Investing in dividend stocks is a popular investing strategy. Dividend paying companies are generally mature businesses that have the cash flow to return profits to their stockholders. Dividends are a critical component of total return, since 1930 dividends have accounted for 40% of the U.S. stock market’s return. As of March 31, 2012 Dividend Aristocrats beat the S&P 500 Index over the last 1, 3, 5, 10, 15, and 20-year periods. [Also See: How To Pick Good Dividend Stocks]
The Dividend Aristocrats had been companies in the S&P 500 that have had dividend increases for at least 25 consecutive years. In July of 2012 the S&P Dow Jones Indices which manages the list, decided to require only 20 consecutive years of dividend increases rather than 25. As a result, the broad list of Aristocrats drawn from the S&P 1500 Composite index of large, mid, and small caps will now include 14 new stocks, including four that are members of the S&P 500. The reason that aristocrats are considered to be royalty is because they have always treated their stockholders well, even through, adversity.
I browsed through several financial publications to determine which used the most comprehensive criteria to determine its top ten dividend aristocrat picks, for 2013. I found these standards to be the most comprehensive.
- Each stock must have a liability-adjusted cash flow yield* (using five-year average cash flow) greater than the yield of a 10-year U.S. Treasury note.
- Each stock must have a return on invested capital greater than 10% (using five-year historical data).
- Each stock must have appreciated in value over the past decade.
- Each company must have a five-year average tax rate greater than 25%.
- Each company must have a “quick ratio” greater than 1.
Related: Dividend Reinvestment Plans (DRIPS) & Their Benefits
When using the above criteria these are the top five picks for the year 2013. These picks considered, each company’s financial strength, its dividend yield and its potential for capital appreciation.
The McGraw Hill Company (MHP) provides information services for the financial, commodities and commercial, and education markets worldwide.
| Stock Price | Dividend | Yield | 1 year appreciation |
| $53.87 | $1.02 | 1.90% | 18.68% |
Leggett & Platt Inc. (LEG) designs and produces various engineered components and products worldwide.
| Stock Price | Dividend | Yield | 1 year appreciation |
| $28.00 | $1.16 | 4.1% | 23.02% |
V F Corporation (VF) designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe.
| Stock Price | Dividend | Yield | 1 year appreciation |
| $149.00 | $3.48 | 2.3% | 12.31% |
Dover Corporation (DOV) manufactures and sells a range of specialized products and components, and provides related services and consumables.
| Stock Price | Dividend | Yield | 1 year appreciation |
| $55.52 | $1.40 | 2.1% | 11.32% |
C R Bard Inc. There are currently 51 S&P dividend aristocrats.
| Stock Price | Dividend | Yield | 1 year appreciation |
| $103.70 | $0.80 | 0.8% | 20.1% |
List of Dividend Aristocrats
There are currently 51 S&P dividend aristocrats.
| Constituent Name | Constituent Symbol | Yrs Dividend Increases | |
| 3M Co | MMM | 53 | |
| AFLAC Inc | AFL | 29 | |
| Abbott Laboratories | ABT | 39 | |
| Air Products & Chemicals Inc | APD | 29 | |
| Archer-Daniels-Midland Co | ADM | 36 | |
| AT&T | T | 27 | |
| Automatic Data Processing | ADP | 37 | |
| Bard, C.R. Inc | BCR | 40 | |
| Becton, Dickinson & Co | BDX | 40 | |
| Bemis Co Inc | BMS | 28 | |
| Brown-Forman Corp B | BF/B | 28 | |
| Chubb Corp | CB | 46 | |
| Cincinnati Financial Corp | CINF | 51 | |
| Cintas Corp | CTAS | 29 | |
| Colgate-Palmolive Co. | CL | 48 | |
| Clorox Co | CLX | 34 | |
| Coca-Cola Co | KO | 49 | |
| Consolidated Edison Inc | ED | 37 | |
| Dover Corp | DOV | 56 | |
| Ecolab Inc | ECL | 19 | |
| Emerson Electric Co | EMR | 55 | |
| Exxon Mobil Corp | XOM | 29 | |
| Family Dollar Stores Inc | FDO | 35 | |
| Franklin Resources | BEN | 30 | |
| Genuine Parts Co. | GPC | 55 | |
| Grainger, W.W. Inc | GWW | 40 | |
| Hormel Foods Corp | HRL | 46 | |
| HCP Inc | HCP | 26 | |
| Illinois Tool Works | ITW | 48 | |
| Johnson & Johnson | JNJ | 49 | |
| Kimberly-Clark | KMB | 39 | |
| Leggett & Platt | LEG | 40 | |
| Lowe’s Cos Inc | LOW | 49 | |
| McCormick & Co | MKC | 26 | |
| McDonald’s Corp | MCD | 35 | |
| McGraw-Hill Cos Inc | MHP | 38 | |
| Medtronic Inc. | MDT | 34 | |
| PPG Industries Inc | PPG | 40 | |
| PepsiCo Inc | PEP | 39 | |
| Pitney Bowes Inc | PBI | 29 | |
| Procter & Gamble | PG | 55 | |
| Sherwin-Williams Co | SHW | 33 | |
| Sigma-Aldrich Corp | SIAL | 35 | |
| Stanley Black & Decker | SWK | 44 | |
| Sysco Corp | SYY | 42 | |
| Target Corp | TGT | 44 | |
| T. Rowe Price Group | TROW | 24 | |
| VF Corp | VFC | 39 | |
| Wal-Mart Stores | WMT | 37 | |
| Walgreen Co | WAG | 36 | |
Related: Is a Stock Repurchase Better than a Dividend?
The S&P High Yield Dividend Aristocrats Index had been comprised of the 50 highest dividend yielding constituents of the stocks of the S&P Composite 1500 Index that have increased dividends every year for at least 25 consecutive years. These funds have both capital appreciation and dividend income characteristics, as opposed to funds that are pure yield, or pure capital oriented.
The top five funds are the:
SPDR S&P Dividend ETF (SDY)
iShares 1000Value Index Fund (IWD)
Vanguard Dividend Appreciation ETF (VIG)
DIAMONDS Trust, Series 1(DIA)
iShares Dow Jones Select Dividend Index Fund (DVY)
Darnell Brown is an accountant with over 20 years of auditing experience. He has worked in both the private sector and for the United States Government. He currently works as a freelance writer and has written numerous financial articles for the investmentunderground.com website.