There were 64 dividend aristocrats at the end of 2019. After the spin-off of Otis Elevator and Carrier from United Technologies, the list is up to 66 members as of April 30, 2020.
These companies are high quality, the masters of their respective industries, and the envy of competitors. A lot of them have managed to build those track records of annual dividend increases due to their strong competitive advantages and strong business models that shower them in rising amounts of cash over time.
As a result, it should not be surprising that even during a global pandemic that shut-down a large portion of the Global Economy, these companies are basically chugging along. At least so far.
As an investor, I keep reading snarky remarks about dividend cuts. So far, most of the companies that have cut dividends are from industries that usually cut dividends during a recession. It is true that this current recession borders on the severity of the Great Depression, so perhaps we have not seen the full impact on the economy yet. But so far, only the cyclical businesses that usually cut dividends were the ones to cut in 2020.
The dividend aristocrats have had 24 dividend increases as of the end of April 2020. There have been two dividend cuts so far in 2020. I will explain below why these are not actual dividend cuts, and why I am ignoring them, because they are illusory. The data for this article is sourced from S & P.
You can view the list of year-to-date dividend increases below:
Company
|
Month
|
Type
of Action
|
Ticker
|
New
Rate
|
Old
Rate
|
Dividend
Change
|
Sector
|
Johnson
& Johnson
|
APR
|
INCREASE
|
JNJ
|
$4.04
|
$3.80
|
6.32%
|
Health
Care
|
People's
United Financial, Inc
|
APR
|
INCREASE
|
PBCT
|
$0.72
|
$0.71
|
1.41%
|
Financials
|
Procter
& Gamble Company
|
APR
|
INCREASE
|
PG
|
$3.16
|
$2.98
|
6.04%
|
Consumer
Staples
|
Amcor
PLC
|
APR
|
DECREASE
|
AMCR
|
$0.46
|
$0.47
|
-2.13%
|
Materials
|
Raytheon
Technologies Corporat
|
APR
|
DECREASE
|
RTX
|
$1.90
|
$2.94
|
-35.37%
|
Industrials
|
Colgate-Palmolive
Company
|
MAR
|
INCREASE
|
CL
|
$1.76
|
$1.72
|
2.33%
|
Consumer
Staples
|
General
Dynamics Corporation
|
MAR
|
INCREASE
|
GD
|
$4.40
|
$4.08
|
7.84%
|
Industrials
|
Realty
Income Corporation
|
MAR
|
INCREASE
|
O
|
$2.80
|
$2.79
|
0.36%
|
Real
Estate
|
Ross
Stores, Inc.
|
MAR
|
INCREASE
|
ROST
|
$1.14
|
$1.02
|
11.76%
|
Consumer
Discretionary
|
3M
Company
|
FEB
|
INCREASE
|
MMM
|
5.88
|
5.76
|
2.08%
|
Industrials
|
Aflac
Incorporated
|
FEB
|
INCREASE
|
AFL
|
1.12
|
1.08
|
3.70%
|
Financials
|
Albemarle
Corporation
|
FEB
|
INCREASE
|
ALB
|
$1.54
|
$1.47
|
4.76%
|
Materials
|
Cincinnati
Financial Corporati
|
FEB
|
INCREASE
|
CINF
|
2.4
|
2.24
|
7.14%
|
Financials
|
Coca-Cola
Company
|
FEB
|
INCREASE
|
KO
|
1.64
|
1.6
|
2.50%
|
Consumer
Staples
|
Essex
Property Trust, Inc.
|
FEB
|
INCREASE
|
ESS
|
8.31
|
7.8
|
6.54%
|
Real
Estate
|
Genuine
Parts Company
|
FEB
|
INCREASE
|
GPC
|
3.16
|
3.05
|
3.61%
|
Consumer
Discretionary
|
Linde
plc
|
FEB
|
INCREASE
|
LIN
|
3.85
|
3.5
|
10.00%
|
Materials
|
Sherwin-Williams
Company
|
FEB
|
INCREASE
|
SHW
|
5.36
|
4.52
|
18.58%
|
Materials
|
T.
Rowe Price Group
|
FEB
|
INCREASE
|
TROW
|
3.6
|
3.04
|
18.42%
|
Financials
|
Walmart
Inc.
|
FEB
|
INCREASE
|
WMT
|
2.16
|
2.12
|
1.89%
|
Consumer
Staples
|
Air
Products and Chemicals, In
|
JAN
|
INCREASE
|
APD
|
$5.36
|
$4.64
|
15.52%
|
Materials
|
Archer-Daniels-Midland
Company
|
JAN
|
INCREASE
|
ADM
|
$1.44
|
$1.40
|
2.86%
|
Consumer
Staples
|
Chevron
Corporation
|
JAN
|
INCREASE
|
CVX
|
$5.16
|
$4.76
|
8.40%
|
Energy
|
Consolidated
Edison, Inc.
|
JAN
|
INCREASE
|
ED
|
$3.06
|
$2.96
|
3.38%
|
Utilities
|
Kimberly-Clark
Corporation
|
JAN
|
INCREASE
|
KMB
|
$4.28
|
$4.12
|
3.88%
|
Consumer
Staples
|
S&P
Global, Inc.
|
JAN
|
INCREASE
|
SPGI
|
$2.68
|
$2.28
|
17.54%
|
Financials
|
The list doesn’t include IBM yet, after the company raised its quarterly dividend by a penny to $1.63/share last week. This marked the 25th consecutive annual dividend increase for this newly minted dividend aristocrat.
The first dividend cut comes from Amcor (AMCR), which was added to the Dividend Aristocrats list in 2020. I do not think they should have added this company to the elite list of dividend aristocrats.
Amcor acquired dividend aristocrat Bemis in 2019. Bemis had managed to increase dividends for 32 years in a row. Somehow, Standard & Poor’s decided to transfer the long record of annual dividend increases over to the acquirer. That doesn’t make any logical sense.
If you review the dividend history for Amcor on the company's website, you will notice that they lowered their quarterly dividend from 12 cents/share to 11.50 cent/share in 2019. Amcor did not qualify to be a dividend aristocrat because it had not increased dividends for 25 years, and actually cut them in 2019.
The other issue I have is that Standard & Poor’s has put some incorrect dividend amounts in their calculations. They show the decrease as going from 47 to 46 cents/share. The problem is that if these are annual payments, Amcor never had an annualized payment as 47 cents/share.
The other item to note is related to mergers and spin-offs. In 2020, United Technologies (UTX) spun-off Otis Elevators and Carrier. Shareholders received 1 share of Carrier for each share of UTX they owned. Shareholders received a half share of Otis for every UTX share they held. The company then acquired Raytheon, and changed its name to Raytheon Technologies. Each shareholder of United Technologies (UTX) received one share of Raytheon Technologies (RTX) for each (UTX) share they owned.
S&P has all companies (Raytheon Technologies, Otis, Carrier) listed as dividend aristocrats. That's because the index committee chose to keep them in the index. Before all the transactions too place, United Technologies paid a quarterly dividend of 73.50 cents/share.
Last week, Raytheon Technologies (RTX) has declared a quarterly dividend of 47.50 cents/share.
Standard & Poor’s is listing the new dividend declaration from Raytheon Technologies as a dividend cut. That doesn’t make any sense.
Depending on the dividends for Otis and Carrier, it may look like a dividend increase or a dividend cut. We just don’t know it yet, because Otis and Carrier have not declared their first policy.
If you look at the company's tax basis allocation, Raytheon Technologies (RTX) represents just 55% of the fair value as of April to begin with. We cannot say that Raytheon Technologies (RTX) is a dividend cut, until we see what dividends are declared by OTIS and Carrier.
I believe that S&P is being inconsistent in their methodology. For example, when Abbott (ABT) spun-off Abbvie (ABBV) in 2012, Abbott's dividend was reduced. But that was due to the spin-off. A shareholder who kept both Abbott and Abbvie actually saw an increase in their total dividend income. Hence, both companies were kept on the dividend aristocrats index.
This of course is inconsistent with the treatment of Altria (MO), which was unceremoniously kicked out of the Dividend Aristocrats list in 2007 after it spun-off Kraft Foods. In reality, a shareholder who kept Kraft and Altria did not experience a decrease in total dividends in 2007 or 2008. It is just that S&P is treating spin-offs in an inconsistent manner. They also did not include Kraft Foods as a dividend aristocrat either, despite the fact that they are not including spin-offs like Abbvie, Otis and Carrier as dividend aristocrats.
Therefore, I do not believe they should treat Raytheon Technolgoes (RTX) as a dividend cut.
This is why I would take the list of Dividend Aristocrats Index with a grain of salt. It is an index that in my opinion is incomplete at best, and in my opinion uses an inconsistent methodology to add/remove companies from it.
I would recommend serious investors to use both the Dividend Aristocrats list together with the list of Dividend Champions, in order to come up with a more complete picture of companies that have raised dividends for at least 25 years in a row. Both indices are good enough, but as serious investors, I would recommend you pore over each company and determine for yourself where you stand on it.
Relevant Articles:
- Dividend Aristocrats List for 2020
- Dividend Achievers versus Dividend Contenders & Champions
- S&P Dividend Aristocrats Index – An Incomplete List for Dividend Growth Investors
- Dividend Champions List for 2020
