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Dividend Aristocrats & The Recent Sell-Off


Published August 24th, 2015

The S&P 500 has declined 5.6% in the last week.

Historically, the Dividend Aristocrats Index has outperformed the S&P 500 during recessions. The S&P 500 lost 37.0% in 2008. The Dividend Aristocrats Index fell ‘just’ 21.9% – a relative outperformance of 15.1 percentage points.

While this may seem like a small conciliation, it is not.

The Dividend Aristocrats Index had to rise 28.0% to make up losses incurred in 2008. The S&P 500 Index, on the other hand, had to rise 58.7% to make up for losses incurred in 2008. The farther a price declines, the larger the gains it takes to make up for the losses.

As mentioned above, the S&P 500 declined 5.6% last week. The Dividend Aristocrats Index fell 4.6%. In as short a time frame as 1 week, you can see the Dividend Aristocrats decline less during recessions than the overall stock market.

An Index of Individual Stocks

Of course, the Dividend Aristocrats Index is made up of individual stocks. Specifically, there are 52 stocks in the Dividend Aristocrats Index – all of which have 25 or more consecutive years of Dividend Increases.

Each of the 52 Dividend Aristocrats are listed below, along with their respective performance over the last week. Click here to Download this list as a spreadsheet.

Name Ticker 1 Week Return
HORMEL FOODS CORP HRL 0.28%
SIGMA-ALDRICH CORP SIAL -0.24%
TARGET CORP TGT -0.49%
HCP INC HCP -0.60%
CONSOLIDATED EDISON INC ED -0.91%
LOWE’S COS INC LOW -1.39%
AT&T INC T -1.97%
CHUBB CORP CB -2.12%
MCDONALD’S CORP MCD -2.16%
W W GRAINGER INC GWW -2.19%
JOHNSON & JOHNSON JNJ -2.55%
PEPSICO INC PEP -3.00%
CLOROX CO CLX -3.10%
LEGGETT & PLATT INC LEG -3.11%
EMERSON ELECTRIC CO EMR -3.31%
3M CO MMM -3.51%
ARCHER DANIELS MIDLAND CO ADM -3.84%
ABBVIE INC ABBV -4.01%
C R BARD INC BCR -4.02%
STANLEY BLACK & DECKER INC SWK -4.04%
SYSCO CORP SYY -4.06%
KIMBERLY-CLARK CORP KMB -4.09%
CINTAS CORP CTAS -4.09%
COLGATE-PALMOLIVE CO CL -4.15%
COCA-COLA CO/THE KO -4.17%
MEDTRONIC INC MDT -4.27%
BECTON DICKINSON AND CO BDX -4.28%
CARDINAL HEALTH INC CAH -4.36%
AUTOMATIC DATA PROCESSING ADP -4.53%
CINCINNATI FINANCIAL CORP CINF -4.91%
PROCTER & GAMBLE CO PG -5.00%
VF CORP VFC -5.02%
ILLINOIS TOOL WORKS INC ITW -5.06%
MCGRAW HILL FINANCIAL INC MHFI -5.13%
T. ROWE PRICE GROUP INC TROW -5.23%
ECOLAB INC ECL -5.65%
GENUINE PARTS CO GPC -5.70%
BROWN-FORMAN CORP BF-B -5.77%
FRANKLIN RESOURCES INC BEN -6.05%
ABBOTT LABORATORIES ABT -6.17%
MCCORMICK & CO INC MKC -6.17%
AIR PRODUCTS AND CHEMICALS APD -6.30%
NUCOR CORP NUE -6.41%
SHERWIN-WILLIAMS CO SHW -6.45%
DOVER CORP DOV -6.54%
WALGREENS BOOTS ALLIANCE WBA -6.68%
PPG INDUSTRIES INC PPG -7.15%
PENTAIR PLC PNR -7.52%
EXXON MOBIL CORP XOM -7.95%
AFLAC INC AFL -8.03%
WAL-MART STORES INC WMT -8.07%
CHEVRON CORP CVX -10.79%

 

A total of 35 out of 52 Dividend Aristocrats outperformed the S&P 500 over the last week; 67% of the Dividend Aristocrats outperformed the S&P 500.

Of these 35, two are scheduled to be acquired – Chubb (CB) and Sigma-Aldrich (SIAL). Discluding these two stocks 33 out of 50 (66%) of the Dividend Aristocrats outperformed the S&P 500. This is a high success rate. As Peter Lynch said:

“In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”

The Dividend Aristocrats Index makes it very, very easy to be good.

The Worst Performers

Paridoxically, the worst performers over the last week are many of the Dividend Aristocrats I’m most bullish on.

Chevron (CVX), Wal-Mart (WMT), Aflac (AFL), and ExxonMobil (XOM) all have low price-to-earnings ratios and above-average dividend yields. The table below summarizes this information:

Name Ticker Dividend Yield P/E Ratio
Aflac AFL 2.6% 10.0
Chevron CVX 5.7% 11.7
ExxonMobil XOM 4.1% 12.9
Wal-Mart WMT 3.0% 13.9

 

It is easy to understand the declines in the two oil stocks on this list – Chevron and ExxonMobil. Oil prices continue their steep declines. ExxonMobil and Chevron have been here before. The companies have paid increasing dividends for 33 and 27 consecutive years, respectively.

Wal-Mart’s price declines over the last week are primarily a result of weaker than expected earnings. Earnings were weak not due to higher than expected employee wages, greater inventory shrink (most likely from theft), and declines in pharmacy reimbursements. Wal-Mart performed exceptionally well over the Great Recession, posting gains of 21.6% in 2008 alone. If the global economy continues to decline, Wal-Mart should benefit as more consumers look for low prices.

Aflac continues to be deeply undervalued. The company is exceptionally profitable, but suffers from one large perceived weakness – it generates 75% of its revenue in Japan. It’s no secret – Japan’s economy is in trouble. This might mean slower-than-average growth for Aflac, but it in no way means Aflac itself is in economic danger. The company has a strong competitive advantage in supplemental health insurance – Aflac is the global leader in supplemental cancer insurance.

Final Thoughts

As I write this, the S&P 500 appears to be headed for more losses today. We could be in the beginning phases of another protracted recession – or not. No one can tell the future.

As always, it is important to invest in high quality businesses trading at fair or better prices. Recessions and stock price declines make this easier, not harder. That’s because falling prices create bargains.

Investors in high quality businesses (like the Dividend Aristocrats) can take comfort knowing that Dividend Aristocrats have historically outperformed the S&P 500 over recessions – although prices do decline as well. The Warren Buffett quote below is very timely in today’s market:

“Be fearful when others are greedy and greedy when others are fearful”


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