6 Dividend Stocks That Beat the S&P 500

Discussion in 'Wall St. News' started by dealmaker, Jun 27, 2019.

  1. dealmaker

    dealmaker

    6 Dividend Stocks That Beat the S&P 500
    By Lawrence C. Strauss
    June 27, 2019 6:15 am ET
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    Dividend-paying stocks earned their keep in the first half of the year with a solid overall performance—even though they lagged behind the market.

    Through June 24, the S&P 500 index had a year-to-date return of 18.7%, compared with just under 16% for the S&P 500 Dividend Aristocrats. These 57 companies, which have increased their dividends for at least 25 straight years, are a decent proxy for large-cap dividend stock performance.

    The Aristocrats alsoheld up relatively wellduring last year’s fourth-quarter market rout. They returned minus 8.6%, compared with minus 13.5% for the S&P 500.

    Dividend stocks “are delivering as you would like them to deliver,” says David Katz, president and chief investment officer at Matrix Asset Advisors in White Plains, N.Y.

    With the 10-year Treasury note yielding about 2% and the Federal Reserve hinting thatan interest-rate cutis in the offing, these stocks look even more attractive compared with assets such as bonds.

    A recent note by Ned Davis Research asserts that “dividend stocks enter the potential easing cycle the most attractively valued in years versus other stocks and bonds.”

    Still, says Katz, “the question is, where do you go from here? We think you are going to have a much more volatile environment—but a good environment, just not as robust. And that should favor some of these dividend stocks.”

    Katz’s firm is underweight utilities and real estate, where it doesn’t see as much value, and it has lightened up on consumer-staples stocks. “We’ve been buying a broader basket of dividend stocks,” says Katz, pointing to health care and financials as areas of opportunity.

    However, there have been some crosscurrents for dividend stocks in the first half of the year.

    “We have large-cap outperforming small, which favors dividend payers, but growth outperforming value, which favors nonpayers,” observes Mark Freeman, chief investment officer at Socorro Asset Management in Dallas.

    Year to date through June 24, the Russell 1000 Value Index had returned 15.64%, trailing the 22.02% result for the corresponding growth benchmark.

    Freeman points out that dividend-paying stocks in the S&P 500 have returned an average 17.2% in 2019. That trails the 21.8% performance of S&P 500 stocks that don’t pay a dividend. Nevertheless, “it’s kind of hard to be down on dividend payers when they are up 17%,” says Freeman.

    The nondividend payers were helped by tech names such asFacebook(ticker: FB) andAmazon.com(AMZN), neither of which issues a dividend.

    The dividend payers tend to outperform the nonpayers in the first year after the first Fed rate cut of an easing cycle, according to the Ned Davis Research note. And the fastest growers have outperformed the highest yielders, “especially in nonrecession cases,” the firm writes.

    Freeman invests in a variety of income-producing securities, including preferred stocks and convertible bonds, but he sees some of the best value in dividend stocks such asJPMorgan Chase(JPM). It’s also an example of a dividend that’s growing, he says.

    Aristocratic Dividends
    These stocks have yields above 2.5% and better returns than the S&P 500 this year.
    Company / Ticker Recent Price Dividend Yield YTD Return Number of Years As S&P 500 Aristocrats
    Consolidated Edison / ED $89.34 3.3 19.4% 44
    Target / TGT 85.74 3.1 33.6 47
    Kimberly-Clark / KMB 136.66 3.0 23.0 46
    PepsiCo. / PEP 23.28 2.8 23.3 46
    Procter & Gamble / PG 24.04 2.7 24.0 56
    Illinois Tools Works / ITW 150.93 2.6 20.9 47
    YTD return as of June 24; other data as of June 25.

    Sources: FactSet and S&P Dow Jones Indices

    The accompanying table shows six of the S&P 500 Dividend Aristocrats that, as of June 24, had outperformed the broader market in 2019 and that sport yields above 2.5%.

    They include one utility,Consolidated Edison(ED), which was recently yielding 3.3%—the highest on the list. There’s alsoTarget(TGT), the national retailer. It yields 3.1%. Its 33% year-to-date return is the best among the six companies. Also among the six is IllinoisTool Works(ITW), which yields 2.6%.

    Consumer-products companyKimberly-Clark(KMB) sports a yield of 3%, followed byPepsiCo(PEP) at 2.8% andProcter & Gamble(PG) at 2.7%. Left for dead not all that long ago, the consumer-staples sector has enjoyed good performance. Those companies in the S&P 500 have returned 14.7% this year, and their valuations have risen, as well.

    Among the Aristocrats that have not done well this year are pharmaceutical giantAbbVie(ABBV), which had returned about minus 13% year to date through June 24;Walgreens Boots Alliance(WBA), down 23%; and3M(MMM), off about 7%.

    But of the 57 Aristocrats, only six had negative returns in 2019, a testament to their durability.

    Katz’s holdings include AbbVie, whose yield is now above 6%, thanks to theselloff of its stockafter it announced on June 25 that it plans to buyAllergan(AGN) for $63 billion. AbbVie’s stock slid by 16.25% the day the deal was announced. It recovered slightly the following day, having gained more than 2%.

    AbbVie relies heavily on Humira, a blockbuster drug used to treat rheumatoid arthritis and other conditions. The drug does face some competition, but it’s expected to intensify in 2023 when its patent protections expire in the U.S. AbbVie argues that the deal is a path to boosting growth and growing its dividend. As the stock has come under pressure, the yield has risen steadily since early 2018.

    “We are good with the long-term strategic fit and the way they structured” the deal, says Katz, which “diversifies the company somewhat away from Humira.”

    Another holding isBB&T(BBT), a regional bank based in North Carolina that’s acquiringSunTrust Banks(STI) in a deal initially valued at about $28 billion. SunTrust, based in Atlanta, is also a big regional bank.

    BB&T’s stock, says Katz, is “somewhat in deal purgatory,” but “we think the combination is going to work and should be nicely accretive to earnings.”

    By his calculations, the stock, which yields 3.3%, trades at 10.4 times 2020 profit estimates.

    Write toLawrence C. Strauss atlawrence.strauss@barrons.com

    https://www.barrons.com/articles/6-dividend-stocks-that-beat-the-s-p-500-51561630500
     
  2. dealmaker

    dealmaker

    The ‘Dividend Aristocrats’ Add 7 New Members
    By Lawrence C. Strauss
    Updated Feb. 7, 2020 6:15 am ET / Original Feb. 7, 2020 4:39 am ET
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    The club is getting bigger.

    TheS&P 500 Dividend Aristocrats, whose members have increased their dividends for at least 25 straight years, added seven companies this week.

    The Aristocrats are considered proxies for well-established companies that have a long history of increasing their dividends every year. Longtime Aristocrats include Exxon Mobil (ticker: XOM),Johnson & Johnson(JNJ), and Coca-Cola (KO).

    The newbies officially became members of the group, which now has 64 members, on Feb. 3. No companies were removed from the group as part of S&P Dow Jones Indices’ annual review of the group’s composition.

    The new entrants are:Albemarle(ALB);Amcor(AMCR);Atmos Energy(ATO);Essex Property Trust(ESS);Expeditors International of Washington(EXPD);Ross Stores(ROST); andRealty Income(O), which pays a monthly dividend.

    The club is light on tech companies—few of which have been paying dividends for 25 straight years—and no tech plays were added this year.Microsoft(MSFT), for example, began paying a dividend in 2003 and wouldn’t be an eligible Aristocrat until the end of this decade if it maintains its payment.

    Here is a quick look at the new entrants:

    • Albemarle, a specialty chemical company, yields 1.7% and its shares recently traded around $87.

    • Amcor yields 4.3%. The company makes packaging for food, beverage, home and personal products, among other markets. Shares recently traded at $11.

    • Atmos Energy, whose shares trade just under $118, yields 2%. It is a regulated utility that distributes natural gas, and it also operates a pipeline and storage business.

    • Ross Stores, a discount apparel retailer with a national footprint, has a yield of 0.9%. That’s well below the S&P 500’s average yield of 1.8%. Shares were recently around $118.

    • Expeditors International of Washington, a shipping and logistics company, yields 1.3%. It recently traded around $74.

    • The other two companies that entered the club—Realty Income and Essex Property Trust—are real-estate investment trusts, or REITs, that must distribute at least 90% of their taxable income to their shareholders every year. Realty Income yields 3.5% and shares trade around $79. Essex Property Trust yields 2.5% and shares were recently trading around $315.

    Write toLawrence C. Strauss atlawrence.strauss@barrons.com

    https://www.barrons.com/articles/the-dividend-aristocrats-add-7-new-members-51581074101