A Visit With the S&P Dividend Aristocrats: Three Priced Attractively

Consistent dividend payers offer the risk-conscious equity investor a modicum of protection. With the ranks of those investors growing daily thanks to the fact that high quality bonds have payouts lower than many dividend yields on stocks, it’s made it harder to find value among the reliable dividend payers. It seems like everybody wants them some dividend income.

The gold standard for dividend consistency is the S&P Dividend Aristocrats, a list of S&P 500 stocks that have managed to raise their dividend for at least 25 consecutive years. Right now there are just 51 Dividend Aristocrats. After quickly creating a YCharts Watchlist of all 51 stocks it was interesting to see just three Aristocrats are currently rated Attractive by YCharts’ proprietary analysis: Aflac (AFL), Exxon-Mobil (XOM) and Walgreens (WAG).

(Note: For a quick spin on how to create a YChart Watchlist check out this video. Once you’ve got a watchlist set up, head over to the YChart Stock Screener section of the site, and you can choose your Watchlist under the dropdown menu for Stock List. That dropdown defaults to All Companies, just use the dropdown and you’ll find My Watchlists. From there, you can slice and dice your Watchlist based on dozens of metrics.)

All three dividend aristocrats have managed to not just increase their dividends, but have done so at a strong pace well above the rate of inflation.

AFL Dividend Chart

AFL Dividend data by YCharts

And yes, they all have strong current dividend yields as well: 2.6% for Aflac and Exxon-Mobil and 3.2% for Walgreens.

But while the overall market is trading at a PE ratio near 14, Aflac’s PE is 8.7, and Exxon Mobil’s PE is at 9.2.

Only Walgreen’s 14.4 PE is above average. But according to YCharts Valuation model which measures current PE and price/sales relative to a stock’s 5-year average, Walgreen’s current valuation is nearly 15% below its longer-term norm.

Now to be “attractive” typically means there’s something funky going on that turns off investors.

In Aflac’s case the problem has been lingering fallout from poor investment choices. The supplemental insurance company -- which generates about 75% of its revenue from Japan operations -- had a huge chunk of its investment portfolio invested in European banks and debt, and has been recording large losses since the financial crisis winding down those positions.

Unrealized investment losses have declined from $3 billion in 2009 to $1.3 billion at the end of the third quarter. There’s a new chief investment officer in charge of the $110 billion portfolio. An ex-Goldmanite arrived a year ago, and has hired Goldman Sachs and McKinsey to help him figure out how to rejigger the portfolio to be less risk prone. That’s lifting a bit of a cloud, as did Aflac’s better-than-expected 7% revenue gain in the third quarter. Over the past three months the stock has jumped 13% while the S&P 500 is flat.

Exxon-Mobil, like all integrated oil and gas companies is finding the cost of replacing and growing reserves has a nasty habit of rising. For example, Exxon-Mobil recently said a liquefied natural gas project in Papua New Guinea is going to cost $19 billion, up from the original $15.7 billion.

XOM Capital Expenditures Quarterly Chart

XOM Capital Expenditures Quarterly data by YCharts

That said, this is the world’s biggest energy company in a world that long term has an increasing demand for energy. Exxon-Mobil is also sitting on $13 billion in cash, which can come in handy for acquisitions, stock repurchases, or more dividend hikes.

Of the three Attractive Aristocrats, Walgreen’s presents the murkiest outlook. The company divorced from pharmacy benefit manager Express Scripts (ESRX) only to get back together. But during the spat, boatloads of Express Scripts customers shifted over to CVS Caremark (CVS) and are unlikely to change back.

WAG Revenue Per Share TTM Chart

WAG Revenue Per Share TTM data by YCharts

That said, of the three Dividend Aristocrats rated attractive, Walgreens 3.2% current yield is the highest. That’s what can happen when your stock price goes nowhere for the past year, and you boost the dividend payout 22%. And it’s not as if Walgreen’s aristocratic bent is in jeopardy. Its dividend payout ratio is 37%. Exxon-Mobil’s payout ratio is 22% and Aflac’s is at 21%.

Carla Fried, a contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine.



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