My Best Dividend Aristocrats For July 2022

Jun. 29, 2022 12:46 PM ETALB, CAT, NOBL, NUE, SYY, BEN, CLX, ECL, LOW, MDT, MMM, SWK, TROW, VFC, WBA, TGT, SHW2 Comments12 Likes

Summary

  • NOBL gains 0.31% in May but is down 5.99% in 2022 after the first 5 months.
  • Thus far, through June 28th, the dividend aristocrat ETF is down 6.22%, inclusive of its dividend payment this month.
  • I present 3 strategies that can theoretically beat the dividend aristocrat index in the long term.
  • All 3 strategies continue to deliver alpha over NOBL since inception.

Businessman plan business growth and financial, increase of positive indicators in the year 2022 to increase business growth and an increase for growing up business "n

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2022 Review

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) gained 0.31% in May, but is thus far 6.22% down in June. If this negative return holds during the last two trading days in the month, the exchange-traded fund ("ETF") will be down nearly 12% year-to-date. The ETF is on pace to lock in its worst half year return since its inception. The prior worst 6 month return for NOBL was -9.79% in 2020. Since inception, the ETF continues to enjoy a strong 10.51% annualized rate of return, but one that is trending closer to a single digit gain.

Not all of the dividend aristocrats are off to a poor start this year; 30 dividend aristocrats are beating NOBL through May and 21 have positive returns on the year. Here are the best-performing aristocrats in 2022 (through May).

  • Exxon (XOM) +60.26%
  • Chevron (CVX) +51.68%
  • Archer-Daniels-Midland (ADM) +35.66%
  • Consolidated Edison (ED) +18.44%
  • Nucor (NUE) +16.43%
  • Cincinnati Financial (CINF) +12.81%
  • Atmos Energy (ATO) +12.41%
  • Albemarle (ALB) +11.62%
  • Amcor plc (AMCR) +11.22%
  • AbbVie (ABBV) +10.96%
  • Cardinal Health (CAH) +10.33%
  • Chubb (CB) +9.71%
  • General Dynamics (GD) +9.06%
  • Sysco (SYY) +8.42%
  • Coca-Cola (KO) +7.85%
  • Johnson & Johnson (JNJ) +6.28%
  • International Business Machines (IBM) +6.44%
  • Aflac (AFL) +5.11%
  • Caterpillar (CAT) +4.93%
  • Becton, Dickinson (BDX) +4.60%
  • Hormel (HRL) +0.74%

The S&P 500, as measured by SPY, tacked on a gain of 0.23% in May and is down 7.82% in June thus far (through 6/28). NOBL continues to outpace SPY this year with a year to date loss through 6/28 of 11.84% versus a loss of 19.6%. The dividend aristocrat ETF has beaten SPY for each of the last 5 months and June will likely see this trend extend to 6 months. The dividend aristocrats are not known to consistently beat the S&P 500 index, in fact, the dividend aristocrat index underperformed the S&P 500 index for 6 out of the last 7 full calendar years.

However, if you look further back in history, the dividend aristocrat index is outperforming the S&P 500 index by about 1.62% per year between 1990 and 2021. A significant portion of this long-term outperformance is attributable to the dot com bubble and the financial crisis as well as the immediate years following each market crash. This pattern was broken with the 2020 market crash, perhaps the much shorter duration of the crash and recovery are the reason. The dot com bubble and the financial crisis both extended for multiple years while the 2020 market crash was fully recovered in a matter of months.

Even though the dividend aristocrats have trailed the S&P for the better part of the last 7 years, long-term investors can rest assured that based on history, over a much longer time period, the dividend aristocrats can hold their own. There are currently 64 companies in the dividend aristocrat index but strong historical returns for the index can be attributed to only a handful of them. As an investor, I am always curious how to identify these drivers of outperformance.

I want to present 3 strategies that theoretically could identify winning aristocrats and lead to better performance than the dividend aristocrat index. These strategies work best with a buy and hold long term investing approach as will be evidenced by the results. They are based on quantitative models that do not consider qualitative data, therefore it is prudent that further due diligence is performed on all chosen stocks.

The Most Undervalued Strategy

Strategy number 1 is a focus on valuation and more specifically it targets the potentially most undervalued dividend aristocrats. In theory, this is a long-term strategy since it may take some time to fully see the reward of leveraging a valuation approach. My preferred method for valuation is dividend yield theory, mainly for its simplicity. Unlike other valuation methods, dividend yield theory does not require making assumptions aside from assuming that a given stock will revert back to its long-term trailing dividend yield.

This valuation technique works best for mature businesses with long histories of dividend growth, making the dividend aristocrats an ideal pool of companies to value using this technique.

Selecting the 10 most undervalued dividend aristocrats each month and adopting a buy and hold investing approach can lead to long-term outperformance when/if the targeted stocks return to fair valuation. It may take a few months or even years to see if this strategy actually pays off. I predict that it will underperform NOBL for the first few months while we wait for bargain stocks to return to fair value.

Month

Most Undervalued

NOBL

SPY

Aug 21

0.49%

1.87%

2.98%

Sep 21

-2.99%

-5.69%

-4.66%

Oct 21

3.63%

5.95%

7.02%

Nov 21

-2.19%

-1.76%

-0.80%

Dec 21

10.37%

6.54%

4.63%

Jan 22

1.04%

-4.08%

-5.27%

Feb 22

-1.94%

-2.59%

-2.95%

Mar 22

3.40%

3.86%

3.76%

Apr 22

-2.14%

-3.42%

-8.78%

May 22

3.11%

0.31%

0.23%

Jun 22 Partial

-5.85%

-6.22%

-7.82%

2021 Partial

9.05%

6.54%

9.06%

2022 YTD

-2.67%

-11.84%

-19.60%

TOTAL

6.13%

-6.07%

-12.32%

Alpha over NOBL

12.20%

Alpha over SPY

18.45%

The table above shows the monthly and annual returns for the buy-and-hold portfolio of the most undervalued strategy.

The portfolio finished May with a strong gain of 3.11%, beating NOBL by 2.8% and SPY by 2.88%. Through June 28th the portfolio has a return of minus 5.85% and is beating NOBL by 0.37% and SPY by 1.97%. As you can see the portfolio is performing very well given all of the volatility this year. The year-to-date return is a modest loss of 2.67% compared to a loss of 11.84% for NOBL and 19.60% for SPY. Since inception this portfolio has generated 12.20% of alpha over NOBL and 18.45% of alpha over SPY.

The portfolio consists of 28 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split among the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. Here are all of the positions, the current market value, capital invested, total return and allocation as of June 28th.

TICKER

MARKET VALUE

CAPITAL INVESTED

TOTAL RETURN

CURRENT ALLOCATION

ABBV

145.83

100

45.83%

1.31%

AFL

293.87

300

-2.04%

2.64%

AMCR

324.10

300

8.03%

2.92%

AOS

186.22

200

-6.89%

1.68%

APD

98.52

100

-1.48%

0.89%

ATO

920.38

800

15.05%

8.28%

BDX

106.79

100

6.79%

0.96%

BEN

449.65

500

-10.07%

4.05%

CAH

443.90

400

10.97%

3.99%

CLX

961.19

1100

-12.62%

8.65%

CVX

470.48

300

56.83%

4.23%

ECL

358.11

400

-10.47%

3.22%

ED

526.83

400

31.71%

4.74%

GD

226.28

200

13.14%

2.04%

HRL

749.46

700

7.07%

6.74%

IBM

243.11

200

21.55%

2.19%

KMB

107.62

100

7.62%

0.97%

LEG

87.34

100

-12.66%

0.79%

MDT

258.91

300

-13.70%

2.33%

MKC

109.05

100

9.05%

0.98%

MMM

517.91

600

-13.68%

4.66%

PPG

185.81

200

-7.09%

1.67%

SWK

258.75

300

-13.75%

2.33%

T

772.63

700

10.38%

6.95%

TROW

352.30

400

-11.93%

3.17%

VFC

616.46

800

-22.94%

5.55%

WBA

996.68

1100

-9.39%

8.97%

XOM

344.18

200

72.09%

3.10%

TOTAL

11,112.36

Here are the 10 most undervalued dividend aristocrats chosen for the month of July. The table below shows potential undervaluation (column Valuation) for each of the 10 chosen aristocrats. The data is from June 28th so the current dividend yield may differ slightly from the stated yield.

Most Undervalued Dividend Aristocrats

Created by Author

The Fastest Expected Growth Strategy

Strategy number 2 is a focus on dividend aristocrats that are expected to grow the fastest in the near future. Historically, there has been a correlation between earnings per share growth and share price appreciation. Companies that have grown their earnings faster have also seen higher total returns. One way to gauge how fast earnings for a company will grow is to leverage analyst forecasts. For this strategy, I decided to use a discounted five-year EPS growth forecast combined with a return to fair valuation and the dividend yield to identify the 10 best aristocrats poised for the best total return in the future.

Month

Fastest Growth

NOBL

SPY

Aug 21

5.12%

1.87%

2.98%

Sep 21

-4.42%

-5.69%

-4.66%

Oct 21

5.92%

5.95%

7.02%

Nov 21

-2.06%

-1.76%

-0.80%

Dec 21

7.09%

6.54%

4.63%

Jan 22

-4.42%

-4.08%

-5.27%

Feb 22

-0.10%

-2.59%

-2.95%

Mar 22

3.71%

3.86%

3.76%

Apr 22

-2.19%

-3.42%

-8.78%

May 22

0.12%

0.31%

0.23%

Jun 22 Partial

-7.52%

-6.22%

-7.82%

2021 Partial

11.62%

6.54%

9.06%

2022 YTD

-10.31%

-11.84%

-19.60%

TOTAL

0.11%

-6.07%

-12.32%

Alpha over NOBL

6.18%

Alpha over SPY

12.43%

The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.

The portfolio finished May with a modest gain of 0.12%, underperforming NOBL by 0.19% and SPY by 0.11%. Through June 28th the portfolio is down 7.52%, once more losing to NOBL by 1.3% and slightly beating SPY by 0.3%. The portfolio is struggling this year as the growth oriented strategy is beaten up by the market. However it continues to remain ahead of both NOBL and SPY since inception, beating the ETFs by 6.18% and 12.43% respectively.

The portfolio consists of 18 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split amongst the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. People's United (PBCT) was removed from the portfolio in April as the company was acquired by M&T Bank (MTB), the value of the position was reinvested equally amongst the 10 chosen aristocrats for April. Here are all of the positions, the current market value, capital invested, total return and allocation as of June 28th.

TICKER

MARKET VALUE

CAPITAL INVESTED

TOTAL RETURN

CURRENT ALLOCATION

ALB

390.70

400

-2.32%

3.76%

CAT

930.78

1000

-6.92%

8.97%

CB

1,049.86

1000

4.99%

10.11%

ECL

596.47

700

-14.79%

5.75%

IBM

1,162.38

1000

16.24%

11.20%

ITW

170.66

200

-14.67%

1.64%

LIN

271.64

300

-9.45%

2.62%

LOW

411.88

500

-17.62%

3.97%

MCD

695.99

700

-0.57%

6.70%

MDT

86.74

100

-13.26%

0.84%

MMM

294.04

300

-1.99%

2.83%

NUE

964.90

1000

-3.51%

9.29%

PPG

471.32

500

-5.74%

4.54%

PBCT

200

0.00%

SWK

340.77

400

-14.81%

3.28%

SYY

1,218.03

1100

10.73%

11.73%

T

108.54

100

8.54%

1.05%

TROW

372.30

400

-6.92%

3.59%

VFC

845.15

1100

-23.17%

8.14%

TOTAL

10,382.15

Here are the 10 dividend aristocrats poised for the best total return right now. The table below shows the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats for June. The data is from June 28th so the current dividend yield may differ slightly from the stated yield.

Fastest Growth Dividend Aristocrats

Created by Author

The Blended Strategy

Strategy 3 is a blend of the first two strategies, with a focus on the fastest expected growth but applied only to undervalued aristocrats. A blend of undervaluation and expected growth could narrow down the best aristocrats between the two strategies. The most undervalued aristocrats may not necessarily be poised for the fastest growth. Additionally targeting only undervalued aristocrats can offer a margin of safety in that securities are purchased for fair or better prices.

Month

Blended

NOBL

SPY

Aug 21

2.64%

1.87%

2.98%

Sep 21

-3.42%

-5.69%

-4.66%

Oct 21

2.70%

5.95%

7.02%

Nov 21

-2.56%

-1.76%

-0.80%

Dec 21

10.07%

6.54%

4.63%

Jan 22

-0.71%

-4.08%

-5.27%

Feb 22

-0.81%

-2.59%

-2.95%

Mar 22

2.01%

3.86%

3.76%

Apr 22

-2.82%

-3.42%

-8.78%

May 22

1.28%

0.31%

0.23%

Jun 22 Partial

-5.21%

-6.22%

-7.82%

2021 Partial

9.18%

6.54%

9.06%

2022 YTD

-6.27%

-11.84%

-19.60%

TOTAL

2.34%

-6.07%

-12.32%

Alpha over NOBL

8.42%

Alpha over SPY

14.66%

The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.

The portfolio gained 1.28% in May, beating NOBL by 0.97% and Spy by 1.05%. Through June 28th the portfolio is down 5.21% and is outperforming NOBL by 1.01% and SPY by 2.61%. Although not performing quite as well as the most undervalued portfolio, 8.42% of alpha over NOBL and 14.66% over SPY after almost 11 months is still very impressive.

The portfolio consists of 26 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split amongst the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. People's United (PBCT) was removed from the portfolio in April as the company was acquired by M&T Bank; the value of the position was reinvested equally amongst the 10 chosen aristocrats for April. Here are all of the positions: the current market value; capital invested; total return; and allocation as of June 28th.

TICKER

MARKET VALUE

CAPITAL INVESTED

TOTAL RETURN

CURRENT ALLOCATION

AMCR

324.10

300

8.03%

3.01%

AOS

167.61

200

-16.19%

1.56%

APD

401.20

400

0.30%

3.73%

ATO

713.25

600

18.87%

6.63%

BDX

415.87

400

3.97%

3.86%

BEN

164.12

200

-17.94%

1.52%

CAH

338.45

300

12.82%

3.14%

CTAS

195.10

200

-2.45%

1.81%

ECL

461.33

500

-7.73%

4.29%

GD

565.51

500

13.10%

5.25%

HRL

649.76

600

8.29%

6.04%

IBM

1,162.38

900

29.15%

10.80%

ITW

92.84

100

-7.16%

0.86%

KMB

134.95

100

34.95%

1.25%

MDT

529.82

600

-11.70%

4.92%

MMM

909.90

1100

-17.28%

8.45%

PBCT

0.00

200

0.00%

PPG

303.81

300

1.27%

2.82%

ROP

89.72

100

-10.28%

0.83%

SHW

196.28

200

-1.86%

1.82%

SWK

407.60

500

-18.48%

3.79%

SYY

547.80

500

9.56%

5.09%

T

108.54

100

8.54%

1.01%

TROW

450.08

500

-9.98%

4.18%

VFC

637.26

800

-20.34%

5.92%

WBA

452.32

500

-9.54%

4.20%

XOM

344.18

200

72.09%

3.20%

TOTAL

10,763.77

Here are the 10 dividend aristocrats chosen for the blended strategy for July. The table below shows potential undervaluation (column Valuation) and the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats. The data is from June 28th so the current dividend yield may differ slightly from the stated yield.

Best Dividend Aristocrats July 2022

Created by Author

Performance Review

The 10 chosen aristocrats for the most undervalued strategy are losing 7.08% in June and trailing NOBL by 0.86%. The fastest expected growth strategy selections are losing 7.66% and trailing NOBL by 1.44% and the blended strategy is losing 6.03% and beating NOBL by 0.19%. Often times the selected aristocrats underperform NOBL in a single month but prove to offer alpha in the long term. As I mentioned in the beginning a buy and hold approach is the optimal application method for these strategies.

Here is a comparison of the buy-and-hold portfolios and the individual monthly selections for each strategy. As you can see the buy-and-hold portfolios are performing much better than if we bought and sold the 10 chosen aristocrats each month. Not to mention that the high turnover of buying and selling individual stocks each month may create a significant tax drag on the final results.

Type

Most Undervalued

Fastest Growth

Blended

NOBL

Individual

-3.94%

-2.64%

-0.60%

-6.07%

Buy-and-Hold

6.13%

0.11%

2.34%

-6.07%

O/U

10.07%

2.75%

2.94%

0.00%

Final Thoughts

I personally believe each of the 3 strategies outlined above can theoretically beat the dividend aristocrat index over a long period of time. These strategies are based on simple principles of valuation and expected returns, and they are easy to understand and implement. Investors should keep in mind that selecting individual stocks carries more risk than investing in an index. The simplest and possibly the safest way to invest in the dividend aristocrats is to purchase shares of NOBL. The fund finished 2021 with a fantastic return and has an annualized rate of return of 10.51% since inception.

The dividend aristocrat data in the images of this article came from my live Google spreadsheet that tracks all of the current dividend aristocrats. Because this data is updated continuously throughout the day, you may notice slightly different data for the same company across the images.

This article was written by

I have a masters degree in Analytics from Northwestern University and a bachelors degree in Accounting. I have worked in the investment arena for over 10 years starting as an analyst and working my way up to a management role. Dividend investing is a personal hobby and I look forward to sharing my thoughts with the Seeking Alpha community. In addition to being a contributor here on Seeking Alpha I publish informative videos on YouTube using the following channel https://www.youtube.com/channel/UCVh4UdktgeaPx8Ndm-j72xg
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Disclosure: I/we have a beneficial long position in the shares of LOW, MMM, SHW, TROW 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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