That’s the take-away from a new report out by equities analysts at Standard & Poors.
The report, titled Dividend Aristocrat Exposure Through Funds, finds that “in this current environment of slow economic growth, dividend yields could again become a major source of an investor's total return.”
Consider these facts:
Since 1926, dividends have accounted for more than 40% of the total return for the S&P 500.
More recently, during the period from Dec. 31, 1999 through May 31 of this year, a group of 42 stocks, dubbed the S&P Dividend Aristocrats, that have all consistently paid increased cash dividends year on year for at least 25 years and showed a total gain of 141%, including dividends. Over that same time period, the total return of the S&P (including those 42 companies) was just 13%.
S&P equity analyst Michael Souers says that the companies on the Dividend Aristocrat list “typically represent large-cap stocks with strong quality of earnings and stable cash flows.” He also notes that because they need to plan ahead to have the cash to pay higher dividends each year (or suffer the wrath of investors and funds that expect them to do so), the managements of these firms “tend to focus on steady growth,” and not to be heavily leveraged.
This allowed them to generally do well through the financial crisis--though some financial companies, formerly on the list, did drop out in the crisis when they eliminated their dividends.
Many of the companies on the Dividend Aristocrats list, Souers says, are “mature firms with mature markets, especially in areas like consumer staples, which are not as cyclical as many other industries."
Among companies on that list are Automatic Data Processing (ADP), PepsiCo (PEP), Walgreen (WAG), Caterpillar (CAT), Coca-Cola Company (KO), Exxon Mobil (XOM), McDonald’s (MCD), Johnson & Johnson (JNJ) and Proctor & Gamble (PG).
S&P’s analysts screened 2500 Large Cap and Equity Income funds, and settled on three funds which they say all are heavily overweighted in Dividend Aristocrat stocks, have no sales load, offer low expense ratios and have performed well against their peers.
The three, all given S&P’s five-star rating, are Invesco Disciplined Equity Fund (AWEIX), Vanguard Dividend Appreciation Index Fund (VDAIX), and the Yacktman Fund (YACKX).