Monday, November 13, 2006

S&P's Dividend Aristocrats: Part II

In a comment to my Part I post on S&P’s Dividend Aristocrats (November 12, 2006) , the author of the comment notes:

“What's particularly interesting is the number of stocks that have dropped off the list over the years. Excluding mergers, the dominant reason seems to be a large acquisition that is heavily debt funded.” by yielder at

The author of the comment is largely correct. Importantly, the cause for most of the companies dropping off the Aristocrat list was due to merger or acquisition and not a result of going out of business for financial reasons such as a bankruptcy. The number of Aristocrats has actually been on the rise.

(click on graphs for larger image)

Standard and Poor’s produced a paper (link) in May 2005 covering the history of the Aristocrats. The paper noted interesting conclusions about dividend paying stocks.

  • “In 2004 dividend income comprised 4.6% of per capita personal income in the U.S., compared to 2.7% 20 years prior. In terms of year 2000 dollars, total personal dividend income increased from $134 billion to $407 billion. During the same period, the other source of income from capital markets, interest, saw its share in personal income shrink from 15.7% to 9.8%. Exhibits 1 and 2 chart the growing importance of dividend income vis-à-vis interest income. As equity ownership becomes even more ubiquitous, and a growing number of retiring Americans seek income-generating assets, the importance of personal dividend income shall increase.”

  • Although the percent of monthly returns coming from dividends has declined, on average, dividends have accounted for one-third of monthly returns since 1940.

  • The compounding effect of reinvested dividends is significant.
  • Based on the chart labeled Exhibit 7, might payout ratios be on the increase. Given the strength in corporate earnings over the last three plus years, a large part of the rise in the payout ratio is due to the increase in dividends by S&P 500 companies.
Source: Standard and Poor's

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