In a continued effort to expand the focus of my site’s screens and hypothetical portfolios, this article is a fifth follow-up to anarticlewritten in early April focusing on the S&P 500 Dividend Aristocrats. The S&P 500 Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years. Thecurrent listhas 43 constituents and the entire list is available from Standard & Poors or onmy site.
If an investor wanted to replicate the list the best option is probablySDY, the SPDR Dividend ETF, which is a variation of the Aristocrats – it seeks to replicate the “High Yield” Dividend Aristocrats Index. An alternative is to start with the Aristocrat list and then reduce the list of candidates through screens and/or fundamental analysis. I screened for Aristocrats which had a sustainable payout ratio, a high dividend yield, reasonable debt/equity ratio, and moderately positive return on assets and equity. UsingFinviz, which has some of the better screeners and charts available, I screened the Aristocrat list for:
Payout Ratio < 80%,
Dividend Yield > 3%
Return on Assets > 10%
Return on Equity > 10%
Total Debt/Equity < 1
Each individual criteria taken by itself is not overly stringent; however, when taken in aggregate they yield just 4 results this month. Two stocks on last month’s list no longer qualify, MHP and KO. The yields for both MHP and KO have dipped under 3% due to price appreciation the last month, so they could quickly re-qualify. The 4 remaining aristocrats below are worthy of further consideration, especially if one is seeking yield or seeking to reduce exposure to non-dividend paying companies. Reader’s have noted that LLY is on watch for dropping off the Aristocrats list. It has not yet raised its $.49/quarterly dividend in 2010 which would disqualify it from consideration in 2011.
Another thought is to hedge the list with a short position in the S&P 500 is below its 200 day moving average. One such vehicle for doing so is SH. Obviously, hedging could reduce returns but also reduce drawdowns and volatility. Or, an investor could only purchase stocks which are above its 200 day moving average. I have added the percent each stock is above/below its 200 day SMA. MCD was also featuredin an articleI wrote earlier this year about dividend growers.