Dividend Aristocrats for Uncertain Times

March 27, 2020    Portfolio Idea Dividend Dividend Aristocrats US

Since my last post, there was this little virus that turned out to be not so little. Stock prices went into freefall and nobody really knows when we are supposed to be at the bottom. One thing we know, the Corona-virus is not over yet. In many countries it’s probably only just getting started. Going by what happened in China, I’m guestimating at least another 3 to 4 months of this.

Dividend Aristocrats

When looking for guidance and for certainty in the US stock markets, the companies labeled as dividend aristocrats are the top ones to look at.

For a company to be a dividend aristocrat it has to:

  • Pay dividend each year
  • Increase that dividend each year
  • Have done this for at least 25 years

If you want to be even more strict, there’s also the S&P 500 Dividend Aristocrat list, that only includes the dividend aristocrats that are part of the 500 largest US companies.

Although you shouldn’t judge a stock by its past performance, the idea is that if a company has been able to pay dividend consistently for 25 years, there’s a good chance they know what they are doing and will be able to continue on the same track in the future.

Debt

Every company needs cash and one way to get it is to loan some from a bank.

Debt can be a good thing, if a company (or a person) uses it to create more value and money, it will create positive leverage. But leverage can also work the other way around.

In a crisis, debt can be a really bad thing. Income will decrease, so it may get difficult to pay the interest on that debt. Which in turn can lead to very bad things and eventually even bankruptcy.

At the moment, we really don’t want a company with too much debt, so we’re going to take the debt ratio into account. It’s not advised to use the debt ratio across industries, but we’re going to do that anyway. Debt is bad at the moment, so we don’t want it.

This Month’s Portfolio

And now for the real portfolio. As always I’m keeping it simple:

  • S&P 500 Dividend Aristocrats.
  • Lowest debt-to-equity ratio.
Symbol Name Current Price ($) Debt ratio (%)
TROW T. Rowe Price Group Inc 101.34 11.87
BEN Franklin Resources Inc 18.22 22.51
HRL Hormel Foods Corp 44.85 26.47
CVX Chevron Corp 76.38 38.84
APD Air Products and Chemicals Inc 201.34 39.29
LIN Linde PLC 174.19 40.38
EXPD Expeditors International of Washington Inc 65.2 40.49
NUE Nucor Corp 33.54 41.18
MDT Medtronic PLC 91.94 44.03
XOM Exxon Mobil Corp 38.82 45.14

Important: When evaluating the performance of a portfolio, you should always take into account the dividends that were paid out. Especially for this portfolio it is important. For instance, the Coca-Cola (KO) stock price (of which I own a bit) hasn’t moved all that much in the last 5 years, but it has ben steadily paying out dividends.


My philosophy: If you want to invest and your goal is to try to beat the market, you need a system. You need a system that can decide for you what to buy, when to sell and not to panic when things go down. Everything starts with selecting stock. You should not just select random stock here and there based on whims or things you read. No, create a system that suites your style and follow it. These posts give you example of what such a stock selection could look like.

Disclaimer: Don't believe anything I say or write. Always do your own research before making any investment decisions.