Although the S&P 500 is already 19.5% up since the beginning of the year, there are still undervalued Dividend Aristocrats worthwhile considering to buy.
5-year dividend yield average as an indicator
Dividend Aristocrats are companies in the S&P 500 that have increased dividends every year for the last 25 straight years. These Aristocrats companies have often robust business models and have done quite well compared to the rest of the market. For selecting the top-6 we use the theory that for stable business dividend stocks, their dividend yields tend to return to the historical average over time. In this case, a stock might be undervalued when the current yield is higher than the 5-year dividend yield average.
For example, AbbVie’s (ABBV) current dividend yield of 5.91% is 83.5% above its 5-year average of 3.22%. This indicates that this dividend stock is (current yield – average yield)/current yield = 45.5% undervalued. Assuming the dividend payout remains at least the same, the share price must increase to lower the dividend yield and reach again the 5-year average level.
To return to the historical average dividend yield, the stock price has to increase by 83.5% in the next 5 years. This translates in an extra annual 12.9% increase for the stock in the next 5 years.
It will not be a surprise that a higher current dividend yield is often an indicator of a low stock price and a recent poor performance of the stock price. For AbbVie Inc. (ABBV) this indeed the case, but certainly not for all, as the chart below shows:
Undervalued Dividend Aristocrats
Here you go. The table below lists the current top-6 of dividend aristocrats which are undervalued based on its 5-year average dividend yield average. The list could be a good starting point for checking-out those stocks and assess the companies on other elements such as payout ratio, P/E ratio, etc. Those details can be found on the detail page per stock.
Member use the Dividend aristocrats screener to see all data and stocks
Please keep in mind: Past performance is no guarantee of future results, not all dividend aristocrats mentioned were already a member 10 years ago.
Other Sources of Dividend Investment Ideas
The Dividend Aristocrats list is not the only way to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market on the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 year of dividend can be an list of inspiration.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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