How Dividend Aristocrats Have Done Over The Past 5 Years?



When you are about to invest for the first time in dividend stocks, there are 2 things you must do:


#1 Download my free dividend investing eBook

#2 Look at the Dividend Aristocrats lists to build your “stocks on the radar list”


Mind you, besides Dividend Aristocrats, you can also get a copy of my free eBook on the Best Dividend Stocks 2012!


While my dividend eBooks are the perfect guides for someone who wants to start investing, checking the aristocrat’s lists may…. Or may be not be a good idea. I mean; have you checked how these stocks have performed over the past 5 years?


We usually refer to Dividend Aristocrats as relatively safe stocks that continuously increase their dividend for at least 25 consecutive years. By starting with this premise (sustainable dividend increase), you will definitely pick stocks that:

–          Are among the leaders in their industry

–          Have a very solid and stable core business

–          Have proven they can go through important recessions

–          Are fairly conservative and protect their cash flow and assets

–          Consider the investors and want to pay them back

–          Have been growing for the past 25 years


Considering all these elements, you can say that picking Dividend Aristocrats to build your portfolio should be a no brainer, right? I think so too. But there is nothing like looking at the numbers to see how things go in “the real word”. So I’m taking this year’s aristocrats list and going back 5 years ago to see how these stocks did through the 2008 maelstrom and 2009-2011 bull market.


I know that the list changes every year and 5 years ago, this wasn’t the same exact stocks. But the core of the portfolio will remain the same and it will also give you an idea of how this portfolio may react in the 5 years to come.


I could have taken an ETF that follows the dividend aristocrats but I wanted to highlight stocks which performed well or tanked during the last 5 years.


The current Dividend Aristocrats list show 51 stocks for an average dividend yield of 2.72%:


Company NameTickerCurrent Dividend YieldP/E5 Year Total ReturnDVD_PAYOUT_RATIO
AT&T IncT5,43%46,989,88%259,74
Cintas CorpCTAS5,52%18,1112,43%29,07
HCP IncHCP4,84%31,7859,04%149,25
Leggett & PlattLEG4,73%22,7817,61%101,24
Cincinnati Financial CorpCINF4,48%35,182,03%157,23
Pitney Bowes IncPBI4,72%9,8-52,25%21,27
Consolidated Edison IncED4,12%16,6349,25%66,89
Sysco CorpSYY3,73%14,86-1,69%52,47
Clorox CoCLX3,43%17,3116,34%107,17
Johnson & JohnsonJNJ3,52%17,818,06%63,65
Nucor CorpNUE3,75%16,46-31,01%59,17
Abbott LaboratoriesABT3,30%19,1524,75%63,69
Genuine Parts CoGPC3,10%17,3860,16%49,86
Procter & GamblePG3,11%19,6719,15%47,77
PepsiCo IncPEP3,07%16,4712,64%49,55
Emerson Electric CoEMR3,08%16,619,83%42,34
Bemis Co IncBMS3,07%18,919,23%56,01
Automatic Data ProcessingADP2,88%20,5633,65%56
AFLAC IncAFL2,93%8,95-7,34%28,11
McDonald\'s CorpMCD2,92%17,9124,76%47,42
Coca-Cola CoKO2,69%20,1167,63%50,09
3M CoMMM2,64%14,7420,35%36,31
Walgreen CoWAG2,49%12,08-18,60%25,24
Illinois Tool Works IncITW2,50%15,0121,24%33,97
Air Products & Chemicals IncAPD2,69%16,2125,17%38,99
Medtronic IncMDT2,59%11,99-21,33%31,3
Wal-Mart StoresWMT2,51%12,9835,67%32,02
Colgate-Palmolive CoCL2,33%20,1364,67%49,49
PPG Industries IncPPG2,17%18,8766,85%32,42
Becton, Dickinson & CoBDX2,33%14,155,39%28,59
McCormick & CoMKC2,23%20,0869,61%39,55
Chubb CorpCB2,12%12,554,67%26,52
Exxon Mobil CorpXOM2,18%10,2217,18%22,71
Archer-Daniels-Midland CoADM2,19%13,79-2,39%19,4
T Rowe Price Group IncTROW2,15%21,6632,71%41,11
Stanley Black & DeckerSWK2,22%19,1938,39%39,24
McGraw-Hill Cos IncMHP2,05%17,49-17,98%35,45
Target CorpTGT2,09%13,412,13%26,53
Hormel Foods CorpHRL2,08%17,2665,82%28,69
Dover CorpDOV2,02%13,5738,21%25,92
VF CorpVFC1,87%19,32100,57%32,12
Lowe\'s Cos IncLOW1,78%22,0611,53%36,54
Brown-Forman Corp BBF/B1,62%21,8490,53%56,99
Sherwin-Williams CoSHW1,30%27,03107,50%34,74
Family Dollar Stores IncFDO1,25%19,8127,04%21,71
Ecolab IncECL1,27%32,6658,46%37,14
Grainger, W.W. IncGWW1,26%22,13163,42%26,67
Sigma-Aldrich CorpSIAL1,12%19,3168,03%18,82
Franklin Resources IncBEN0,86%14,61-3,96%11,52
Bard, C.R. IncBCR0,77%25,9625,53%19,36

After looking at the Dividend Aristocrats performance over the past 5 years, I’ve come to a few conclusions.


#1 Dividend Aristocrats Don’t Equal Safe Investments


There are 9 stocks out of 51 that show a negative return over the past 5 years meaning that these stocks weren’t strong enough to go through 2008 to recover what they lost 3 years ago. This “top 9” show an average return of -17.39%! 9 out of 51 is 17.64%. This means that if you had picked 5 stocks among the Dividend Aristocrats list, you would probably have 1 of those “top 9” stocks that show a negative return.


Accordingly, if you think that investing in a dividend aristocrat is safe way to build a solid safe dividend portfolio, you might be disappointed if you haven’t used other fundamentals to make your selection.


#2 Dividend Aristocrats Don’t Mean High Yield Dividend Stocks


When I select a stock to be part of my “watch list” or add it to my dividend holdings, I usually target stocks paying higher than 3% in dividend payout. If I look at the Dividend Aristocrats list, only 18 out of 51 (35.29%) make the cut. This leaves me little room for a great selection. Having said that, I think it’s normal to have aristocrats not being part of the highest yield dividend stock. In order to be able to increase the dividend payout for 25 consecutive years, you must stay with a very conservative payout approach.


While high dividend yield stocks are not necessarily part of the aristocrats, I’m actually willing to buy smaller dividend yield stocks (such as Coke) since I know that the company will rapidly increase its dividend and cross the 3% bar.


#3 Dividend Aristocrats Don’t Always Equal Low Payout Ratio


I was quite surprised to see that my assumptions that dividend aristocrats had low dividend payout ratios was wrong. 14 aristocrats out of 51 (24.45%) are showing a dividend payout ratio higher than 50% and 5 are showing payout over 100%!


Among the best “dividend payout ratio Vs Dividend yield” aristocrats, you can find:

PEP (49.55% payout ratio for a 3.07% yield)

PG (47.77% for a 3.11% yield)

MCD (47.42% for a 2.92% yield)

EMR (42.34% for a 3.08% yield)

MMM (36.31% for a 2.64% yield)

WMT (32.02% for a 2.51% yield)

CTAS (29.07% for a 5.52% yield)

AFL (28.11% for a 2.93% yield)


#4 Dividend Aristocrats Don’t Equal Small Growth


For those who thought that dividend aristocrats were part of the “boring stocks”, I’d suggest you take a second look at the table. There are 16 stocks showing a 5 year return over 50% (including dividend yield) for an average of 84.30%. Considering that the period is from 2007 to 2012, I’d say that it’s a pretty good batting average after hitting the worse market crash in decades.


Mind you, this “elite aristocrats” are also showing a small dividend average (2.14%) along with a low dividend payout ratio (43.84%). I will be honest, I would have not picked a lot of stocks from this list 5 years ago knowing that I look mostly for stocks paying over 3% dividend yield (maybe I should review my model, right?).


The global average return (always including dividend) of the Dividend Aristocrats portfolio is 34.21% (total return) for the past 5 years. Considering that the stock market has been pretty bad during this period, I would think that it shows a pretty good average!


My Favorite Dividend Aristocrats


Aside from MCD, JNJ and Coke, I would add a few more stocks to my “favorite among the favorites”. For one, Procter & Gamble (PG) seems to be a must in any dividend portfolio. This is a strong, well diversified stock with a low payout ratio and a good dividend yield. Another one that fits in category is definitely Abbott Laboratories ABT. The payout ratio is slightly higher (63.69%) and it is still sustainable. Finally, AFL looks like an underdog right now (negative 5 years return but the lowest P/E ratio among all aristocrats). I think it might be a good pick as well.


Readers, what are your favorite dividend aristocrats stocks? Do you use this list as your first place to pick up a new stock for your portfolio?


Canadians, bear with me till next week, we’ll review the Canadian Aristocrats J

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  1. says

    The aristocrats list is definately a good place to start when putting together your watch list of dividend growth stocks. But as you show not all are going to be wonderful performers. You must still do proper research and analysis to hopefully figure out what the best companies for you to invest in will be. Even then we will all have losers every once in awhile!

  2. RICHARD says

    Hi Mike;
    As much as US stocks are a “must look at” item, I think you should have the Canadian aristocrats in there as well.
    A number of factors to consider are if held inside or ouside of RRSP’s they can attract witholding taxes, exchange rates (now may be a good time to consider selling if you bought when the Can $ was higher) and volatilty.
    Always appreciate your perception of the markets.

  3. Mike says

    Hey Richard,

    I didn’t want to write a 2,000 words article. The Canadian Aristocrats are coming next Monday as mentioned at the end of this post ;-). They actually show better numbers than the US aristocrats in term of overal returns!

    Looking forward to get your comments on Monday’s article!


    I hope that MCD will continue to drop, it can only bounce back later on!



  4. Steve says

    It would be interesting to see what the total combined return, (capital plus dividends) would have been over the five years. Especially with dividend reinvestment.

    I think the SDY is a great low cost way of investing while keeping the top performers and dropping under performers.

    Unit cost went from 65.15 in May of 07. Hit a low of 26.78 in March 09, and now sits at 54.47. It yields a touch over 3%. Beta is .78 There is a very tight relationship between the SP500 and the SDY too.

    A number of US financials would have been in the SDY before the implosion. Not sure but even Fannie and Freddy might have made the cut in 05.

    Here is a link for those who want to dig a bit more.–p-us—-

    In hindsight a stock picker could have done better, however in the real world many did far worse. I like it as one element in my portfolio.

  5. Ed says

    Thanks for putting the list together.

    I think that if you are a dividend investor and are living off the dividends the actual return isn’t as important as the company maintaining their dividend and growing that dividend.
    I would even add that the yearly growing isn’t as important as the fundamentals of the company (i.e. no dividend cuts). Heck, some companies raise dividends by 0.001 cent just to say that they raised dividends, one drop doesn’t raise the level of the moat very much.

    For example, if I had 40 companies that delivered $80k in annual income (for arguments sake, say each company delivered $2k each). As long as there is no dividend cut, then it wouldn’t matter if the company stayed flat or lost a little in stock price over 5 years.

    If 5 of the 40 companies didn’t raise dividends for a year or two that wouldn’t matter either because the other 35 would have raised them, making for more income or if it evened out, I could ‘manage’ to live on the same $80k for a few years (like not getting a raise when you were working do to a slow economy).

    Worst case, a dividend cut would would force me to remove that company and re invest in another. Again, unless everything went to Hell in a handbasket, not EVERY one of the 40 companies would happen at the same time and the ones that did cut or tank wouldn’t go to $0 over night.

    Absolute worst case, if 5 of the 40 companies dropped out of sight, I think I would be able to tighten the budget and live on $10k less or use the emergency fund.

    From reading early it seems that the majority of retirees cut back on their spending when the 2008-2010 bear market hit instead of conventional wisdom of taking out the same set amount each year (i.e. 4% plus inflation) no matter what the market is doing. I can do that too.


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