This article concludes a series of articles covering the Dividend Aristocrats, a list of sixty-five S&P 500 companies that have increased their dividends for at least 25 consecutive years.

Earlier articles presented the Dividend Aristocrats by supersector:

I highlighted stocks trading at favorable valuations and suitable for further research and possible investment in each article. Readers that missed any of these articles are invited to click on the links above to review the candidates.

I’m interested in looking at the supersector membership of stocks for two reasons. First, I want to select stocks using a business cycle approach to sector investing to increase the likelihood that my stocks will outperform the broader market. Second, after years of growing my dividend growth portfolio in the tailwinds of a bull market, my portfolio is significantly underweight in defensive stocks, and I need to address that imbalance.

Before presenting the entire Dividend Aristocrats list and sharing some thoughts on portfolio management and diversification, let’s briefly examine how the list is constituted.

How the Dividend Aristocrats are Constituted

I often get asked why a certain stock with a dividend increase streak of 25 years or more is not a Dividend Aristocrat. Perhaps such questions are not surprising. Dividend Radar, our weekly automatically generated spreadsheet of stocks with dividend streaks of five years or more, contains 127 stocks with dividend increase streaks of at least 25 years!

While the dividend increase streak is an important criterion for inclusion, it isn’t the only one. Let’s review all the criteria for inclusion.

The S&P 500 Dividend Aristocrats Index is a list of companies in the S&P 500 that have increased their dividends for at least 25 consecutive years. The list is maintained by S&P Dow Jones Indices and is updated annually in January.

To be included in the list, stocks must meet the following criteria:

  • Be a member of the S&P 500.
  • Have a dividend increase streak of at least 25 years.
  • Have a market capitalization of at least $3 billion.
  • Average at least $5 million in daily trade value for the trailing three months.

Calendar years and ex-dates are used for the dividend analysis performed in January when companies are reviewed for index eligibility and possible inclusion. Only regular cash dividends are considered, and special rules apply for spin-offs and mergers and acquisitions.

No additions are made between annual reconstitutions, except for qualifying spin-offs. Deletions are made throughout the year, either when a stock is removed from the S&P 500 or if a company suspends or cuts its dividend.

There are additional diversification criteria, both stock-specific and sector-specific. There must be 40 members on the list, and no sector can have more than 30% membership. To learn more, visit this page, scroll down, and click on “Methodology” under “Documents”.

How I Rate and Rank the Dividend Aristocrats

I use DVK Quality Snapshots to assess the quality of stocks. The system employs five quality indicators and assigns 0-5 points to each quality indicator, for a maximum of 25 points.

My rating system maps to different quality score ranges. Ratings are Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Furthermore, Investment Grade ratings correspond to quality scores in the range 15-25, while Speculative Grade ratings have quality scores below 15 points.

DVK Quality Snapshots scoring system and the author’s rating system

To rank stocks, I sort them by descending quality scores and use the following tie-breaking metrics, in turn:

  1. SSD Dividend Safety Scores
  2. S&P Credit Ratings
  3. Dividend Yield

When two stocks with the same quality score have the same Dividend Safety Scores, I next compare their S&P Credit Ratings, ranking the one with the better Credit Rating higher. I rarely need to break ties with Dividend Yield.

Dividend Aristocrats: Key Metrics and FV Estimates

The following sections present all Dividend Aristocrats ranked by quality score. Each table presents key metrics of interest to dividend growth investors, along with quality indicators and my fair value estimates. See one of the previous articles for a description of each metric.

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I’ve added a column to indicate the 5-year compound trailing total returns (5-Yr TTR) of each Dividend Aristocrat, courtesy of Portfolio Insight. Total returns include stock appreciation and all dividend payments (regular and special) for each trailing twelve-month period.

I’m also providing a downloadable spreadsheet with fundamental and added value metrics for all Dividend Aristocrats. The spreadsheet includes the data presented in this article but also includes data available to Portfolio Insight subscribers. I hope readers would find this snapshot of fundamental and added value metrics useful in analyzing the Dividend Aristocrats.

Dividend Aristocrats rated Exceptional

The first table contains the highest-quality Dividend Aristocrats. These stocks have perfect quality scores, having scored the maximum possible points for all quality indicators.

Please note that stocks I own are highlighted in the Ticker column.

Rank

Company (Ticker)

Sector

Supersector

1

Johnson & Johnson (JNJ)

Health Care

Defensive

2

The Procter & Gamble Company (PG)

Consumer Staples

Defensive

3

Automatic Data Processing, Inc. (ADP)

Information Technology

Sensitive

Dividend Aristocrats rated Excellent

The next table contains high-quality Dividend Aristocrats rated Excellent.

Rank

Company (Ticker)

Sector

Supersector

4

Medtronic plc (MDT)

Health Care

Defensive

5

General Dynamics Corporation (GD)

Industrials

Sensitive

6

PepsiCo, Inc. (PEP)

Consumer Staples

Defensive

7

Colgate-Palmolive Company (CL)

Consumer Staples

Defensive

8

Walmart Inc. (WMT)

Consumer Staples

Defensive

9

Ecolab Inc. (ECL)

Materials

Cyclical

10

Air Products and Chemicals, Inc. (APD)

Materials

Cyclical

11

Illinois Tool Works Inc. (ITW)

Industrials

Sensitive

12

The Coca-Cola Company (KO)

Consumer Staples

Defensive

13

Emerson Electric Co. (EMR)

Industrials

Sensitive

14

3M Company (MMM)

Industrials

Sensitive

15

Raytheon Technologies Corporation (RTX)

Industrials

Sensitive

Dividend Aristocrats rated Fine

The next table contains high-quality Dividend Aristocrats rated Fine.

Rank

Company (Ticker)

Sector

Supersector

16

W.W. Grainger, Inc. (GWW)

Industrials

Sensitive

17

Chubb Limited (CB)

Financials

Cyclical

18

Hormel Foods Corporation (HRL)

Consumer Staples

Defensive

19

Brown-Forman Corporation (BF.B)

Consumer Staples

Defensive

20

Roper Technologies, Inc. (ROP)

Industrials

Sensitive

21

Atmos Energy Corporation (ATO)

Utilities

Defensive

22

T. Rowe Price Group, Inc. (TROW)

Financials

Cyclical

23

Caterpillar Inc. (CAT)

Industrials

Sensitive

24

Becton, Dickinson and Company (BDX)

Health Care

Defensive

25

Kimberly-Clark Corporation (KMB)

Consumer Staples

Defensive

26

McDonald’s Corporation (MCD)

Consumer Discretionary

Cyclical

27

Abbott Laboratories (ABT)

Health Care

Defensive

28

Cintas Corporation (CTAS)

Industrials

Sensitive

29

PPG Industries, Inc. (PPG)

Materials

Cyclical

30

Lowe’s Companies, Inc. (LOW)

Consumer Discretionary

Cyclical

31

Dover Corporation (DOV)

Industrials

Sensitive

32

McCormick & Company, Incorporated (MKC)

Consumer Staples

Defensive

33

Franklin Resources, Inc. (BEN)

Financials

Cyclical

34

AT&T Inc. (T)

Communication Services

Sensitive

35

Consolidated Edison, Inc. (ED)

Utilities

Defensive

36

The Sherwin-Williams Company (SHW)

Materials

Cyclical

37

The Clorox Company (CLX)

Consumer Staples

Defensive

38

Expeditors International of Washington, Inc. (EXPD)

Industrials

Sensitive

39

Archer-Daniels-Midland Company (ADM)

Consumer Staples

Defensive

40

Stanley Black & Decker, Inc. (SWK)

Industrials

Sensitive

Dividend Aristocrats rated Decent

Stocks in the next table are lower-quality (though still Investment Grade) Dividend Aristocrats.

Rank

Company (Ticker)

Sector

Supersector

41

Linde plc (LIN)

Materials

Cyclical

42

Aflac Incorporated (AFL)

Financials

Cyclical

43

Target Corporation (TGT)

Consumer Discretionary

Cyclical

44

Chevron Corporation (CVX)

Energy

Sensitive

45

Albemarle Corporation (ALB)

Materials

Cyclical

46

S&P Global Inc. (SPGI)

Financials

Cyclical

47

Nucor Corporation (NUE)

Materials

Cyclical

48

Pentair plc (PNR)

Industrials

Sensitive

49

Walgreens Boots Alliance, Inc. (WBA)

Consumer Staples

Defensive

50

Cardinal Health, Inc. (CAH)

Health Care

Defensive

51

V.F. Corporation (VFC)

Consumer Discretionary

Cyclical

52

Federal Realty Investment Trust (FRT)

Real Estate

Cyclical

53

Exxon Mobil Corporation (XOM)

Energy

Sensitive

54

Otis Worldwide Corporation (OTIS)

Industrials

Sensitive

55

Sysco Corporation (SYY)

Consumer Staples

Defensive

56

AbbVie Inc. (ABBV)

Health Care

Defensive

57

A. O. Smith Corporation (AOS)

Industrials

Sensitive

58

Essex Property Trust, Inc. (ESS)

Real Estate

Cyclical

59

Realty Income Corporation (O)

Real Estate

Cyclical

60

Carrier Global Corporation (CARR)

Industrials

Sensitive

61

Amcor plc (AMCR)

Materials

Cyclical

62

Leggett & Platt, Incorporated (LEG)

Consumer Discretionary

Cyclical

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Dividend Aristocrats rated Decent

Stocks in the last table are lower-quality Dividend Aristocrats I consider speculative-grade stocks.

Rank

Company (Ticker)

Sector

Supersector

63

People’s United Financial, Inc. (PBCT)

Financials

Cyclical

64

Cincinnati Financial Corporation (CINF)

Financials

Cyclical

65

Genuine Parts Company (GPC)

Consumer Discretionary

Cyclical

Portfolio Management and Diversification

My interest in looking at the supersector membership of the Dividend Aristocrats (and dividend growth stocks in general) is twofold:

1. Using a business cycle approach to sector investing can provide a useful framework for choosing stocks that will likely outperform the broader market.

While the United States is currently in the recession phase of the business cycle, economists expect a big rebound if more businesses reopen and some normalcy returns semblance. If this happens, investors should shift their focus from defensive to sensitive sectors, which tend to outperform in the early rebound phase. And when the recovery is well underway, some cyclical sector stocks will bounce back strongly.

Unfortunately, we see significant spikes in the number of coronavirus cases, which could stall the recovery and cause a “double-dip” recession. Furthermore, it now seems increasingly unlikely that we’ll see another stimulus package before the US elections. Congress and the Trump Administration have failed to reach an agreement, and the Senate seems unlikely to pass anything substantial anyway.

2. After years of growing my dividend growth portfolio in the tailwinds of a bull market, my portfolio appears to be significantly underweight in defensive stocks.

In late February, concerns about the impact of the coronavirus pandemic abruptly ended the bull market. The subsequent bear market was vicious but seemingly short-lived, though some sectors have not yet recovered entirely. In addition to a performance hit, my portfolio suffered several dividend suspensions and cuts, mostly from stocks in the cyclical sectors.

I’m looking to increase my exposure to defensive stocks and generally diversify my portfolio more evenly among the supersectors. Longer term, I need to slowly transition to a much more defensive distribution, especially as I approach retirement. To help with this process, I’ll switch my sector distribution chart to a market value-based chart.

I’ve always monitored the sector allocation of stocks in my DivGro portfolio, but I’ve done so simply by counting the number of stocks in each sector:

Sector distribution of stocks in DivGro (by the number of stocks)

This approach is fine with equal-sized positions, but my portfolio no longer is evenly distributed among positions, so a chart based on the market value of positions is preferable:

Sector distribution of stocks in DivGro (by market value)

A comparison of these charts illustrates why the market value-based chart is preferred.

For example, while I own 13 different stocks in the Information Technology sector (13 of 88 stocks or 14.8%), those stocks’ market value is 21% of my portfolio, a much larger percentage by market value.

On the other hand, I own 7 stocks in the Real Estate sector (7 of 88 stocks, or 8%), whereas those stocks’ market value is only 5.6% of my portfolio, a much smaller percentage by market value. The Consumer Staples sector shows a similar difference, with 8 stocks (9.1%), representing only 7.5% in market value.

Looking at the distribution by supersector is quite informative, too:

  • Defensive: 7.5 + 11.9 + 3.4 = 22.8%
  • Cyclical: 9.6 + 13.4 + 0.5 + 5.6 = 29.1%
  • Sensitive: 9.5 + 2.4 + 15.2 + 21.0 = 48.1%
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Supersector distribution of stocks in DivGro (by market value)

Given the prevailing economic and political climate and uncertainty about the coronavirus pandemic’s long-term impact, I don’t think my portfolio is defensive enough!

In the near term, my goal is to balance DivGro more evenly among the supersectors. This implies a significant shift from sensitive sectors to defensive sectors. I anticipate the need for an even larger defensive component in a few years when I approach retirement.

Dividend Aristocrats: Top Opportunities

Let’s use a few screens to isolate investment-grade Dividend Aristocrats offering favorable valuations and compelling fundamentals. Specifically, I’m considering investment-grade stocks with Very Safe and Safe Dividend Safety Scores and stocks that trade less than 5% above my fair value estimates:

  • Investment grade: Qual ≥15
  • Dividend safety: SSD Divi. Safety > 60
  • Valuation: (Disc.) Prem. < 5%

Now consider the top stocks in a few categories:

Highest Yields

  • Defensive: WBA, CAH
  • Cyclical: BEN, O, ESS
  • Sensitive: T, CVX

The highest-yielding stocks all trade at discounted valuations. Except for O, I’m not impressed by the 5-year trailing total returns of these stocks. Of the defensive stocks, WBA looks most interesting. T looks like the strongest non-defensive candidate.

Highest Dividend Growth Rates

  • Defensive: None
  • Cyclical: LOW, BEN, TROW
  • Sensitive: AOS, ADP, GD, MMM

LOW is trading at a slight premium, but notice the stock’s stellar performance of 21.4% annualized total returns over the past five years! Generally, these stocks are higher-quality, better-performing stocks.

Highest Chowder Numbers

  • Defensive: None
  • Cyclical: LOW, BEN, TROW
  • Sensitive: AOS, ADP, GD, ESS

The CDN combines a stock’s current yield and 5-year dividend growth rates and more closely resembles the Highest Dividend Growth Rates table. Notice BEN’s poor past performance. I wonder if and when the stock will start to live up to expectations. Similarly, GD’s past performance is disappointing given its favorable CDN. Perhaps GD presents an opportunity.

Highest Total Trailing Returns

  • Defensive: BDX, ATO, JNJ
  • Cyclical: LOW, ALB, TROW
  • Sensitive: ADP

Looking at past performance is informative, even though it tells us nothing about what to expect in the future. It is fascinating that three defensive stocks make this table, whereas they don’t appear in any other tables. JNJ looks good here, as do LOW and ADP. Staying with the defensive theme, I think ATO is worth looking at, too.

Concluding Remarks

The 65 Dividend Aristocrats are high-quality stocks of companies with strong and durable competitive advantages. I ranked the Dividend Aristocrats using DVK Quality Snapshots and tie-breaking metrics.

This article series presents all Dividend Aristocrats’ rankings, first by supersector (Defensive, Sensitive, and Cyclical), and in this article, altogether. My interest in looking at supersector membership is to use a business cycle approach to sector investing and more appropriately diversify my portfolio.

I concluded this article using screens to highlight investment-grade Dividend Aristocrats offering favorable valuations and compelling fundamentals. I’ll be looking to favor defensive stocks in the near-term, such as WBA, JNJ, and ATO. Non-defensive candidates include T, LOW, GD, and ADP.

As always, I encourage readers to do their own due diligence before investing.

Thanks for reading, and happy investing!

Download a spreadsheet of the Dividend Aristocrats. Please don’t ask my permission to edit this file. Rather, create your own copy (File | Make a Copy).

Disclosure: I am/we are long ABBV, ADM, ADP, AFL, APD, CB, CVX, GD, HRL, ITW, JNJ, KO, LOW, MCD, MDT, MMM, O, PEP, PG, RTX, T, TROW, WBA, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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