As central banks begin to relax their aggressively loose monetary policies and the days of low interest rates begin to fade into the past, one set of stocks is especially feeling the effects—the so-called dividend aristocrats. These stocks of companies that are known for paying out reliable dividends outperformed in the era of low interest rates as investors went looking for yield wherever they could find it. But as rates begin to rise, these stocks are now lagging the broader market, according to the Financial Times.

The Aristocrats

The S&P Dividend Aristocrats index, which contains stocks that have consistently increased their annual dividends each year for the pasty 25 years, has had a total return of 420% since the beginning of March 2009, around when the recent stock bull market began. The broader market on the other hand, as measured by the S&P 500, has returned just 372% over the same period, including reinvested dividends. But since the start of 2018, the Aristocrats index is down 2.3%, underperforming the S&P 500, which is basically flat for the year. (To read more, see: Why Dividend Stocks Are Killing Growth Stocks in 2017.)

The Dividends Aristocrats index currently contains 53 stocks of high quality companies, of which 24.7% come from the consumer staples sector, including Archer Daniels Midland Company (ADM), Hormel Foods Corp. (HRL) and Walmart Inc. (WMT); 21.4% are in the industrials sector, including Cintas Corp. (CTAS) and General Dynamics Corp. (GD); 11.3% from the materials sector, including Ecolab Inc. (ECL) and Praxair Inc. (PX); 11.1% from health care, like Johnson & Johnson (JNJ); 10.8% from consumer discretionary, like McDonald’s Corp. (MCD); 9.5% from the financial sector, like Aflac Inc. (AFL).

Source: S&P 500 Dow Jones Indices

Shifting Investor Preferences

Among these big dividend payers, the underperformers have been Hormel Foods with a total return of -1.55% year to date, Walmart at -11.39%, Praxair at -2.05%, Johnson & Johnson at -8.75%, and McDonald’s at -7.17%. (To read more, see: Why Dividend Stocks Are Losing Their Magic.)

At least part of the explanation for the weaker performance this year can be attributed to a shift in investor preferences towards more cash-like securities as the Federal Reserve tightens its monetary policy. That tighter policy is pushing up the yields on short-term government bills. The higher yields combined with the liquidity of these cash-like instruments makes them relatively more attractive investments. The implied yield of the 12-month T-bill was sitting at about 2.08% compared to the S&P 500’s 12-month trailing dividend yield of 1.95%, as of last Monday, according to the Financial Times.

However, not all of the big aristocrats have lagged the market this year. Archer Daniels Midland has a total return of 14.36% this year and a forward annual dividend yield of 2.96%; Cintas has a total return of 11.10% and forward dividend yield of 0.95%; General Dynamics has a total return of 10.53% and forward dividend yield of 1.70%; and Aflac has a total return of 3.76% and dividend yield of 2.33%.

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