For long-term performance, investors should consider pivoting their portfolios toward stocks that deliver high and growing dividend payouts, Barron's reports. The S&P 500 Dividend Aristocrats Index, which includes members of the S&P 500 Index (SPX) that have raised their dividends for at least 25 consecutive years, has delivered a total return of almost 300% since inception in 2005, versus 221% for the S&P 500 and 168% for the S&P 500 Value Index.
The 12-month dividend yield for the Aristocrats is 2.55%, compared to 1.84% for the broader S&P 500. Key members of the Aristocrats include Medtronic PLC (MDT), Target Corp. (TGT), Sysco Corp. (SYY), Aflac Inc. (AFL), Automated Data Processing Inc. (ADP) and Roper Technologies Inc. (ROP).
Top Performing Dividend Aristocrats
|Stock||YTD Price Gain||Dividend Yield|
|S&P 500 Index||6.7%||1.82%|
Sources: Barron's, The Wall Street Journal; data through the close on August 9, except for S&P 500 dividend yield, which is as of August 3.
The Dividend Aristocrats currently include 53 stocks in the S&P 500, according to SureDividend.com. Simeon Hyman, global investment strategist at ProShares, says that the Aristocrats offer "some good defensiveness," while also delivering average sales growth of about 10% and earnings growth of about 20% year-over-year (YOY) in the second quarter, roughly the same as the figures for the entire S&P 500, per Barron's. In general, companies that pay dividends and increase them regularly have solid business models that produce steadily growing earnings and cash flow over the long run, SureDividend observes.
Aristocrats Lagging Recently
Investors should note that, despite their longer-term record of outperformance as detailed above, Dividend Aristocrats have lagged the S&P 500 in the most recent YTD, 1-year and 3-year periods on a total return basis. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL), launched in October 2013, delivered total returns for these periods ending July 30 that were, respectively, behind the S&P 500 by 378 basis points (bps), 217 bps and an averaged annualized 129 bps, as calculated by Morningstar Inc. and reported by Barron's. Among the individual stocks in the Aristocrats Index that have outperformed the S&P 500 by wide margins so far in 2018 are ADP and Sysco.
ADP: Outsouring Powerhouse
ADP is riding the trend of outsourcing of key business functions, expanding from its original niche in payroll processing to a broader range of human resources functions delivered to client companies through cloud-based platforms. ADP is enjoying "solid earnings estimate revision activity," largely driven by its status as a leader in the fast-growing outsourcing industry, according to Zacks Equity Research. Indeed, in Zacks' ranking of more than 250 industries for attractiveness, outsourcing is number 68. Overall, Zacks gives ADP its top stock rating, "strong buy."
Sysco: Beating Estimates
Sysco is a leading supplier of food to restaurants, lodging establishments, health care facilities and educational institutions. Like ADP, Sysco also is seeing upgrades in analysts' earnings estimates, and its earnings are growing much faster than its peers in food service, at a long-term rate of 10.4% annually, per another Zacks report. The same report indicates that Sysco has beaten analysts' revenue estimates in 9 of the last 10 quarters, and has delivered an average positive earnings surprise of 2.25% in the last four quarters. Rising sales to restaurants, strategic acquisitions in both the U.S. and abroad, efficiency-enhancing investments in technology, and benefits from tax reform are key factors contributing to strong operating results, per Zacks, which nonetheless ranks Sysco a "hold."