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4 Dividend Aristocrats to Consider - 20804 views
In a continued effort to expand the focus of my site's screens and hypothetical portfolios, this article is a fifth follow-up to an article written in early April focusing on the S&P 500 Dividend Aristocrats.
The S&P 500 Dividend Aristocrats index measures the performance of large-cap, blue-chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years. The current list has 43 constituents.
If an investor wanted to replicate the list, the best option would probably be the SPDR S&P Dividend ETF (SDY), which is a variation of the Aristocrats, seeking to replicate the High-Yield Dividend Aristocrats Index.
An alternative is to start with the Aristocrats list and then reduce the list of candidates through screens or fundamental analysis. I screened for Aristocrats that had a sustainable payout ratio, a high dividend yield, a reasonable debt/equity ratio and moderately positive return on assets and equity.
Using Finviz, which has some of the better screeners and charts available, I screened the Aristocrats list for:
• Payout ratio less than 80%,
• Dividend yield greater than 3%
• Return on assets greater than 10%
• Return on equity greater than 10%
• Total debt/equity less than 1
Each individual criterion taken by itself is not overly stringent; however, when taken in aggregate, they yield just four results this month. Two stocks on last month's list no longer qualify: McGraw-Hill (MHP) and Coca-Cola (KO). The yields for both have dipped under 3% due to price appreciation the last month, so they could quickly requalify.
The four remaining Aristocrats are Abbott Laboratories (ABT), Johnson & Johnson (JNJ), Eli Lilly (LLY) and McDonald's (MCD). (View the table here). They are worthy of further consideration, especially if one is seeking yield or seeking to reduce exposure to non-dividend-paying companies. Readers have noted that Eli Lilly is on watch for dropping off the Aristocrats list. It has not yet raised its 49 cent quarterly dividend in 2010, which would disqualify it from consideration in 2011.
Another thought is to hedge the list with a short position in the S&P 500 is below its 200-day moving average. One such vehicle for doing so is ProShares Short S&P 500 (SH). Obviously, hedging could reduce returns but also reduce drawdowns and volatility. Or an investor could purchase only stocks that are above its 200-day moving average.
To see these stocks in action, visit the 4 Dividend Aristocrats to Consider portfolio on Stockpickr.
At the time of publication, author had no positions in stocks mentioned.
Scott's Investments, focuses on consolidating and tracking free online investment resources for the public with an emphasis on ETFs, portfolio/trading strategies and macroeconomics.