Over the past year, I (along with many other investors) have recognized the awesome beauty of dividend stocks. Once considered the stodgy old men of the investing world, dividend-paying companies have become young and hip, and very, very attractive.
One of the most famous lists of high-quality dividend-paying companies is the S&P 500 list of Dividend Aristocrats, defined as large-cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for the past 25 years.
In the past few months, while I have been building my own Dividend Portfolio, I have reviewed dozens of companies, a number of which are included in the Dividend Aristocrat list. In this article, I will examine five that I have not previously analyzed.
I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year Dividend Growth Rate (DGR), 5-year projected Earnings Growth Rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.
I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories. The hard thresholds that I utilize are a 10-year dividend paying history, and a 3% minimum yield. A company which obtains an 18-20 point rating generally is an automatic choice for the portfolio. One scoring 15-17 merits further consideration and watching for a change in dividend metrics, and anything scoring a 14 or below is rejected.
The top companies of the Dividend Aristocrats, in terms of market cap, are Abbvie (which is already included in my Dividend Portfolio), Lowe’s Companies (which I recently reviewed and rejected), McGraw-Hill (recently reviewed and rejected), Medtronic (recently reviewed and rejected), Nucor Corporation (NYSE:NUE), Leggett & Platt, Inc. (NYSE:LEG), Pentair (rejected for a low dividend yield of 1.7%), W.W. Grainger (recently reviewed and rejected), Family Dollar Stores (rejected for low yield of 1.4%), Emerson Electric Co. (NYSE:EMR), Cardinal Health, Inc. (NYSE:CAH) and Stanley Black & Decker, Inc. (NYSE:SWK).
The first company is Nucor Corporation (NYSE:NUE), a steel company. It is currently trading at $47 per share and yields 3.1%. The company has been paying and raising dividends consistently for 40 years, and its 5-year Dividend Growth Rate (DGR) is 18.3%. Its PE is a high 29.9, and its twelve-month total return is 14.4%. The payout ratio is 92%. The company is currently trading at its 52-week high, and is up 7% from last year.
The 21 analysts who cover the company rate the stock a 2.2 (1.0 = Strong Buy, 5.0 = Sell). It has 5 Strong Buys, 8 Buys, 7 Holds, and 1 Underperform. They have set a one-year target price on the company of $47.46. Within the Motley Fool community, NUE is a four-star CAPS pick, with 2,115 Bulls and 87 Bears (95% positive sentiment).
Nucor scores a 13 on my ratings system; I reject the company based on its high payout ratio, high PE, and mediocre recent and future growth metrics.
Next is Leggett & Platt, Inc. (NYSE:LEG), a steel company. It is currently trading at $29 per share and yields 3.9%. The company has been paying and raising dividends consistently for 41 years, and its 5-year DGR is 8.3%. Its PE is a high 23.6, and its twelve-month total return is 31.6%. The payout ratio is high at 90%. The company is currently trading at its 52-week high, and is up 34% from last year.
The 23 analysts who cover the company rate the stock a 2.3 with 4 Strong Buys, 4 Buys, and 15 Holds. They have set a one-year target price on the company of $57.42. Within the Motley Fool community, LEG is a five-star CAPS pick, with 210 Bulls and 39 Bears (84% positive sentiment).
Leggett & Platt scores an 18 on my ratings system; I will likely be adding it to my portfolio soon.
Emerson Electric Co. (NYSE:EMR) is currently trading at $57 per share and yields 2.9%. The company has been paying and raising dividends consistently for 56 years, and its 5-year DGR is 8.2%. Its PE is 21.4, and its twelve-month total return is 15.5%. The payout ratio is average at 56%. The company is currently trading at its 52-week high, and is up 11% from last year.
The 6 analysts who cover the company rate the stock a 2.4 with 1 Strong Buy, 2 Buys, and 3 Holds. They have set a one-year target price on the company of $28.56. Within the Motley Fool community, EMR is a five-star CAPS pick, with 1,381 Bulls and 26 Bears (98% positive sentiment).
Emerson Electric scores a 15 on my ratings system; its yield is just a bit too low, and its other metrics, aside from the number of years, are only mediocre.
Next is Cardinal Health, Inc. (NYSE:CAH), a healthcare company. It is currently trading at $45 per share and yields 2.4%. I am not quite sure why it is on the S&P Aristocrats list, because by my sources, the company has been paying and raising dividends consistently for only 16 years. Its 5-year DGR is 16.5%, its PE is 14.1, and its twelve-month total return is 9.0%. The payout ratio is low at 30%. The company is currently trading at just below its 52-week high, and is up 5% from last year.
The 16 analysts who cover the company rate the stock a 1.8 with 6 Strong Buys, 7 Buys, and 3 Holds. They have set a one-year target price on the company of $48.21, a potential gain of 8%. Within the Motley Fool community,CAH is a four-star CAPS pick, with 442 Bulls and 41 Bears (92% positive sentiment).
Cardinal Health scores a 16 on my ratings system; its yield is too low, and its 12-month return is also low.
The last company is Stanley Black & Decker, Inc. (NYSE:SWK), the tool manufacturer. It is currently trading at $76 per share and yields 2.5%. The company has been paying and raising dividends consistently for 45 years, and its 5-year DGR is 8.3%. Its PE is 14.4, and its twelve-month total return is 12.5%. The payout ratio is low at 30%. The company is currently trading at 6% less than its 52-week high, which was reached in March, and is up 9% from last year.
The 16 analysts who cover the company rate the stock a 2.3 with 3 Strong Buys, 6 Buys, and 7 Holds. They have set a one-year target price on the company of $82.90, which is a potential gain of 8%. Within the Motley Fool community, SWK is a four-star CAPS pick, with 187 Bulls and 23 Bears (89% positive sentiment).
Stanley Black & Decker also scores a 15 on my ratings system; its yield is too low, and its other metrics, aside from the number of years, are only mediocre.
I have found this evaluation of the S&P 500 Aristocrats list to be a valuable exercise, even though most of them were rejected. I did locate one new addition to my portfolio, which I will profile more in-depth in the next couple of weeks.
In the meantime, however, I want to state that all of these companies are excellent in terms of their dividend metrics, and they would be a terrific choice for a dividend portfolio.
The article Evaluating the S&P 500 Dividend Aristocrats originally appeared on Fool.com and is written by Karin Hernandez.
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