Category Archives: Dividend Aristocrat

Investing in Dividend Aristocrats (Part 1) – Seeking Alpha

The S&P 500 Dividend Aristocrats Index is a very prestigious and popular index among dividend investors. The Index measures the performance of blue-chip S&P 500 companies that have increased their dividends for at least 25 consecutive years. The large-cap companies in this index must also have an average daily trading volume of at least $5 Million for the six months prior to the index reference date.
In a previous article, we have already indicated that the Dividend Aristocrats Index beat the S&P 500 index over the past 1, 3, 5 and 7 years. Since the beginning of 2011, the companies in the S&P 500 Dividend Aristocrats Index returned 9.44 % vs. 7.60% gain for the SPY.Average dividend pay-out ratio of all 42 stocks in the S&P 500 Dividend Aristocrats Index is 42%, while the average dividend yield of all 42 stocks is 2.58%. (The market data are sourced from Standard & Poor’s and Fidelity.)
As we are concerned about the Fed’s loose monetary policy, we believe investors should protect themselves against inflation. We think the Dividend Aristocrats that are able to increase dividends are attractive options for defensive investors that demand better risk-return combination and some inflation protection.
Below, we compiled a list of 21 stocks from the S&P 500 Dividend Aristocrats Index and showed how they have performed this year:
Dividend Yield
Dividend Payout Ratio
YTD Return
CenturyLink Inc
7.12%
86%
-8.78%
Cincinnati Financial Corp
5.44%
95%
-4.79%
Consolidated Edison Inc
4.42%
69%
11.58%
Abbott Laboratories
3.44%
44%
13.87%
Clorox Co
3.29%
53%
9.83%
Bemis Co Inc
2.74%
46%
6.43%
Coca-Cola Co
2.65%
52%
6.05%
Automatic Data Processing
2.58%
60%
20.55%
AFLAC Inc
2.49%
21%
-15.08%
Chubb Corp
2.44%
26%
7.08%
Emerson Electric Co
2.36%
51%
2.94%
3M Co
2.19%
37%
14.88%
Air Products & Chemicals Inc
2.19%
43%
8.89%
Exxon Mobil Corp
2.17%
29%
13.87%
Archer-Daniels-Midland Co
2.04%
20%
2.18%
Becton, Dickinson & Co
1.78%
33%
7.24%
Brown-Forman Corp B
1.65%
32%
10.42%
Dover Corp
1.58%
32%
20.52%
Cintas Corp
1.44%
33%
22.03%
Ecolab Inc
1.20%
29%
13.10%
Bard, C.R. Inc
0.64%
13%
23.94%
AVERAGE
2.66%
43%
8.89%
SPY
7.60%
Since the beginning of this year, the average YTD return of these 21 stocks was 8.89% vs. 7.60% for the SPY. All these stocks except two – CTL and CINF – have dividend payout ratio of less than 75%. The average dividend pay-out ratio of those stocks is 43% and the average dividend yield is 2.66%.
Here are the 10 highest dividend yielding stocks in our list:
CenturyLink Inc. (CTL): CenturyLink Inc. is a leading integrated communications company providing Internet services in the United States. CTL recently traded at $40.71 and has a 7.12% dividend yield. CTL lost -8.78% since the beginning of this year. The stock has a market cap of $24.45B and a P/E ratio of 13.66. Steven Cohen had more than $200 Million in CTL at the end of March 2011. (See Steven Cohen’s other top holdings)
Cincinnati Financial Corp. (CINF): Cincinati Financial Corp. is a U.S. insurance company specialized in property casualty insurance. CINF has a 5.44% dividend yield, but lost -4.79% since the beginning of this year. The stock has a market cap of $4.74B and a P/E ratio of 12.81. Jean-Marie Eveillard’s First Eagle holds the largest CINF position among the 300+ funds we are tracking.
Consolidated Edison Inc. (ED): Consolidated Edison Inc. is an energy company providing electric, gas and steam utility services in the United States. ED has a 4.42% dividend yield and returned 11.58% since the beginning of this year. The stock has a market cap of $15.81B and a P/E ratio of 14.49. Michael Messner and Jim Simons are among ED investors.
Abbott Laboratories (ABT): Abbott Laboratories is a multinational pharmaceutical company. ABT has a 3.44% dividend yield and returned 13.87% since the beginning of this year. The stock has a market cap of $83.22B and a P/E ratio of 18.66. Ken Fisher had more than $400 Million in ABT at the end of March 2011. (See Ken Fisher’s Favourite stocks here)
Clorox Co (CLX): Clorox Co. is a global company providing chemical and food products worldwide. CLX has a 3.29% dividend yield and returned 9.83% since the beginning of this year. The stock has a market cap of $9.11B and a P/E ratio of 33.67. Carl Icahn’s Icahn Capital had $700 Million in CLX at the end of March (Check out Carl Icahn’s other top stocks).
Bemis Co Inc. (BMS): Bemis Co Inc. is a U.S. company supplying flexible and pressure sensitive packaging products in the United States. BMS has a 2.74% dividend yield and returned 6.43% since the beginning of this year. The stock has a market cap of $3.61B and a P/E ratio of 16.87. Chuck Royce and Jim Simons are among BMS investors.
Coco-Cola Co. (KO): Coca Cola Co. is a large U.S. company providing non-alcoholic beverages worldwide. KO has a 2.65% dividend yield and returned 6.05% since the beginning of this year. The stock has a market cap of $157.39B and a P/E ratio of 13.27. Warren Buffett has a massive $13 Billion holding in KO.
Automatic Data Processing (ADP): Automatic Data Processing is one of the leading providers of integrated computing services in the world. ADP has a 2.58% dividend yield and returned 20.55% since the beginning of this year. The stock has a market cap of $27.49B and a P/E ratio of 22.46. Jean-Marie Eveillard’s First Eagle holds more than $150 Million of ADP.
AFLAC Inc (AFL): AFLAC Inc. is a U.S. company providing supplemental insurance services. AFL has a 2.49% dividend yield but lost -15.08% since the beginning of this year. The stock has a market cap of $22.17B and a P/E ratio of 10.65. Bill Miller had nearly $200 Million in AFL at the end of March 2011.
Chubb Corp. (CB): Chubb Corp. is one of the largest insurance companies in the United States. CB has a 2.44% dividend yield and returned 7.08% since the beginning of this year. The stock has a market cap of $18.44B and a P/E ratio of 8.87. Both Ken Griffin and Steven Cohen have more than $100 Million in CB.

Disclosure: I am long CTL.

Dividend Champions: Focus on Food, Beverage and Tobacco – Seeking Alpha

Sysco, A Dividend Aristocrat That Provides Food for Smart Investment Thinking

Sysco (SYY), the company that sounds like the other more famous Cisco (CSCO), was founded in 1969 and started paying dividends in its first year. Since then, it has increased the dividend every year, for 41 consecutive years, easily enough to qualify as a Dividend Aristocrat. Last November SYY extended its streak, raising the quarterly dividend 4% to 26¢ per share.
Sysco markets food and related products to the foodservice industry in the U.S. and Canada, distributing frozen foods, dry foods, fresh meats, dairy products, beverage products and imported specialties and fresh produce. In addition it supplies non-food items: Paper products, tableware, cookware, restaurant kitchen equipment and cleaning supplies. Products are sold to restaurants, hospitals, schools, hotels, motels, lodging establishments and industrial caterers. SYY delivers more than 1 billion cases of food and related products to more than 400,000 customers, primarily in the U.S. and Canada. Distribution of sales were:

________________________FY2010

Canned and dry products______19%
Fresh and frozen meats_______17
Fruits, vegetables & other_____14
Dairy products______________10
Poultry____________________10
Fresh produce_______________9
Paper and disposables________8
Seafood____________________5
Beverage products___________4
Janitorial products___________2
Equipment and smallwares____2
Total____________________100%

EPS and dividends have grown but the stock did not:

________EPS___Dividends

2000___$0.68___$0.23
2001____0.88____0.27
2002____1.01____0.34
2003____1.18____0.42
2004____1.37____0.50
2005____1.47____0.58
2006____1.36____0.66
2007____1.60____0.74
2008____1.81____0.84
2009____1.77____0.90
2010____1.99____0.99

Sales rose from $19.3 billion in FY2000 to $37.5 billion in FY2008. Then sales flattened in fiscal 2009-2010 from weak economic conditions. Cost inflation of 4.7% and increased selling prices had a significant impact on sales in fiscal 2009. Sequential quarterly sales trends declined through most of fiscal 2008, all of fiscal 2009 and into fiscal 2010. Sales trends turned positive in the middle of fiscal 2010, largely from improving case volumes and favorable foreign exchange rates.

For fiscal 2010, SYY had sales of $37.2 billion and record EPS of $1.99. In a difficult year, business begin to improve in H2 from modest growth of case volume and limited inflation in food prices. With consumer confidence suffering, people are making value-focused spending decisions when purchasing away from home. Foodservice has demonstrated resilience during a tough economy and eating out remains a relatively low-cost form of entertainment (my girlfriend agrees).
In fiscal Q2 2011, sales were $9.4 billion, an increase of 5.8%. Diluted EPS of 44¢ was down a penny from the prior year. Sales for H2 fiscal 2011 were $19.1 billion, an increase of 6.6% over the prior year and diluted EPS was 95¢, down 5.0%. Results were hurt by accelerating food costs, which contributed to increased gross margin pressure and higher selling expenses. In addition, higher pension and fuel costs adversely impacted earnings.
The business transformation initiative continues to streamline processes for reducing costs and improving data availability. This is to reduce costs by establishing shared business services, currently scattered across operating companies, into a single center. The transformation process will enable SYY to better serve customers with businesses that extend across multiple SYY operating companies and use technology to shortcut repetitive ordering processes, allowing the company to focus on helping customers succeed. This initiative is key for SYY to resume its growing ways.
In 2008, SYY adopted a plan to purchase 20 million treasury shares, and six months ago a new repurchase program was adopted for an additional 20 million shares. In the last three fiscal years (when sales were sluggish), the company invested more than $1 billion in treasury stock to bring total holdings over 176 million shares. A dividend reinvestment plan allows shareholders to reinvest dividends with no service charge and also can be used to purchase additional shares.
This is a growth company, but that concept has been tested in recent years. The graph below shows the stock had an excellent run until 2000. Since then, it has had a flat performance (similar to most Dividend Aristocrats).
Sysco — 30 years
[Click to enlarge]

Sysco  --  30 years

SYY is not a multi-national that benefits from growing sales around the world. Outside of Canada, it has only one minor foreign business (in Ireland). Growth is dependent on improving business in the U.S. and Canada. The transformation initiative should pave the way for higher earnings, but that could take time. Higher food prices are a global phenomenon affecting all food companies. Analysts are looking for EPS to slip to $1.91 in FY2011 and rise to $2.07 in FY2012 (a new record).

The company should keep a modest payout ratio around 50%, suggesting the annual dividend increase in November will be 4¢. This is a stock for a patient investor willing to accept a 3¾% yield while the company copes with rising food costs and its ability to pass higher costs to customers. Economic recovery in the U.S. should bring top line growth at SYY and higher stock prices. In the meantime, pullbacks from $28.03, bringing higher yields, will make for more attractive buying opportunities.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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