Which Stocks, Among S&P’s Dividend Aristocrats, Treated Investors Best in 2012?

Standard & Poor’s Dividend Aristocrats is a rarefied club. Just 10 percent of the stocks in the S&P 500 index have managed to increase their dividends for at least 25 consecutive years, and thus earn a magic ticket into the clan.

And it’s not a bad list to work off of. A long history of rising dividends typically signals a well-run company generating consistent earnings and free cash flow growth. But all too often in these income-starved times, investors focus most on a stock’s current yield. And the Aristocrats are no different than the rank and file dividend payers: chasing after yield can be a penny-wise pound-foolish strategy.

What’s most important is the total return that dividend-payers produce: the yield plus any change in the underlying price of the stock.

In 2012, the Dividend Aristocrats were a clear lesson in why current dividend yield is over-rated. The highest yielding Dividend Aristocrat, Pitney Bowes (PBI) had the worst total return. (More on the worst performers among the Dividend Aristocrats in Part Two.)

And the best performing Aristocrat has one of the lowest yields.

With just a few trading days left in 2012, Sherwin Williams (SHW) seems to have a lock on total return honors for the year among the 51 dividend aristocrats. Here are the top five – Sherwin, PPG Industries (PPG), Lowe’s (LOW), Franklin Resources (BEN) and Cincinnati Financial (CINF) -- based on year-to-date total return.

SHW Total Return Price Chart

SHW Total Return Price data by YCharts

Most of Sherwin-William’s total return was price gain, as the stock’s current dividend yield is barely 1%. That’s what happens when a price rallies so fast. And yet Sherwin-Williams is exactly what you’d want from a dividend payer. It has raised its payout 152% over the past 10 years, during a stretch when inflation rose 27%. Bet you can’t say that ‘bout your bond income.

That said, it’s looking a tad late to get in on this housing-rebound story. Sherwin-William’s PE ratio has shot up to 28. That’s more than double the level of the overall S&P 500 and above its longer-term trend. Same problem with Lowe’s, another 2012 Aristocrat total return standout riding the housing rebound.

SHW PE Ratio TTM Chart

SHW PE Ratio TTM data by YCharts

Alas, the three other Aristocrats with the best total return aren’t screaming values either, with above-market PE’s.

Among Aristocrats with index-besting total returns this year, only Target’s (TGT) PE ratio remains below the index’s estimated year-end level of 13.8. Its current 2.3% dividend yield is just average, but out-size dividend growth has played a large role in producing an index-beating total return.

TGT Dividend Chart

TGT Dividend data by YCharts

Carla Fried, a senior 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. She can be reached at editor@ycharts.com.



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