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The S&P Dividend Aristocrats

In November 2005, S&P annoaunced they were making a "Dividend Aristocrats Index" made up of the 50 highest yielding dividend stocks in the S&P 1500 that have had annual increase in their dividends for at least the past 25 years. As Jim has stated on his show, dividends are the "gift that keep on giving" and with these companies its probably more true than most. Further, according to Businessweek, they also have identified the 25 they think are the best of the 50. Here's the full list of the 25 top “dividend aristocrats” in the S&P 500. .

While I think every company on the list is interesting, its worth taking a look to see who the other shareholders are to see if there is any consensus on what the top picks are even among those 25.

For instance, WMT was basically flat this past year, going from 46 to a tad over 47. The company currently yields 1.4% and trades for just 9 times cash flows. Despite its massive size it still has a 21% return on equity and they enjoyed double digit revenue growth of 12% this past year. Additionally, this past December, during the holiday season, they exhibited 1.6% year over year growth compared with the 1% they had previously announced they would have. Investors who have been accumulating WMT over the past year include Warren Buffett and Joel Greenblatt, the author of "the Little Book that Beats the Market". Another fund in WMT is Clarium Capital, run by Peter Thiel, who thinks the US is heading for massive troubles. Interesting that his hedge is to own WMT, which probably is a decent recession buffer.

Another aristocrat that I think is interesting for 2007 is JNJ. They also barely moved over the past year:

Going from just under 65 to just over 65. They have $14bb cash in the bank and only $2bb in debt, have an amazing return on equity of 30%, and trade for 11 times cash flows.

Intel Capital Corp, which allocates Intel's spare billions, owns JNJ, as does Islamic-compliant fund, Amana Income fund, and Warren Buffett, who tends to own a lot of these dividend aristocrats. Heres JNJ’s stockpickr page.

As David Blitzer of S&P has said, “Since 1926, dividends have contributed nearly a third of the market’s total equity returns."

I'm sure many of these investors feel that if you can get that third and do it by buying companies that are both cheap (as a multiple of cash flows) and growing then its highly likely you will outperform the market.

Here's the full list of S&P Dividend Aristocrats and the latest funds that own them.