Until value stocks perked up in recent weeks on the positive news about Covid vaccines, many dividend stocks had languished this year.
Some dividend strategies worked better than others, however, before the rotation into value.
“Investors have preferred to focus on companies with a long-term history of increasing their dividend,” Chris Senyek, chief investment strategist at Wolfe Research, wrote in a recent note. Meanwhile, he added, they “largely avoided dividend-yielding stocks this year over dividend cut concerns and their ‘value’ investment style tilt.”
Consistent dividend growth over at least 25 years was the best-performing basket of dividend stocks tracked by Wolfe Research. Senyek’s list of about 65 stocks that meet those criteria include many of the S&P 500 Dividend Aristocrats. Members of that group have paid out a higher dividend every year for at least 25 years.
The Aristocrats, which include
Johnson & Johnson
(MCD), have returned 7.5% this year, dividends included, as of Dec. 1. That compares with a 15.3% result for the S&P 500 through the same date.
As is the case for many dividend stocks, 2020 performance has been a tale of two distinct periods for the Aristocrats. From Dec. 31 of last year through Nov. 6, the Aristocrats eked out a return of about 1%. But the Nov. 9 news from
(BNTX) that their Covid vaccine was more than 90% effective marked the beginning of a rotation into value stocks—and a boon for many dividend stocks. From Nov. 6 through Dec. 1, the Aristocrats returned 6.3%.
The top-performing Aristocrats this year hail from a variety of sectors.
(ALB), a specialty chemical company and lithium miner, finished first with a total return of 88%. The shares have benefited in part from optimism about future lithium sales for batteries used to power electric vehicles.
The stock, however, yields 1.1%, one of the lowest among the Aristocrats. Its strong year-to-date performance was followed by Target, up 40%, dividends included;
(CLX), up 34%; and
(CTAS), which gained 35%. Cintas, whose products include employee uniforms, yields 0.8%. Clorox was at 2.2%, and Target was at 1.5%.
As one might expect given the inverse relationship between price performance and yield, the highest-yielding Aristocrats have been among the worst performers in 2020.
At 9% recently,
(XOM) sports the highest yield and, with a return of about minus 40%, it has been the worst-performing Aristocrat this year as of Dec. 1. The company, which has struggled with lower oil prices, has maintained its quarterly dividend at 87 cents a share, the first time in early 40 years that it hasn’t boosted the payout. However, the stock will remain in the Aristocrats for now because it will have paid out more in dividends this year than it did in 2019.
Other laggards in the group include
(T), down 21%;
Walgreens Boots Alliance
(WBA), off 32%; and
(CVX), which has lost 23%, including dividends.
But as a group, the Aristocrats have been a solid option for defensive investors during the pandemic. One way to play that is with the
ProShares S&P 500 Dividend Aristocrats
Write to Lawrence C. Strauss at [email protected]