Monday, April 28, 2008

Historical changes of the S&P Dividend Aristocrats

Some of the best companies in the world are part of the Dividend Aristocrats list, published by S&P. Corporations that have consistently increased their dividends for at least a quarter of a century make the cut in this elite index.

Recently I stumbled upon this document (opens as a pdf file), which shows historical changes in the S&P Dividend Aristocrats list from 1989 to 2004.

You can see that in 1989, the number of companies was only 26. Only 7 of the original companies still remain in the index. The companies are: DOV, EMR, JNJ, KO, LOW, MMM and PG.
In 2004, the number of Dividend Aristocrats rose to 56. Currently there are 60 companies in the index. The percentage of companies that remain in the index after 10 years is about 30%. There have been about 116 companies that have gone through the index for the 15 year period form 1989 to 2004. So as a dividend investor, you should expect year over year changes in the index.
The average company stayed 6.5 years in the S&P Dividend Aristocrats index from the time of its addition.

Judging by the low initial number of dividend aristocrats in 1989, I think that the companies with continuous uninterrupted payment increases for periods of over a quarter of a century are a recent phenomenon, born from the ashes of the 1973- 1974 bear market. I am not sure whether dividend aristocrats have existed before 1980’s. That does mean though that this form of investing is a fad. Even if you continuously updated your dividend aristocrats’ portfolio, you would have achieved superior returns over the broad market averages .

Since the aristocrats only stay in the index for 6.5 years, shouldn’t an investor, who seeks continuous dividend raises for a maximum amount of years, invest in the dividend achievers? I do not have any historical data on the annual changes in the components on this index. Based off my limited observations over the past couple of years though, it seems to me that only 20 to 30 % of the 300+ dividend achievers out there would one day become dividend aristocrats. It also seems to me that some companies join the achievers list for a couple of years and then leave it for a while due to a difficult financial situation, only to come back several years after that.
So how will the data, presented above affect my strategy? Basically I do expect that almost all of the stocks that I buy will someday cut their dividend or freeze it for a period of time. I plan on selling companies that cut or suspend their dividend. I would not plan on selling companies that simply do not raise their dividend for a period of time, assuming that the company met my entry criteria in the first place though.

I also plan on continuously scan the market for opportunities that fit my entry criteria and allocate no more than 1% of my portfolio in a single instrument.

Relevant Articles:

- Why do I like Dividend Aristocrats?
- Dividend Growth Stocks Watchlist
- A comparison of investing in high-yield, low dividend growth stock versus investing in a low-yield, high dividend growth stock without capital gains
- Why dividends matter?

7 comments:

  1. It also seems to me that some companies join the achievers list for a couple of years and then leave it for a while due to a difficult financial situation, only to come back several years after that.

    After filtering out the stocks the companies that disappeared as a result of corporate reorganization, eg., mergers, I looked at the remainder for some common thread. I found that in all cases save one, a company dropped off the list as a result of doing a large acquisition often using heavy debt. The acquisition was either outside the company's area of expertise or the company had little or no experience with acquisitions.

    Regardless of whether a company has a long history of dividend growth, a large acquisition financed by debt is cause for alarm bells to go off. Excessive debt can choke the company especially if the new asset requires "fixing", eg. Jean Coutu's Eckerdt purchase. Unless a company has a great deal of experience with acquisitions, a quick & successful integration can be a problem especially if the company being acquired involves new areas of expertise.

    ReplyDelete
  2. Yielder,

    Thanks a lot for creating the PDF file in the first place. How did you reconstruct the data? I can't find anything online about historical changes in the average.
    I was wondering about two companies that were in it only for an year -CL in 1989 CL and HSY in 2001. As I was checking historical data for these two companies, it appeared to me that they had never cut their dividends. Do you know why they were booted from the index?

    ReplyDelete
  3. CL (Source - S&P)

    Year Div Change
    1950 0.02
    1951 0.01 -30%
    1952 0.01 5%
    1953 0.01 5%
    1954 0.02 32%
    1955 0.02 20%
    1956 0.02 0%
    1957 0.02 8%
    1958 0.03 8%
    1959 0.03 16%
    1960 0.03 4%
    1961 0.03 0%
    1962 0.03 0%
    1963 0.03 4%
    1964 0.03 3%
    1965 0.04 6%
    1966 0.04 6%
    1967 0.04 11%
    1968 0.05 10%
    1969 0.05 9%
    1970 0.05 8%
    1971 0.06 8%
    1972 0.06 4%
    1973 0.07 7%
    1974 0.08 15%
    1975 0.09 17%
    1976 0.10 17%
    1977 0.12 15%
    1978 0.13 6%
    1979 0.14 8%
    1980 0.14 1%
    1981 0.14 5%
    1982 0.15 5%
    1983 0.16 5%
    1984 0.16 2%
    1985 0.16 2%
    1986 0.17 5%
    1987 0.17 2%
    1988 0.20 14%
    1989 0.20 -1%
    1990 0.23 15%
    1991 0.26 13%
    1992 0.29 13%
    1993 0.34 17%
    1994 0.39 15%
    1995 0.44 14%
    1996 0.47 7%
    1997 0.53 13%
    1998 0.55 4%
    1999 0.59 7%
    2000 0.63 7%
    2001 0.68 7%
    2002 0.72 7%
    2003 0.90 25%
    2004 0.96 7%
    2005 1.11 16%
    2006 1.25 13%
    2007 1.40 12%

    ReplyDelete
  4. HSY (Source S&P)

    Year Div Change


    1950 0.02
    1951 0.02 -31%
    1952 0.02 2%
    1953 0.02 28%
    1954 0.02 -20%
    1955 0.02 38%
    1956 0.03 9%
    1957 0.03 3%
    1958 0.03 2%
    1959 0.03 8%
    1960 0.03 9%
    1961 0.03 8%
    1962 0.04 13%
    1963 0.04 0%
    1964 0.04 3%
    1965 0.04 8%
    1966 0.04 8%
    1967 0.05 2%
    1968 0.05 0%
    1969 0.05 0%
    1970 0.05 0%
    1971 0.05 0%
    1972 0.05 0%
    1973 0.05 0%
    1974 0.03 -27%
    1975 0.04 6%
    1976 0.04 21%
    1977 0.05 11%
    1978 0.05 7%
    1979 0.06 10%
    1980 0.06 11%
    1981 0.07 17%
    1982 0.08 14%
    1983 0.09 10%
    1984 0.10 13%
    1985 0.12 15%
    1986 0.13 9%
    1987 0.15 12%
    1988 0.17 14%
    1989 0.19 12%
    1990 0.25 34%
    1991 0.24 -5%
    1992 0.26 10%
    1993 0.29 11%
    1994 0.31 10%
    1995 0.34 10%
    1996 0.38 11%
    1997 0.42 11%
    1998 0.46 10%
    1999 0.50 9%
    2000 0.54 8%
    2001 0.58 8%
    2002 0.63 8%
    2003 0.72 15%
    2004 0.84 16%
    2005 0.93 11%
    2006 1.03 11%
    2007 1.14 10%

    ReplyDelete
  5. How did you reconstruct the data?

    Summary data was in an article written by an S&P researcher. I asked him if he would share the detailed data behind the summary and he sent me a spreadsheet.

    ReplyDelete
  6. Symbol:CL

    Source: Yahoo Finance

    Seems to me that according to Yahoo, CL has not cut its dividends in 1989. According to the company's website : "Colgate-Palmolive has paid uninterrupted dividends on its common stock since 1895 and increased payments to common shareholders every year for 45 years"
    http://investor.colgate.com/div_history.cfm

    Yahoo Finance:
    1977 Total 0.1175
    1978 Total 0.125
    1979 Total 0.135
    1980 Total 0.13625
    1981 Total 0.1425
    1982 Total 0.15
    1983 Total 0.1575
    1984 Total 0.16
    1985 Total 0.1625
    1986 Total 0.17
    1987 Total 0.17375
    1988 Total 0.185
    1989 Total 0.195
    1990 Total 0.225
    1991 Total 0.255
    1992 Total 0.2875
    1993 Total 0.335
    1994 Total 0.385
    1995 Total 0.44
    1996 Total 0.47
    1997 Total 0.53
    1998 Total 0.55
    1999 Total 0.591
    2000 Total 0.632
    2001 Total 0.676
    2002 Total 0.72
    2003 Total 0.9
    2004 Total 0.96
    2005 Total 1.11
    2006 Total 1.25
    2007 Total 1.4

    ReplyDelete
  7. My data from Yahoo finance, also shows a decrease in annual dividends in 1991 over 1990. I looked more closely into the quarterly payments to see what happened( sometimes yahoo finance omits a quarterly payment for whatever reason)

    20-Aug-91 $ 0.06125 Dividend
    20-May-91 $ 0.05625 Dividend
    22-Feb-91 $ 0.05625 Dividend
    19-Nov-90 $ 0.05625 Dividend
    20-Aug-90 $ 0.09375 Dividend
    21-May-90 $ 0.04875 Dividend
    20-Feb-90 $ 0.04875 Dividend

    The payment on Aug 20, 1990 stands out as out of the ordinary. I think that this is some sort of a special one time payment. But interestingly, this did not cause the company to be booted from the aristocrats list. It was an event in 2001. I don't see anything in 2001 though..
    Oh yeah, and the 2007 annual report says :"The 2007 dividend increase represented the 33rd consecutive year
    of Common Stock dividend increases"
    http://library.corporate-ir.net/library/11/115/115590/items/283950/10K_Hershey[1].pdf

    1986 Total 0.13
    1987 Total 0.145
    1988 Total 0.165
    1989 Total 0.185
    1990 Total 0.2475
    1991 Total 0.235
    1992 Total 0.2575
    1993 Total 0.285
    1994 Total 0.3125
    1995 Total 0.3425
    1996 Total 0.38
    1997 Total 0.42
    1998 Total 0.46
    1999 Total 0.5
    2000 Total 0.54
    2001 Total 0.583
    2002 Total 0.631
    2003 Total 0.723
    2004 Total 0.835
    2005 Total 0.93
    2006 Total 1.03
    2007 Total 1.136

    Source: Yahoo Finance!

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

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