The Dividend Guy Blog

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 Name	Ticker	Current Dividend Yield	P/E	5 Year Total Return	DVD_PAYOUT_RATIO
AT&T Inc	T	5,43%	46,98	9,88%	259,74
Cintas Corp	CTAS	5,52%	18,11	12,43%	29,07
HCP Inc	HCP	4,84%	31,78	59,04%	149,25
Leggett & Platt	LEG	4,73%	22,78	17,61%	101,24
Cincinnati Financial Corp	CINF	4,48%	35,18	2,03%	157,23
Pitney Bowes Inc	PBI	4,72%	9,8	-52,25%	21,27
Consolidated Edison Inc	ED	4,12%	16,63	49,25%	66,89
Kimberly-Clark	KMB	3,54%	18,34	34,08%	69,58
Sysco Corp	SYY	3,73%	14,86	-1,69%	52,47
Clorox Co	CLX	3,43%	17,31	16,34%	107,17
Johnson & Johnson	JNJ	3,52%	17,8	18,06%	63,65
Nucor Corp	NUE	3,75%	16,46	-31,01%	59,17
Abbott Laboratories	ABT	3,30%	19,15	24,75%	63,69
Genuine Parts Co	GPC	3,10%	17,38	60,16%	49,86
Procter & Gamble	PG	3,11%	19,67	19,15%	47,77
PepsiCo Inc	PEP	3,07%	16,47	12,64%	49,55
Emerson Electric Co	EMR	3,08%	16,6	19,83%	42,34
Bemis Co Inc	BMS	3,07%	18,91	9,23%	56,01
Automatic Data Processing	ADP	2,88%	20,56	33,65%	56
AFLAC Inc	AFL	2,93%	8,95	-7,34%	28,11
McDonald's Corp	MCD	2,92%	17,9	124,76%	47,42
Coca-Cola Co	KO	2,69%	20,11	67,63%	50,09
3M Co	MMM	2,64%	14,74	20,35%	36,31
Walgreen Co	WAG	2,49%	12,08	-18,60%	25,24
Illinois Tool Works Inc	ITW	2,50%	15,01	21,24%	33,97
Air Products & Chemicals Inc	APD	2,69%	16,21	25,17%	38,99
Medtronic Inc	MDT	2,59%	11,99	-21,33%	31,3
Wal-Mart Stores	WMT	2,51%	12,98	35,67%	32,02
Colgate-Palmolive Co	CL	2,33%	20,13	64,67%	49,49
PPG Industries Inc	PPG	2,17%	18,87	66,85%	32,42
Becton, Dickinson & Co	BDX	2,33%	14,15	5,39%	28,59
McCormick & Co	MKC	2,23%	20,08	69,61%	39,55
Chubb Corp	CB	2,12%	12,5	54,67%	26,52
Exxon Mobil Corp	XOM	2,18%	10,22	17,18%	22,71
Archer-Daniels-Midland Co	ADM	2,19%	13,79	-2,39%	19,4
T Rowe Price Group Inc	TROW	2,15%	21,66	32,71%	41,11
Stanley Black & Decker	SWK	2,22%	19,19	38,39%	39,24
McGraw-Hill Cos Inc	MHP	2,05%	17,49	-17,98%	35,45
Target Corp	TGT	2,09%	13,41	2,13%	26,53
Hormel Foods Corp	HRL	2,08%	17,26	65,82%	28,69
Dover Corp	DOV	2,02%	13,57	38,21%	25,92
VF Corp	VFC	1,87%	19,32	100,57%	32,12
Lowe's Cos Inc	LOW	1,78%	22,06	11,53%	36,54
Brown-Forman Corp B	BF/B	1,62%	21,84	90,53%	56,99
Sherwin-Williams Co	SHW	1,30%	27,03	107,50%	34,74
Family Dollar Stores Inc	FDO	1,25%	19,8	127,04%	21,71
Ecolab Inc	ECL	1,27%	32,66	58,46%	37,14
Grainger, W.W. Inc	GWW	1,26%	22,13	163,42%	26,67
Sigma-Aldrich Corp	SIAL	1,12%	19,31	68,03%	18,82
Franklin Resources Inc	BEN	0,86%	14,61	-3,96%	11,52
Bard, C.R. Inc	BCR	0,77%	25,96	25,53%	19,36
		2,72%

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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The Best Source To Get Dividend Stock Picks

Mike — Mon, 21 May 2012 09:00:20 +0000

If you follow my blog and register for my newsletter it’s probably because you are like me: you like safe and sound dividend paying stocks! I receive many emails from my readers asking me to publish more stock analyses in order to help them build their portfolios. The problem is that I’m like you: We both lack the time to follow every stock that interests me.

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In its recent issue, Pat’s is recommending several solid dividend stocks such as:

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Are You Bullish or Bearish – Does it Really Matter?

Mike — Wed, 16 May 2012 09:00:08 +0000

Some companies are doing great right now (Coke, Disney, Apple, Toyota, Magna International, etc) while others have disappointed investors in this recent earning season. The Greek saga is probably the best show you can see on TV right now (unless you are watching the Quebec university boycott saga!). Obama wants to kill dividends, the Fed keeps promoting a bullish feeling on Wall Street by keeping interest rates low until 2014 (will they ever have the guts to raise it one day?) and the Canadian Housing Market worries more than one economist. Fortunately, we do have the Facebook IPO coming in May, this could excite even the most bearish among us. This is definitely a great time of uncertainty!

Are You Bullish?

If you are like me, you probably look at the companies’ fundamentals and see a lot of profits, liquidity even more R&D and mergers & acquisitions on the horizon. You probably see dividend increases while keeping dividend payouts low. With bonds and CDs offering less than what you give your kids for allowance, many investors are turning towards dividend stocks and help maintain their assets. In the best of worlds, we will all realize that while Governments can’t handle their budgets better than a man in a car showroom or a woman during a Guess sale, companies have cut their expenses, become more profitable and are ready to explode. I’m not inventing this, it has been the story of the stock market for the past 100 years;

First comes growth,

Then exaggeration,

Then the feeling of infinite richness,

Then the doubt,

Then the panic,

Then it tumbles,

Then companies go back to the drawing board and cut everywhere,

Then they become more effective and profitable,

Then comes growth,

Then comes exaggeration… you get the picture, right?

So, we are right now in the phase of “then they become more effective and profitable” as growth is not yet confirmed. The “great” market we had since 2009 is more due to the fact that we were recovering from a 35% drop in 2008. We didn’t gain much so far if we compare to 2007. As of May 8^Th 2012 (compared to May 11, 2007), here are the performances of the major indexes:

S&P 500: -9.42%

Nasdaq: +14.55% (mind you, most of the gain has be made since Jan 2012)

Dow Jones: -2.96%

S&P TSX: -15%

So, over the past 5 years, there wasn’t much money to be made if you simply followed the indexes. This is why I think that the market will eventually explode due to solid profits and not just simply recover what was lost.

Are You Bearish?

We discussed this a while ago on the blog in the 5 reasons to be bearish. The interesting point is that all the reasons stated in that article (back in March 2011!) are still around this year (besides commodities are dropping recently on fears about Europe). The truth is that you will always find very good and solid reasons to panic and not invest in the market.

For example, imagine if the Bank of Canada was to increase its rate and make the housing market tumble. Banks would suffer losses and restrict access to credit. Then, the economy would automatically slowdown and we wouldn’t count on China’s booming economy to buy all our resources. The Canadian stock market would be in a slump for at least another year… or more!

You can also imagine that the US Government can’t even keep up with its current budget nor raise taxes. It would automatically slowdown the economy and the stock market would be affected by such bad news. We already wonder if the economy is strong enough to support internal growth at the moment…

Bullish – Bearish… Does it Really Matter?

We can debate pretty much all day on this blog to know if we should be bullish or bearish but if you are a serious investor, does it really matter?

I’m asking because I never believe in staying on the sidelines keeping my money in money markets for years hoping to jump in at the right time. Are you able to do this? How can you know when is the perfect time to jump in and out? Where did you buy your Crystal ball?

I’m not quite sure how people do it and how they can be successful with this technique. This is why I don’t really mind if we are in a bull market or a bearish one. For me, the important part is to buy solid companies that will pay me to wait with their dividends. If I’m getting paid 3-4% in dividends and the company is solid, I’ll eventually make money with the stock and rack-up the dividends in the meantime. So I invest when I can and don’t mind if the markets go up or down .

Right now, do you think it’s the time to jump in or out? Can you answer this question?

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The Dividend Guy Blog

Weekly Dividend Links

How Dividend Aristocrats Have Done Over The Past 5 Years?

#1 Dividend Aristocrats Don’t Equal Safe Investments

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

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

#4 Dividend Aristocrats Don’t Equal Small Growth

My Favorite Dividend Aristocrats

The Best Source To Get Dividend Stock Picks

Newsletter Insights

Special Deal For The Dividend Guy Blog’s Readers

Wall Street Stock Forecaster for US Stocks!

100% Money Back Guarantee

Top Dividend Links

Are You Bullish or Bearish – Does it Really Matter?

Are You Bullish?

Are You Bearish?

Bullish – Bearish… Does it Really Matter?