Here are 25 Dividend Aristocrat stocks screened for ‘quality’
Dividend stocks are always a popular topic for investors. Some are attracted to payout yields that may be much higher than bond yields. Others believe that consistently raising dividends is a good sign that a company’s management team is strong and that the stock will perform well in the long run.
MarketWatch’s Michael Brush has a list of nine secrets of dividend investing, based on his interview with Matthew Page and Ian Mortimer, who manage the Guinness Atkinson Dividend Builder Fund GAINX, -0.52%, which is rated four stars (out of five) by Morningstar. The managers give practical advice, including focusing on companies with consistent records of increasing payouts, with high returns on capital and moderate dividend yields.
A high dividend yield may be a signal that a majority of investors don’t trust the company to maintain the payout. A dividend cut is typically associated with a severe drop in a company’s stock price. A long-term investment in a quality company with a moderate dividend yield may be much better, as the company will be more likely to increase the payout over the years.
Here’s an example: If you had bought shares of McDonald’s MCD, +0.02% at the close Feb. 18, 2015, your share price would have been $94.58 and the quarterly dividend of 85 cents a share would have made for a dividend yield of 3.59%. If you held those shares through the close Feb. 18, 2020, and had not reinvested your dividends (to keep our math simple), your share price would have more than doubled to $216.15, while the dividend yield based on your cost in 2015 would have risen to 5.29%, based on the current quarterly payout of $1.25 a share.
For someone who just bought shares of McDonald’s on Feb. 18, 2020, the dividend yield was “only” 2.3%.
You may have heard of the S&P 500 Dividend Aristocrats Index SP50DIV, -0.14%, which is made up of the 57 companies in the S&P 500 that have increased their regular dividends for at least 25 consecutive years. That’s the criteria — it makes do difference how high a company’s current dividend yield is. You can invest in this group all together with the ProShares S&P 500 Dividend Aristocrats ETF NOBL, +0.25%.
But S&P Dow Jones Indices also maintains an expanded list of 119 High Yield Dividend Aristocrats SPHYDA, +0.12%, which is tracked by the SPDR S&P Dividend ETF SDY, +0.07%. These are companies included in the S&P 1500 Composite Index (made up of the S&P 500, the S&P 400 Mid-Cap Index MID, +0.32% and the S&P Small-Cap 600 Index SML, +0.11%) that have increased their regular dividends for at least 20 straight years.
Despite the name, it makes no difference how high a company’s yield is when it is included in the High Yield Dividend Aristocrats Index.
Getting back to focusing on companies with “moderate” payouts, we are paring the High Yield Dividends Aristocrats to a list of 25 with minimum dividend yields of 2% that have had the highest average returns on invested capital (ROIC) over the past 20 reported quarters through Feb. 19. Here’s the list, sorted by ROIC:
| Company | Ticker | Industry | Average ROIC – five years | Dividend yield |
| Colgate-Palmolive Co. | CL, -0.33% | Household/Personal Care | 33.41% | 2.26% |
| Clorox Co. | CLX, +0.31% | Household/Personal Care | 32.14% | 2.57% |
| Automatic Data Processing Inc. | ADP, +0.27% | Data Processing Services | 28.67% | 2.02% |
| C.H. Robinson Worldwide Inc. | CHRW, +1.17% | Air Freight/Couriers | 27.17% | 2.82% |
| T. Rowe Price Group | TROW, +0.83% | Investment Managers | 26.85% | 2.61% |
| Kimberly-Clark Corp. | KMB, +0.54% | Household/Personal Care | 25.67% | 2.98% |
| Fastenal Co. | FAST, +0.50% | Wholesale Distributors | 25.44% | 2.61% |
| 3M Co. | MMM, +0.49% | Industrial Conglomerates | 22.08% | 3.70% |
| Polaris Inc. | PII, -0.03% | Recreational Products | 19.82% | 2.64% |
| International Business Machines Corp. | IBM, -0.25% | Information Technology Services | 19.49% | 4.29% |
| McDonald’s Corp. | MCD, +0.02% | Restaurants | 18.76% | 2.31% |
| Illinois Tool Works Inc. | ITW, +0.72% | Industrial Machinery | 18.50% | 2.30% |
| General Dynamics Corp. | GD, -0.21% | Aerospace & Defense | 18.33% | 2.17% |
| A. O. Smith Corp. | AOS, +0.27% | Building Products | 17.82% | 2.18% |
| PepsiCo Inc. | PEP, +0.07% | Beverages: Non-Alcoholic | 16.95% | 2.62% |
| Eaton Vance Corp. | EV, +1.33% | Investment Managers | 16.92% | 2.98% |
| Emerson Electric Co. | EMR, +1.36% | Electrical Products | 16.87% | 2.80% |
| Genuine Parts Co. | GPC, +2.95% | Wholesale Distributors | 16.51% | 3.27% |
| V.F. Corp. | VFC, +0.93% | Apparel/Footwear | 16.17% | 2.32% |
| AbbVie Inc. | ABBV, +0.18% | Pharmaceuticals | 15.91% | 5.04% |
| Lincoln Electric Holdings Inc. | LECO, -0.48% | Industrial Machinery | 15.62% | 2.15% |
| Johnson & Johnson | JNJ, -0.17% | Pharmaceuticals | 13.95% | 2.55% |
| Leggett & Platt Inc. | LEG, +0.31% | Home Furnishings | 13.62% | 3.55% |
| Target Corp. | TGT, -0.23% | Specialty Stores | 11.89% | 2.24% |
| Aflac Inc. | AFL, -0.11% | Life/Health Insurance | 11.86% | 2.16% |
| Source: FactSet |
You can click on the tickers for more about each company.
A company’s ROIC is its after-tax profit divided by the total of its debt and equity. It provides an indication of how good a management team is at deploying money to expand, improve products and services, expand distribution and sales methods, etc.
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