Written by Philip Van Doorn
Companies that shine as Dividend Aristocrats include companies like Target, Lowe’s, and Linde.
Dividend stocks may not be dominating the attention of income-seeking investors at a time when investors expect interest rates to remain high as the Federal Reserve seeks to rein in inflation. On short-term US Treasury bills he can earn a yield of more than 5%. You can also lock in a bank CD with his 5% yield for 1 year.
However, short-term interest rates will not remain high forever. And if your investment goal is to build a nest egg over the long term and ultimately generate income in your portfolio, it’s never too early to start thinking about how to make that transition. Rather than making major changes to your portfolio when you need income, you may be better off using a portion of your portfolio to increase your income over time.
Below is a screen showing companies that have consistently increased their dividends, but also companies that have increased their dividends by more than 10% annually over the past five years.
Below is an example of a stock screen. Stock prices are adjusted by FactSet when stock splits occur.
If you had purchased Target Corp. TGT stock at its closing price on April 30, 2019, you would have paid $77.42 per share. At the time, the company was paying him a quarterly dividend of 64 cents per share. This resulted in an annual dividend rate of $2.56, or a dividend yield of 3.31%. After five years, Target’s quarterly dividend has increased to $1.10, making the annual dividend rate $4.40. The stock’s closing price on Tuesday was $160.98. Therefore, the current dividend yield is 2.73%, but if he still owns the target stock he purchased in 2019, his five-year-old stock would have a dividend yield of 5.68% based on what he paid. Meanwhile, the stock price rose 108%. And if the dividends had been reinvested, the total return would have been 133%.
The target example is a neat one with long-term growth and increased income, but with the caveat that dividends are taxable unless they are in a tax-deferred retirement account.
S&P Dividend Aristocrat Screening
Target turns out to be one of 67 stocks included in the S&P 500 Dividend Aristocrats Index XX:SP50DIV. These are companies in the S&P 500 SPX that have raised their common stock dividends for at least 25 consecutive years. That’s the only requirement. It doesn’t matter how high a stock’s current dividend yield is. The index is equally weighted, rebalanced quarterly, and reconstituted annually in January. This is tracked by the ProShares S&P 500 Dividend Aristocrats ETF NOBL.
We introduced two other groups of Dividend Aristocrats to give you a wider screen.
The S&P 400 Dividend Aristocrats Index includes 50 stocks from the S&P MidCap 400 Index MID of companies that have increased their dividends for at least 15 consecutive years. This is tracked by the ProShares S&P MidCap 400 Dividend Aristocrats ETF REGL. The S&P High Yield Dividend Aristocrats Index XX:SPHYDA is comprised of 136 stocks from the S&P Composite 1500 Index XX:SP1500 that have increased their dividends for at least 20 consecutive years. This is tracked by the SPDR S&P Dividend ETF SDY. The S&P Composite 1500 is a combination of the S&P 500, S&P MidCap 400, and S&P 600 Small Cap Index SML. Therefore, the S&P High Yield Dividend Aristocrats Index includes all stocks included in the S&P 500 Dividend Aristocrats Index. However, stocks included in the S&P 400 Dividend Aristocrats Index are excluded. The name High Yield Dividend Aristocrats Index is confusing because the yield is not necessarily high, ranging from 0.22% to 10.18%, according to data provided by FactSet.
For more information about these indexes, see S&P Dow Jones Indices Methodology.
Among the S&P High Yield Aristocrats, Leggett & Platt Inc. (LEG) had a dividend yield of 10.18% as of Tuesday. But FactSet data doesn’t yet reflect the dividend cut the company announced Tuesday. Leggett & Platt said in its earnings press release that it would cut its dividend as part of its restructuring.
All together, with duplicates removed, the screen started with 152 Dividend Aristocrats that are included in at least one of the Dividend Aristocrats indexes.
screen
Our objective was to start with the 152 Dividend Aristocrats and narrow the list to those with the highest compound annual growth rate in dividend payments over the past five years. To avoid possible distortions from very low dividends at the beginning of the period, we narrowed the list to 139 companies that had a dividend yield of at least 1.00% five years ago.
Below are the remaining 24 companies whose annual dividends achieved a five-year compound annual growth rate (CAGR) of greater than 10%. Ranked by dividend CAGR.
Company Ticker Five-year dividend CAGR Dividend yield on shares purchased five years ago Dividend yield five years ago Current dividend yield Five-year price change Five-year total return Microchip Technology Inc. MCHP 19.8% 3.60% 1.46% 1.96% 84% 99% Williams-Sonoma Inc. WSM 18.7% 7.91% 3.36% 1.58% 402% 462% Lowe's Cos. Inc. LOW 18.0% 3.89% 1.70% 1.93% 102% 121% Carlisle Cos. Inc. CSL 16.3% 2.40% 1.13% 0.88% 175% 192% Westlake Corp. WLK 14.9% 2.87% 1.43% 1.36% 111% 127% Best Buy Co. Inc. BBY 13.5% 5.05% 2.69% 5.11% -1% 18% Aflac Inc. AFL 13.1% 3.97% 2.14% 2.39% 66% 88% Fastenal Company FAST 12.6% 4.42% 2.44% 2.30% 93% 120% Badger Meter Inc. BMI 12.5% 1.95% 1.08% 0.59% 230% 245% American Financial Group Inc. AFG 12.2% 2.74% 1.55% 2.22% 23% 105% Automatic Data Processing Inc. ADP 12.1% 3.41% 1.92% 2.32% 47% 64% Silgan Holdings Inc. SLGN 11.6% 2.54% 1.47% 1.63% 56% 68% Franklin Electric Co. Inc. FELE 11.5% 2.05% 1.19% 1.04% 97% 107% Target Corp. TGT 11.4% 5.68% 3.31% 2.73% 108% 133% Abbott Laboratories ABT 11.4% 2.77% 1.61% 2.08% 33% 45% Analog Devices Inc. ADI 11.2% 3.17% 1.86% 1.83% 73% 90% Bank OZK OZK 11.1% 4.78% 2.82% 3.49% 37% 63% L3Harris Technologies Inc. LHX 11.1% 2.75% 1.63% 2.17% 27% 40% Texas Instruments Inc. TXN 11.0% 4.41% 2.61% 2.95% 50% 72% Linde PLC LIN 11.0% 3.08% 1.83% 1.26% 145% 164% Nike Inc. Class B NKE 11.0% 1.69% 1.00% 1.60% 5% 11% NextEra Energy Inc. NEE 10.5% 4.24% 2.57% 3.08% 38% 55%
(Read more) Dow Jones Newswires
05/04/24 0721ET
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