*Building a long-term portfolio? Consider the Dividend Aristocrats as your shopping list*
If the start of the New Year has you thinking about investing for the first time, scrapping your old portfolio and starting from scratch, or simply rebalancing your holdings and filling some gaps the Dividend Aristocrats could be a valuable place to look for candidates to identify longer-term holdings.
The Dividend Aristocrats is a list of companies that have increased their dividend payout for at least 25 consecutive years.
According to S&P, over the last 80 years the dividend component accounts for 44% of the total return of the S&P500 Index. For long-term investors, if you're ignoring dividends then you're leaving nearly half of all potential returns on the table. This should emphasize the importance of identifying and owning solid dividend paying management teams. Not only is it critical to your total return to find companies currently paying a dividend but you want to ensure that dividend is safe, and better yet, will continue to grow. While not a full proof system, frankly the only thing we have to go off of in identifying future dividend growth is a solid track record of past dividend growth. We assume past is prologue.
This is where the Dividend Aristocrats list comes in handy. Think about the tall order that is specified by this list. These are 51 companies that not just maintained their dividend but increased their respective payouts every year dating back to at least 1986 (assuming 2011 was the last year of record for the 2012 list). These companies have honored their dividend policy through the Gulf War, the October 1987 Stockmarket Crash, the Dot-com bubble, September 11th and concomitant recession, and the greatest test since the Great Depression - the 2008/09 Financial Crisis. I would say this is a pretty selective group of companies that takes their dividend policies very seriously.
The way I like to use this list is in building a diversified portfolio. For example, if I want to equal weight the S&P500 I would pick a few stocks to represent each sector. The S&P is weighted as follows (borrowed from S&P website*):
Just choosing stocks at random to illustrate the process I could theoretically select AFLAC [AFL], Chubb [CB], and T. Rowe [TROW] to represent the 15.7% weighting in Financials. I could then select Abbott Labs [ABT], Becton Dickinon [BDX], and Medtronic [MDT] to comprise the 12.12% needed to equal weight helathcare. This process would continue until I have representation in all S&P sectors.
If your 2013 forecast has you favoring some sectors more than others or you feel one sector is slightly overvalued and another is undervalued you can choose to overweight or underweight the sector as you're constructing your portfolio but you would still choose your representative stocks from the Dividend Aristocrats list below. For example if you thought Financials were due for a pullback you might only allocate a 13% weighting in your portfolio to Financial stocks and if you thought Industrials were due to excel in 2013 you might apply an overweighting of 13.5% to Industrial names from the list below. You can configure it however you wish, even equal weighting the ten sectors if you prefer simplicity, but the idea I employ is to start with the Dividends Artistocrats as a very selective shopping list of stocks that have proven their dedication to returning capital to shareholders for nearly 3 decades and in many cases much longer than that.
One member of the Dividend Aristocrats is in an interesting situation. Illinois Tool Works [ITW] met analyst expectations and doubled profits for Q4 versus a year earlier however forward guidance narrowly missed the street's expectations and the stock slipped a couple percent to rebound slightly at prior resistance now formed support. Barclays reiterated an equal weight rating on the stock with a $67 price target earlier this month and with a low payout ratio of 35% the dividend is not in jeopardy in the opinions of most analysts.
If you are looking for an Industrials component to your portfolio ITW may be worth closer inspection at these levels.
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Walgreen Co
WAG
36
Consumer Staples
Drug Stores
PS: the sector listed above is pulled from which Select Sector SPDR (XLY, XLP, etc**) the stock has been assigned to. This may differ from the actual S&P sector. Feel free to discuss any discrepancies you find in this thread below.
PPS: If you do not find this list comprehensive enough there is a discussion in the following link of alternative indices you might wish to use including the Dividend Achievers Index and the Dividend Champions Index.
http://www.dividendgrowthinvestor.co...-list-for.html
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References:
*
http://www.standardandpoors.com/indi...sduf--p-us-l--
**
http://www.sectorspdr.com/