Wednesday, March 14, 2012

17 Cheap Dividend Aristocrats on Sale

As part of my dividend retirement plan, I add new money to my portfolio every single month. I have found that purchasing dividend stocks with growing dividends, reinvesting these distributions selectively and adding new capital consistently is the key recipe for success that will help me reach the dividend crossover point.

I determine which stocks to purchase based on portfolio weights and valuation. I typically use the dividend aristocrats index as a starting point in my research, since it includes quality names that have boosted distributions for over 25 years in a row.

Using the dividend aristocrats index, and my entry criteria, I came up with the following screen:

1) Price/Earnings Ratio of less than 20
2) Dividend yield exceeding 2.50%
3) Dividend Payout Ratio of less that 60%

The following companies are just ideas for further research. Before committing money to new ideas, I typically do an analysis of the company, where I look for the following pieces of information:

1) Ten year trends for earnings, dividends, returns on equity, dividend payout ratios and stock prices
2) Qualitative information such as competitive advantages, strong brands and understanding the business

In addition, I also attempt to gauge whether the companies will be able to generate future growth. Identifying drivers for future growth often requires a fair degree of guesstimation. After all, without earnings growth, future dividend growth will be hard to come up.

Many of the companies listed above will grow thanks to the rise of the middle class in emerging markets such as Brazil, Russia, China and India. Others will grow by becoming more efficient in their operations, gaining market share or innovating their way to increased profits. While not terribly exciting, reading annual reports, analyst reports and familiarizing yourself with each company could literally pay dividends in the long run.

Full Disclosure: Long AFL, APD, CL, CLX, EMR, ITW, KO, MCD, MDT, MMM, PEP, SYY, WAG, WMT

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  1. I would like to request a post listing some small cap divided champions with similar characteristics.

  2. What do you think of starting a dividend portfolio in the current environment. the dow is at 13.2k near the bubble price in 2008. should one wait until it goes down. or would that not matter in view of regular contributions to the portfolio.

  3. Great list! I already own a number of companies on this list.

  4. I've been a big fan of dividend stocks for years. Your site is great!

    Can you post some analysis on how the dividend stocks will behave if the Fed increased the interest rate from ~0% to ~2%?

    The Fed might be forced to increase interest rate, if inflation runs a little higher because the economy is clearly recovering and gathering strength despite all the doom sayers.

    Thank you.

  5. I think that McDonalds has been the biggest surprise performer for my portfolio. I bought them because they were safe, good dividend yield, and an excellent company overall, and I'm very pleased with this!

    I also use a 60% dividend payout ratio cap. I'll make exceptions for well run companies that can handle a higher DPR, but for the most part, I'm pretty strict on the 60%.

    Another company that I've been really happy with is Coke. Thanks for sharing your insights and philosophies. It's neat to see how people invest, and what their different goals are.


  6. Thanks for the free advice, I feel like you've done the research that I am too lazy to do for myself, and I have no fear of conflicts of interest as I do with most sources of financial information.

    And for the record, I am not a robot.


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

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