Standard & Poor’s has speculated that the dollar amount of S&P 500 dividend payments will drop 10% in the fourth quarter, the biggest drop since 1958. However, more than half of companies will pay more in 2008 vs. 2007. This oddity is driven by the banks, which have historically paid some of the highest dividends. As any dividend investor can tell you, the banks have led the way in dividend cuts. In September and October, 16 financial companies cut their dividend payments by $14.6 billion.
S&P 500 Dividend Aristocrats is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. The constituents are equally weighted and rebalanced each quarter. Members are removed during the December update if calendar-year dividends did not increase from the previous year, or they are removed intra-year if the stock is dropped from the underlying S&P 500.
Dividend investors have a lot to be thankful for. The 60 companies making up the Dividend Aristocrats have outperformed the S&P 500 index year-to-date by almost 12 percentage points.
SmartMoney recently published a dividend growth stock screen with the following criteria:
- Past year dividend growth greater than 10%
- Ten-year average dividend growth greater than 10%
- Price/free-cash-flow ratio below 20
- Dividend yield greater than 3%
That screen produced the following 6 stocks:
- Caterpillar (CAT) – 4.64% current yield – Last reviewed: 9-10-2008
- Darden Restaurants (DRI) – 4.84% current yield – Last reviewed: n/a
- Garmin Ltd. (GRMN) – 4.32% current yield – Last reviewed: n/a
- Intel (INTC) – 4.27% current yield – Last reviewed: 10-6-2008
- Pfizer (PFE) – 7.86% current yield – Last reviewed: 3-17-2008
- Black & Decker (BDK) – 4.24% yield – Last reviewed: n/a
Of the stocks that I have reviewed, I currently rate:
- CAT as a 4 Star-Buy with a buy below price of $43.22
- INTC as a 4 Star-Buy with a buy below price of $21.21
- PFE as a 3 Star-Hold with a buy below price of $27.72
After running the remaining 3 companies through my D4L-PreScreen.xls model, BDK with a NPV of MMA Differential of $49,200 qualifies for a more complete evaluation. However, since it is time for a dividend increase and BDK has only increased its dividend for 5 consecutive years, I would wait to see what the company does prior to performing a full evaluation. DRI has only seriously raised their dividend for the last 3 years. GRMN has only paid a dividend (annual) since 2003.
As always, you should never act solely on a screen or recommendation. You should perform your own research and reach your own conclusion before buying or selling an investment security.
Full Disclosure: At the time of this writing, I was long in CAT, INTC, PFE