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U.S. stock indexes are at record highs, and valuations relative to earnings are very high. So it may be a good time to take a different approach with some of your investment portfolio, and dividend stocks may fit the bill.
This chart shows forward price-to-earnings valuations (based on consensus earnings estimates for the following 12 months) for the benchmark S&P 500 Index SPX, -0.17% over the past 20 years:
FactSet The forward P/E for the index has increased to 18.5 from 15.2 a year ago. Except for a short period in early 2018, the market’s current valuation to estimated earnings is at its highest level since June 2002.
One reason you might dedicate part of your portfolio to higher-yielding dividend stocks, especially those with very long track records for raising payouts, is that you would enjoy getting paid while waiting out a market decline. Another might be that you are looking to earn income from your investments without having to draw down capital.
Dividend Aristocrats
The S&P Dividend Aristocrats SP50DIV, +0.41% are companies that have raised their regular dividend payouts consistently. The group as a whole tends to be considered a growth investment, because many of the dividend yields are low and the group has outperformed the broader market over very long periods.
But today we’re going to focus on current income by simply listing the Aristocrats with the highest dividend yields.
The financial media are understandably fixated on investment growth, but income has its place, especially if you need it and if you understand the incredible dividend tax advantage that U.S. investors enjoy.
The S&P 500 Dividend Aristocrats Index is a subset of the benchmark S&P 500 Index. The 57 Dividend Aristocrats have raised their regular dividend payouts for at least 25 consecutive years. It makes no difference how high or low the dividend yield may be. For example, Roper Technologies ROP, -0.33% has a dividend yield of only 0.55%.
An easy way to invest in the Dividend Aristocrats as a group is the ProShares S&P 500 Dividend Aristocrats ETF NOBL, -0.07%, which holds all 57 stocks with an equal weighting. The ETF was established in 2014.
Let’s go further back and compare the performance of the S&P 500 Dividend Aristocrats Index to the entire S&P 500 for various periods, with dividends reinvested, through Jan.12:
| Index | 1 year | 3 years | 5 years | 10 years | 15 years | 20 years |
| S&P 500 Dividend Aristocrats | 24% | 50% | 71% | 287% | 373% | 659% |
| S&P 500 | 28% | 53% | 78% | 254% | 276% | 236% |
| Source: FactSet | ||||||
The Dividend Aristocrats Index has trailed for one, three and five years, but that underperformance is modest compared with how much it has outperformed the benchmark for 10, 15 and 20 years.
The difference may be put down to the compounding effect of reinvested dividends, but also to the dominance of technology companies during the extended bull market and the incredibly stimulative policies of central banks around the world. Negative or very low interest make U.S. stocks a haven. The S&P 500 has a weighted aggregate dividend yield of 1.83%, nearly the same as the current yield on 10-year U.S. Treasury notes TMUBMUSD10Y, -1.37%.
There are 15 S&P 500 Dividend Aristocrats with dividend yields above 3%. Here they are:
| Company | Ticker | Industry | Dividend yield | Price change – 1 year through Jan. 12 | Total return – 1 year through Jan. 12 |
| AT&T Inc. | T, -0.14% | Telecommunications | 5.39% | 25% | 32% |
| AbbVie Inc. | ABBV, +0.18% | Pharmaceutical | 5.30% | 1% | 7% |
| Exxon Mobil Corp. | XOM, -0.83% | Integrated Oil | 5.03% | -4% | 1% |
| People’s United Financial Inc. | PBCT, -0.12% | Regional Banks | 4.35% | 7% | 12% |
| Franklin Resources Inc. | BEN, -0.65% | Investment Managers | 4.32% | -18% | -15% |
| Chevron Corp. | CVX, -0.38% | Integrated Oil | 4.09% | 3% | 8% |
| Cardinal Health Inc. | CAH, +2.00% | Medical Distributors | 3.80% | 6% | 11% |
| Consolidated Edison Inc. | ED, -0.16% | Electric Utilities | 3.38% | 15% | 19% |
| Walgreens Boots Alliance Inc. | WBA, +0.47% | Drugstore Chains | 3.38% | -24% | -22% |
| Federal Realty Investment Trust | FRT, -0.18% | Real Estate Investment Trusts | 3.34% | 2% | 5% |
| Leggett & Platt Inc. | LEG, +0.04% | Home Furnishings | 3.24% | 29% | 34% |
| 3M Co. | MMM, +0.02% | Industrial Conglomerates | 3.19% | -6% | -3% |
| Archer-Daniels-Midland Co. | ADM, -0.17% | Agricultural Commodities/Milling | 3.19% | 2% | 5% |
| Genuine Parts Co. | GPC, -0.10% | Wholesale Distributors | 3.08% | 3% | 6% |
| Nucor Corp. | NUE, +0.51% | Steel | 3.05% | -7% | -4% |
| Source: FactSet | |||||
Click on the tickers for more about each company, including profiles, news, price ratios, analysts ratings and financials.
You can see that a long record of dividend increases and an attractive yield don’t necessarily mean the sailing is always smooth. Being an Aristocrat also doesn’t necessarily mean a company isn’t in trouble or headed for it. As with any investment, you should do your homework and decide whether you think a company is poised for continued competitiveness for the next decade.
Expanding the Aristocrats list
S&P Dow Jones Indices also developed the S&P High Yield Dividend Aristocrats Index SPHYDA, -0.11%, with somewhat different criteria. The 112 stocks are drawn from the S&P Composite 1500 Index, which is made up of the large-cap S&P 500, the S&P 400 Mid-Cap Index MID, -0.14% and the S&P Small-Cap 600 SML, -0.30%. High Yield Dividend Aristocrats need to have increased regular dividend payouts for at least 20 years. So all S&P 500 Dividend Aristocrats are also High Yield Dividend Aristocrats.
You can invest in the High Yield Aristocrats as a group through the SPDR S&P Dividend ETF SDY, -0.12%, which is weighted by dividend yield.
Here are the 29 High Yield Dividend Aristocrats with dividend yields of more than 3%:
| Company | Ticker | Industry | Dividend yield | Price change – 1 year through Jan. 12 | Total return – 1 year through Jan. 12 |
| Tanger Factory Outlet Centers Inc. | SKT, -1.88% | Real Estate Investment Trusts | 8.90% | -28% | -22% |
| Meredith Corp. | MDP, +0.82% | Publishing: Books/Magazines | 7.15% | -43% | -40% |
| Kontoor Brands Inc. | KTB, +0.29% | Apparel/Footwear | 5.48% | N/A | N/A |
| AT&T Inc. | T, -0.14% | Telecommunications | 5.39% | 25% | 32% |
| AbbVie Inc. | ABBV, +0.18% | Pharmaceutical | 5.30% | 1% | 7% |
| Exxon Mobil Corp. | XOM, -0.83% | Integrated Oil | 5.03% | -4% | 1% |
| International Business Machines Corp. | IBM, -0.06% | Information Technology Services | 4.74% | 13% | 18% |
| Amcor PLC | AMCR, -0.33% | Containers/Packaging | 4.50% | N/A | N/A |
| People’s United Financial Inc. | PBCT, -0.12% | Major Banks | 4.35% | 7% | 12% |
| Franklin Resources Inc. | BEN, -0.65% | Investment Managers | 4.32% | -18% | -15% |
| Chevron Corp. | CVX, -0.38% | Integrated Oil | 4.09% | 3% | 8% |
| National Fuel Gas Co. | NFG, -0.66% | Integrated Oil | 3.87% | -17% | -15% |
| National Retail Properties Inc. | NNN, -0.26% | Real Estate Investment Trusts | 3.85% | 8% | 12% |
| Cardinal Health Inc. | CAH, +2.00% | Medical Distributors | 3.80% | 6% | 11% |
| United Bankshares Inc. | UBSI, -0.43% | Regional Banks | 3.76% | 10% | 14% |
| Realty Income Corp. | O, -0.44% | Real Estate Investment Trusts | 3.70% | 15% | 19% |
| Old Republic International Corp. | ORI, -0.13% | Property/Casualty Insurance | 3.60% | 6% | 15% |
| Bank OZK | OZK, -0.49% | Regional Banks | 3.42% | 15% | 19% |
| Consolidated Edison Inc. | ED, -0.16% | Electric Utilities | 3.38% | 15% | 19% |
| Walgreens Boots Alliance Inc. | WBA, +0.47% | Drugstore Chains | 3.38% | -24% | -22% |
| J.M. Smucker Co. | SJM, -0.23% | Food: Specialty/Candy | 3.37% | 2% | 5% |
| Federal Realty Investment Trust | FRT, -0.18% | Real Estate Investment Trusts | 3.34% | 2% | 5% |
| Leggett & Platt Inc. | LEG, +0.04% | Home Furnishings | 3.24% | 29% | 34% |
| 3M Co. | MMM, +0.02% | Industrial Conglomerates | 3.19% | -6% | -3% |
| Archer-Daniels-Midland Co. | ADM, -0.17% | Agricultural Commodities/Milling | 3.19% | 2% | 5% |
| Eaton Vance Corp. | EV, +0.02% | Investment Managers | 3.18% | 30% | 35% |
| Genuine Parts Co. | GPC, -0.10% | Wholesale Distributors | 3.08% | 3% | 6% |
| Nucor Corp. | NUE, +0.51% | Steel | 3.05% | -7% | -4% |
| Cullen/Frost Bankers Inc. | CFR, -0.03% | Regional Banks | 3.01% | 1% | 4% |
| Source: FactSet | |||||
The table doesn’t include one-year price changes or returns for Kontoor Brands KTB, +0.29%, which was spun off from VF Corp. VFC, +0.58% in May, or Amcor PLC AMCR, -0.33%, which began trading under its current ticker after the “old” Amcor completed its acquisitions of Bemis Co. in June. Both companies are included because of their predecessors’ dividend increases.
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