Thursday, April 02, 2009

Dividend Aristocrat Universe Shrinking

Given the difficult economic environment, stocks of companies that pay a dividend have increasingly elected to reduce or eliminate dividends in order to conserve cash.

S&P reports actual first quarter dividend payments for companies in the S&P 500 Index were down 15.99% and this is the worst rate of decline since the -24.44% decline in the third quarter of 1958. David Blitzer, chairman of S&P's index committee, indicates S&P may need to loosen the criteria used to judge whether companies qualify for the Aristocrats Index. The big hurdle is a company has to have demonstrated annual increases in the dividend for at least 25 years.

S&P makes adjustments to the Aristocrats Index in December and only companies that paid more this year compared with 2008 will be retained . S&P's Aristocrats list currently contains 52 companies. Based on dividend cuts by some of the Aristocrats and "no increase" by companies in 2008, the potential list of firms that will be eligible for the index could fall below 40. This would be the lowest number of firms since 1992.

The 2009 Dividend Aristocrats list is detailed below.

Full Screen View

Bloomberg reports, "the Dividend Aristocrats Index returned an annualized 9.1 percent a year since 1989, compared with 6.6 percent for the S&P 500 Index, the main benchmark for American equities. It lost as much as 49 percent from its 2007 peak, while investors in the S&P 500 retreated as much as 57 percent." In spite of the fact the markets have declined by a significant amount, the Aristocrats have outperformed the S&P 500 Index.

Consequently, I believe S&P should not reduce the criteria used to determine the eligibility of companies for the Aristocrats membership. Companies that can increase their dividend every year over at least 25 years tend to be firms that have or project a strong earnings and cash flow profile. In the end it isn't the number of stocks you own, but owning the right stocks.

S&P ‘Dividend Aristocrats’ Dwindle as Payouts Are Cut
Elizabeth Stanton
April 2, 2009

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