The Dividend Aristocrats (BATS: NOBL) are a favorite amongst the SeekingAlpha dividend investing community due to the fund's long track record of dividend growth, strong total shareholder returns, reasonably good yields, and overall safety. They are excellent stocks and investments, and considering the recent market selloff, I thought readers and investors would be interested in knowing their relative performance. I've also included a table with some of the worst performing Dividend Aristocrats, eight of them were down more than 20% for the year, which present something of a buying opportunity for investors.
The Dividend Aristocrats are all the S&P 500 constituents that have increased their dividends for twenty-five consecutive years or more. I believe they make excellent investment choices for four simple reasons.
First is their long history of dividend growth. Although past performance is no guarantee of future results, both for shareholder returns and dividend growth, the past does tell us something very positive about these companies. A company doesn't manage to grow its dividend for decades without a solid long-term business model and strategy, strong earnings and cash-flow growth, and a shareholder-friendly management team. Circumstances might always change, but the Dividend Aristocrats are, presently, very strong investment choices.
Second, is their strong track record of shareholder returns. The Dividend Aristocrats have outperformed the broader market since inception, averaging 12.1% in CAGR total shareholder returns versus 9.8% for the S&P 500:
Dividend Aristocrats also generally perform slightly better during market downturns, due to their size, yields, and generally low-risk business models. 2018 was no exception:
Third, is their slightly higher yields:
Higher yields are almost always better for investors, even if it is only a small 0.30% difference.
Fourth, all Dividend Aristocrats are the very definition of Blue-Chip stocks. They are all large, diversified, profitable, cash-generation corporations with decades of experience, history and performance. Dividend Aristocrats should be less volatile and risky than the broader market, and they are:
No stock is completely risk-free, but the Dividend Aristocrats are about as close as you can get.
I believe that these four points make a very compelling investment thesis, and that the Dividend Aristocrats will remain excellent companies and stocks.
As most readers are probably aware, the past few months have not been kind to equity markets. 2018 was the worst year for stocks since the financial crisis, and it was the second-worst December on record. It was a quick, harsh crash, and although the Dividend Aristocrats fared relatively well, they were also down by quite a bit:
Performance for the entire year was better, but still broadly negative:
Although no one likes a market crash, lower equity prices do mean investors can buy shares cheaply, which should boost future returns. Some Aristocrats have seen very large drops in price, so investors might want to focus on these. A total of eight Dividend Aristocrats plummeted more than 20% in 2018:
Those are some very large drops, and significantly greater than the 5%-6% market/peer average. Although the broader market selloff and worsening investor sentiment were partly responsible for these stocks dropping so significantly, there are several other more specific, idiosyncratic, factors to consider.
Industrials account for half of the worst performers, almost certainly due to adverse effects from Trump's trade war. Most companies in this sector are somewhat cyclical, and with the economy entering the late stages of the cycle a drop seems understandable.
Leggett & Platt (LEG), a manufacturer of components for consumer and industrial products, mostly bedding, likely underperformed for the same reasons.
AT&T's (T) woes are probably well-known for most readers. Excessive debt and issues with the company's proposed merger with WarnerMedia have caused T's stock price to plummet in the recent past, its future prospects are looking rosier.
Franklin Resources (BEN), an investment firm, has struggled to compete with low-fee index funds throughout the years, although I'm not sure if this issue explains the company's performance for 2018 specifically.
Cardinal Health (CAH), a drug distributor, has had issues with declining generic drug prices. The Trump Administration is definitely pushing this subject, and was leaning on manufacturers to freeze prices a few months ago.
I've also included a table with information about all Dividend Aristocrats below. Of special note, seventeen stocks suffered double-digit losses, so there are quite a few investment opportunities out there:
Dividend Aristocrats offer investors reasonable yields, great dividend growth, and a strong track record of shareholder returns Investors looking for blue-chip dividend stocks should consider some of the names in the above lists, the Aristocrats are on sale, and it might not last.
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