Investment Grade Dividend Aristocrats by 5-YOC:

Top discounted Investment Grade Dividend Aristocrats by 5-YOC

Data Sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

T. Rowe Price also tops the list with a 5-YOC, thanks mainly to the combination of a high forward yield and high 5-year DGR.

In calculating the 5-YOC, we're assuming the same 5-year DGR will be maintained. To see if maintaining the same 5-year DGR is likely, one should cross-check the 5-year DGR against the revenue growth rate, earnings growth rates, and the payout ratio.

Ticker 5-YOC 5-DGR

5-year

Revenue

CAGR

5-year Non-GAAP

EPS

CAGR

Non-GAAP

EPS

Payout Ratio

TROW 7.7% 15.2% 12.1% 21.8% 38%

TROW has a high earnings growth rate, which allows the company to grow its dividends accordingly. However, TROW's revenue growth rate is substantially lower and its payout ratio is "edging high for asset managers," according to Simply Safe Dividends. Lower revenue growth rates cannot support high earnings growth rates in the long run. Likewise, the company may opt for more modest dividend increases to improve its payout ratio.

Safest Stocks

I strongly favor DG stocks that are deemed Very Safe or Safe by Simply Safe Dividends. Nobody likes seeing a dividend cut or suspension soon after investing in a DG stock, so targeting the safest candidates is a good strategy.

Here are the Investment Grade Dividend Kings sorted by Dividend Safety Scores:

Dividend Safety Scores of Investment Grade Dividend Aristocrats

Data Source: Simply Safe Dividends

Let's look at the top discounted Investment Grade Dividend Aristocrats by SSD Divi Safety:

The top discounted Investment Grade Dividend Aristocrats by Dividend Safety

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Medtronic plc (MDT) looks interesting here, as its forward dividend yield exceeds its 5-year average dividend yield by 23%, and it is discounted most relative to my risk-adjusted Buy Below price.

The following Yield Channel Chart shows that MDT is trading well below its Undervalue Price (green line) of $115.32, equating to a yield of 2.23% based on historical yield patterns.

Dividend Yield Channel Fair Value chart of MDT

Portfolio Insight

I think MDT offers a good opportunity for DG investors looking for very safe dividends.

Highest Total Trailing Returns

While it remains true that past performance is no guarantee of future results, I like to consider the 5-year TTR of candidates. There's something to be said for momentum, especially for stable, blue-chip dividend growth companies.

Here are the Investment Grade Dividend Aristocrats sorted by the 5-year trailing total returns:

5-Year Trailing Total Returns of Investment Grade Dividend Aristocrats

Data Source: Portfolio Insight

Let's look at the top discounted Investment Grade Dividend Aristocrats by 5-TTR:

The top discounted Investment Grade Dividend Aristocrats by 5-year Trailing Total Returns

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Abbott Laboratories (ABT) tops the list, followed by LOW and TROW. In my view, both these stocks are stronger candidates than ABT, especially considering their discounts to my risk-adjusted Buy Below prices.

Stocks Discounted Most

When a stock is discounted, early investors will benefit when the market finally recognizes the stock's true value. So, it is worthwhile to consider the highest discounts among the Dividend Aristocrats.

Here are the Investment Grade Dividend Kings sorted by their discount to my risk-adjusted Buy Below price:

Discount to My Buy Below Price of Investment Grade Dividend Aristocrats

Data Source: Author's Fair Value Assessment

Let's consider the top five Investment Grade Dividend Aristocrats by discount to my Buy Below price:

The top discounted Investment Grade Dividend Aristocrats

Data sources: Portfolio Insight, Value Line, Morningstar, S&P Global, and Simply Safe Dividends

Stocks available at deep discounts need special scrutiny as there may be good reasons for their undervaluations. This is particularly true for stocks with poor historical performance, such as MMM with its negative 5-year TTR, and even SWK with its very low 5-year TTR.

Of the discounted stocks, I think T. Rowe Price presents the best opportunity.

In the following valuation chart, courtesy of Portfolio Insight, TROW's share price is well under the Undervalue Price (green line) in both charts.

Fair Value Analysis and Charts of TROW

Portfolio Insight

Furthermore, TROW's forward yield of 3.79% tops the 5-year average dividend yield by 40%, indicating that the stock is trading at a discount relative to its dividend yield history.

Concluding Remarks

DVK Quality Snapshots provide a simple and elegant way to assess the quality of dividend growth stocks.

Of the 64 Dividend Aristocrats covered in this article:

  • All but three have Investment Grade ratings based on their quality scores of 15-25,
  • More than 30 Investment Grade stocks are trading below my risk-adjusted Buy Below prices, and
  • 43 Investment Grade stocks have quality scores in the 19-25 range, truly high-quality stocks!

I've highlighted a few stocks trading below my risk-adjusted Buy Below prices that also offer compelling metrics, and the best opportunity appears to be TROW.

Here are some candidates to consider depending on your investment style:

  • For income: TROW
  • For growth: TROW, and LOW
  • For safety: MDT, and JNJ
  • For value: TROW

I hope this article provided readers with some good candidates to consider! As always, though, I encourage you to do your own due diligence before investing.

I own all of these stocks in my DivGro portfolio. Based on my preferred portfolio target weights, I should add 25 shares to my TROW position and 80 shares to my MDT position. My LOW and JNJ are all full-sized positions, so I'm not looking to add any shares at this time.

I'm providing a downloadable spreadsheet of the Dividend Aristocrats. The spreadsheet includes the data presented in this article but also includes data available to Portfolio Insight subscribers. I hope readers would find this snapshot of fundamental and added value metrics useful in analyzing the Dividend Aristocrats.

Note that I cannot grant permission for you to edit the spreadsheet, as it is a read-only file that every Seeking Alpha reader can access!

But you can create a copy of the spreadsheet to edit: Simply click on this link to the Dividend Aristocrats spreadsheet. To copy the spreadsheet, sign in with a Google account and select File | Make a Copy to save your copy of the spreadsheet on your computer.

Thanks for reading, and happy investing!

This article was written by

FerdiS profile picture
26.11K Followers
FerdiS invests in dividend growth stocks and writes options to boost dividend income. He manages DivGro, a portfolio of mainly dividend growth stocks created in January 2013. With investment and trading experience spanning nearly 20 years, FerdiS enjoys writing articles about dividend growth investing, options trading, stock selection, portfolio management, and passive income generation. His DivGro blog hosts more than 1,000 posts and a live, public spreadsheet with full details of his DivGro portfolio, allowing readers to follow along in his investment journey. FerdiS is collaborating with the founders of Portfolio Insight, an online platform for portfolio management and investment analysis. Together, we maintain and publish Dividend Radar, a free spreadsheet of dividend growth stocks, on a weekly basis.
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Disclosure: I/we have a beneficial long position in the shares of JNJ, PG, ADP, MDT, GD, PEP, APD, ITW, KO, MMM, HRL, CB, NEE, ATO, TROW, LOW, MCD, CTAS, ADM, CVX, AFL, IBM, BEN, O, ABBV either through stock ownership, options, or other derivatives. 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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