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Newsflash: The Dividend Aristocrats Found The Lost Decade
By: Chuck Carnevale   Wednesday, May 2, 2012 5:11 PM
Symbols: ABT, ADP, AFL, BCR, CL, CLX, GPC, ITW, JNJ, KMB, KO, MCD, MDT, MHP, MKC, PEP, PG, SYY, T, VFC, WAG, XOM
Subtract the funds taxes from Gains and dividends, and investors are back to a loss."

The same commenter also expressed the same sentiment in another comment to another reader as follows:

"it is likely that nearly all the dividend buy- and- hold Bulls have lost money relative to year 2000, after adjusting for inflation and taxes."

Although the first comment above is accurate regarding the S&P 500 as inflation was approximately 28% (by my calculation inflation was actually 32.3%), his second comment is inaccurate where his view is biased by his first comment. In truth, at least regarding the Dividend Aristocrats who increased their dividend every year for 25 straight years, all the dividend buy-and-hold bulls that held them would have trounced the S&P, inflation and taxes.

The following tables generated by the F.A.S.T. Graphs™ research tool reviews the performance of the Dividend Aristocrats since December 31, 1999. Astoundingly, only 3 of the 51 Dividend Aristocrats underperformed the S&P 500. Furthermore, only 7 of the 51 companies would have failed to generate the 3% compounded annual return necessary to combat inflation and taxes. Moreover, the majority of the Dividend Aristocrats have lavishly rewarded their dividend buy-and-hold bulls (optimists).  As you review the list, note that every company from Procter & Gamble (PG) and above outperformed the S&P 500, inflation and taxes.

Table One: Top 15 Dividend Aristocrats Since 1999

Our first table lists the top 15 Dividend Aristocrats in order of highest performing to the lowest. Sherwin Williams (SHW), the best performer averaged over 16% returns per annum, with Becton Dickinson & Co. (BDX) rounding out the top 15 by averaging a 10.1% compounded annual return.

As you review the records of these first 15 Dividend Aristocrats, keep in mind that this is during one of the worst 13-year periods of price performance in stock market history. For added perspective and insight and just following this first table, I provide the complete earnings and price driven F.A.S.T. Graphs™, plus performance tables on these two Dividend Aristocrats.

Sherwin-Williams Co.

There are at least two very interesting takeaways that the 13-year earnings and price correlated graph on Sherwin-Williams reveals. First of all, Sherwin-Williams was not overvalued at the beginning of calendar year 2000.  This validates a point that I've often written about that states that in every market, whether bull or bear, the scrutinizing investor can always find good stocks at fair value to invest in. Second, I would like to point out that I believe that Sherwin-Williams is currently significantly overvalued, which greatly contributes to its outperformance.

There was no "Lost Decade" for shareholders of Sherwin-Williams Company since 1999. Not only did they receive significant long-term capital appreciation, they were rewarded by strong growth in their dividend income. Finally, what follows is a napkin calculation of Sherwin-Williams' return after inflation and taxes:

$576,154.38 capital appreciation – 33% inflation = $386,203 + $56,287 of total dividends paid - 15% tax = $47,844 = $329,916 total cash return (The figure needed to beat inflation is approximately $133,000).

 

Becton Dickinson & Co. (BDX)

Becton Dickinson is also interesting in at least two ways.  First, it represents another example of a company that was fairly valued at the beginning of calendar year 2000.  However, it was overvalued in 2008, which contributed to their large drop in stock price during the great recession.  But even though they have not returned to their previous high price of $93.24 in 2008, fair value at that time was approximately somewhere between $65-$70 per share.  In other words, Becton Dickinson's stock price should never have been that high in the first place.  As an aside, even the optimistic investor should have, or could have, realistically sold or lightened up on their position at that time.

The scrutinizing reader might notice that Becton Dickinson shareholders enjoyed a total rate of return (10.1%) that was very close to its operating earnings growth rate of 10.4%.  At the end of the day, fundamentals matter.  Also, note that dividends increased in close correlation with earnings growth.

 

Table Two: Top Performing Dividend Aristocrats 16 – 30

Our second top 15 best performing Dividend Aristocrats also soundly outperformed the S&P 500, inflation and taxes.

Table Three: Top Performing Dividend Aristocrats 31 - 45

On this list of Dividend Aristocrats, only one company, Walgreen Co.


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