My Best Dividend Aristocrats For October 2022

Sep. 26, 2022 6:47 PM ETALB, GWW, NUE, SYY, CINF, ECL, MDT, O, SHW, SWK, TGT, TROW, VFC, WST, LOW, MMM, WBA16 Comments

Summary

  • NOBL fell 2.78% in August which brings the Funds return for the year to a loss of 9.16%.
  • Thus far, through September 23rd, the dividend aristocrat ETF is down 6.71%, bringing its year-to-date return to -15.25%.
  • I present 3 strategies that can theoretically beat the dividend aristocrat index in the long term.
  • After nearly 14 months all 3 strategies continue to deliver alpha over NOBL.

2022 Review

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) fell 2.78% in August. This month is thus far looking even worse, as the exchange-traded fund ("ETF") is down 6.71% through September 23rd. NOBL is on pace to have its worst annual return since the fund's inception in late 2013. 2018 was the only year NOBL finished with a negative total return, losing 3.29% during the year.

It almost seems inevitable that 2022 will set a new low performance year for the fund. The fund would need to see a total return of about 14.15% between now and yearend to catch up to the -3.29% loss from 2018. And a total return of about 18% to finish the year flat. Anything is possible, but the odds are highly unlikely we will see such a fast rise so quickly.

Not all of the dividend aristocrats are off to a poor start this year; 31 dividend aristocrats are beating NOBL through August, and 21 have positive returns on the year. Here are the best-performing aristocrats in 2022 (through August).

  • Exxon (XOM) +61.09%
  • Cardinal Health (CAH) +39.86%
  • Chevron (CVX) +38.49%
  • Archer-Daniels-Midland (ADM) +31.89%
  • Consolidated Edison (ED) +17.55%
  • Nucor (NUE) +17.38%
  • Albemarle (ALB) +15.04%
  • Genuine Parts Company (GPC) +12.82%
  • General Dynamics (GD) +11.64%
  • Atmos Energy (ATO) +10.21%
  • Grainger (GWW) +8.19%
  • Sysco (SYY) +6.50%
  • Coca-Cola (KO) +5.80%
  • Hormel (HRL) +4.65%
  • Aflac (AFL) +3.78%
  • Becton, Dickinson (BDX) +3.58%
  • AbbVie (ABBV) +2.19%
  • Amcor plc (AMCR) +1.97%
  • Pepsi (PEP) +0.51%
  • Brown Forman Corp. (BF.B) +0.35%
  • Automatic Data Processing (ADP) +0.09%

The S&P 500, as measured by SPY, fell 4.08% in August and is down 6.89% in September thus far (through 9/23). NOBL continues to outpace SPY this year with a year-to-date loss through 9/23 of 15.25% versus a loss of 25.28% for SPY. The dividend aristocrat ETF has beaten SPY for each of the last 9 months and this trend looks to continue in September. 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

-7.30%

-6.73%

-8.25%

Jul 22

5.00%

6.56%

4.55%

Aug 22

-3.25%

-2.78%

-4.08%

Sep 22

-6.43%

-6.71%

-6.89%

2021 Partial

9.05%

6.54%

9.06%

2022 YTD

-8.91%

-15.25%

-25.28%

TOTAL

-0.67%

-9.71%

-18.51%

Alpha over NOBL

9.04%

Alpha over SPY

17.83%

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

The portfolio finished August with a loss of 3.25%, losing to NOBL by 0.47% but beating SPY by 0.83%. Through September 23rd the portfolio has a return of -6.43% and is beating NOBL and SPY. As a result, the portfolio, is gaining some more alpha this month over both NOBL and SPY. On a year-to-date basis, the portfolio is outperforming NOBL by 6.34% and SPY by 16.37%. Since inception this portfolio has generated 9.04% of alpha over NOBL and 17.83% of alpha over SPY.

The portfolio consists of 29 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 September 23rd.

TICKER

MARKET VALUE

CAPITAL INVESTED

TOTAL RETURN

CURRENT ALLOCATION

ABBV

138.09

100

38.09%

1.05%

AFL

303.60

300

1.20%

2.30%

AMCR

288.96

300

-3.68%

2.19%

AOS

168.93

200

-15.53%

1.28%

APD

96.95

100

-3.05%

0.73%

ATO

933.02

800

16.63%

7.07%

BDX

102.53

100

2.53%

0.78%

BEN

707.31

800

-11.59%

5.36%

CAH

549.97

400

37.49%

4.17%

CLX

1,301.01

1400

-7.07%

9.86%

CVX

458.44

300

52.81%

3.48%

ECL

628.43

700

-10.22%

4.76%

ED

538.55

400

34.64%

4.08%

GD

229.02

200

14.51%

1.74%

HRL

750.08

700

7.15%

5.69%

IBM

214.24

200

7.12%

1.62%

KMB

98.56

100

-1.44%

0.75%

LEG

84.85

100

-15.15%

0.64%

LOW

303.43

300

1.14%

2.30%

MDT

517.24

600

-13.79%

3.92%

MKC

95.91

100

-4.09%

0.73%

MMM

716.54

900

-20.38%

5.43%

PPG

176.07

200

-11.96%

1.33%

SWK

440.56

600

-26.57%

3.34%

T

608.25

700

-13.11%

4.61%

TROW

598.57

700

-14.49%

4.54%

VFC

736.15

1100

-33.08%

5.58%

WBA

1,080.37

1400

-22.83%

8.19%

XOM

325.81

200

62.90%

2.47%

TOTAL

13,191.44

0.75%

Here are the 10 most undervalued dividend aristocrats chosen for the month of October. The table below shows potential undervaluation (column Valuation) for each of the 10 chosen aristocrats. The data is from September 26th so the current dividend yield may differ slightly from the stated yield.

Most Undervalued Dividend Aristocrats October 2022

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

-8.94%

-6.73%

-8.25%

Jul 22

6.09%

6.56%

4.55%

Aug 22

-2.69%

-2.78%

-4.08%

Sep 22

-8.38%

-6.71%

-6.89%

2021 Partial

11.62%

6.54%

9.06%

2022 YTD

-16.48%

-15.25%

-25.28%

TOTAL

-6.77%

-9.71%

-18.51%

Alpha over NOBL

2.94%

Alpha over SPY

11.74%

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

The portfolio finished August with a loss of 2.69%, beating NOBL by 0.09% and SPY by 1.39%. Through September 23rd the portfolio is down 8.38%, trailing NOBL by 1.67% and SPY by 1.49%. The portfolio continues to struggle this year as "growth" is performing much worse than "value" this year. It falls behind NOBL on a year-to-date basis, by 1.23%, but continues to remain ahead of SPY, by 8.8%. Since inception, this portfolio has generated 2.94% of alpha over NOBL and 11.74% of alpha over SPY.

The portfolio consists of 24 unique present and former dividend aristocrats, 2 new aristocrats were added to the portfolio in September. 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 September 23rd.

TICKER

MARKET VALUE

CAPITAL INVESTED

TOTAL RETURN

CURRENT ALLOCATION

ALB

812.26

700

16.04%

6.54%

APD

95.50

100

-4.50%

0.77%

CAT

913.51

1100

-16.95%

7.35%

CB

977.94

1000

-2.21%

7.87%

CINF

94.88

100

-5.12%

0.76%

CVX

90.06

100

-9.94%

0.72%

ECL

582.75

700

-16.75%

4.69%

IBM

1,024.35

1000

2.43%

8.25%

ITW

176.27

200

-11.87%

1.42%

LIN

250.14

300

-16.62%

2.01%

LOW

555.02

600

-7.50%

4.47%

MCD

712.65

700

1.81%

5.74%

MDT

356.46

400

-10.88%

2.87%

MMM

257.97

300

-14.01%

2.08%

NUE

1,209.45

1300

-6.97%

9.74%

PPG

446.61

500

-10.68%

3.60%

PBCT

200

-100.00%

0.00%

SHW

91.00

100

-9.00%

0.73%

SWK

419.43

600

-30.10%

3.38%

SYY

1,346.86

1400

-3.80%

10.84%

T

85.45

100

-14.55%

0.69%

TGT

299.96

300

-0.01%

2.41%

TROW

617.01

700

-11.86%

4.97%

VFC

916.18

1400

-34.56%

7.38%

XOM

90.22

100

-9.78%

0.73%

TOTAL

12,421.95

-3.40%

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. The data is from September 26th so the current dividend yield may differ slightly from the stated yield.

Fastest Growing 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

12.04%

6.54%

4.63%

Jan 22

-0.71%

-4.08%

-5.27%

Feb 22

1.86%

-2.59%

-2.95%

Mar 22

4.80%

3.86%

3.76%

Apr 22

-9.04%

-3.42%

-8.78%

May 22

1.28%

0.31%

0.23%

Jun 22

-6.23%

-6.73%

-8.25%

Jul 22

4.56%

6.56%

4.55%

Aug 22

-3.29%

-2.78%

-4.08%

Sep 22

-6.96%

-6.71%

-6.89%

2021 Partial

11.15%

6.54%

9.06%

2022 YTD

-13.86%

-15.25%

-25.28%

TOTAL

-4.26%

-9.71%

-18.51%

Alpha over NOBL

5.45%

Alpha over SPY

14.25%

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

The portfolio fell 3.29% in August, trailing NOBL by 0.51% but beating SPY by 0.79%. Through September 23rd the portfolio is down 6.96% and is trailing NOBL by 0.25% and SPY by 0.07%. Year-to-date the portfolio is down 13.86% which is better than NOBL, down 15.25%, and SPY, down 25.28%. Since inception this portfolio has generated alpha of 5.45% over NOBL and 14.25% over SPY.

The portfolio consists of 30 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 September 23rd.

TICKER

MARKET VALUE

CAPITAL INVESTED

TOTAL RETURN

CURRENT ALLOCATION

AMCR

288.96

300

-3.68%

2.26%

AOS

152.05

200

-23.97%

1.19%

APD

490.33

500

-1.93%

3.83%

ATO

723.04

600

20.51%

5.65%

BDX

399.27

400

-0.18%

3.12%

BEN

157.61

200

-21.20%

1.23%

CAH

419.32

300

39.77%

3.28%

CAT

92.49

100

-7.51%

0.72%

CINF

94.88

100

-5.12%

0.74%

CTAS

232.66

200

16.33%

1.82%

ECL

729.27

800

-8.84%

5.70%

GD

572.36

500

14.47%

4.48%

HRL

650.30

600

8.38%

5.08%

IBM

1,217.46

1100

10.68%

9.52%

ITW

95.89

100

-4.11%

0.75%

KMB

123.60

100

23.60%

0.97%

LOW

206.52

200

3.26%

1.61%

MDT

770.22

900

-14.42%

6.02%

MMM

968.39

1300

-25.51%

7.57%

PBCT

200

-100.00%

0.00%

PPG

375.67

400

-6.08%

2.94%

ROP

86.71

100

-13.29%

0.68%

SHW

372.21

400

-6.95%

2.91%

SWK

469.01

700

-33.00%

3.67%

SYY

485.30

500

-2.94%

3.79%

T

85.45

100

-14.55%

0.67%

TGT

299.96

300

-0.01%

2.35%

TROW

688.69

800

-13.91%

5.38%

VFC

752.52

1100

-31.59%

5.88%

WBA

463.17

600

-22.80%

3.62%

XOM

325.81

200

62.90%

2.55%

TOTAL

12,789.13

-1.95%

Here are the 10 dividend aristocrats chosen for the blended strategy for October. 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 September 26th, so the current dividend yield may differ slightly from the stated yield.

Best Dividend Aristocrats

Created by Author

Performance Review

The 10 chosen aristocrats for the most undervalued strategy are down 7.45% in September and trailing NOBL by 0.74%. The fastest expected growth strategy selections are down 8.41% and trailing NOBL by 1.7%. The blended strategy is down 7.25% this month and trailing NOBL by 0.54%. All 3 strategies are struggling this month. However, each buy-and-hold portfolio is performing better than the September selections. I still believe that a buy-and-hold approach is the optimal investing method for these strategies and performance should be measured over longer periods of time.

Below are the partial returns (inclusive of dividends) through September 23rd for the 10 chosen aristocrats under each strategy last month. The only selection that has a positive return this month is Albermale (ALB) +0.56%. The worst selection is Nucor (NUE) with a current loss of 20.36%.

TICKER

MOST UNDERVALUED

FASTEST GROWTH

BLENDED

ALB

0.56%

BEN

-10.20%

CINF

-5.12%

-5.12%

CLX

-1.91%

ECL

-8.89%

-8.89%

IBM

-3.18%

LOW

-3.10%

MDT

-5.98%

-5.98%

-5.98%

MMM

-7.94%

NUE

-20.36%

SHW

-8.74%

-8.74%

SWK

-9.44%

-9.44%

-9.44%

SYY

-8.88%

TGT

-4.15%

-4.15%

TROW

-9.56%

-9.56%

-9.56%

VFC

-12.47%

-12.47%

-12.47%

WBA

-4.99%

-4.99%

AVERAGE

-7.45%

-8.41%

-7.25%

NOBL

-6.71%

-6.71%

-6.71%

ALPHA

-0.74%

-1.70%

-0.54%

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 still performing much better than if we bought and sold the 10 chosen aristocrats each month. The only strategy where this isn't the case is the fastest expected growth strategy where the buy-and-hold portfolio trails the individual selections by 0.04%. A buy-and-hold approach is a much more tax friendly investing strategy.

Type

Most Undervalued

Fastest Growth

Blended

NOBL

Individual

-12.64%

-6.73%

-5.81%

-9.71%

Buy-and-Hold

-0.67%

-6.77%

-4.26%

-9.71%

O/U

11.97%

-0.04%

1.55%

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 10.68% 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.

Change concepts with red paper airplane leading among white

phototechno

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

Disclosure: I/we have a beneficial long position in the shares of LOW, MMM, O, SHW, TROW, WST 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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