In this series of articles, we start the search for the top ten safest dividend stock using different angles and selection processes. Long-term dividend growth investors, need to pay less attention to the short-term movements of the market and focus on the quality and business models of the companies in their portfolio.
However, these days where both the stock market and investor emotions are rollercoasters, it is not so easy to stick to an investment strategy. Especially when in March 75 dividend cuts were announced, mainly related to the Corona-virus. The dividend is an essential part of the total return of a dividend growth portfolio and the main building block of income and retirement portfolios.
In part 1, we look at what the analysts of Goldman, Jefferies are reporting on safe dividend stocks. In part 2, we take the recession-proof dividend aristocrats as a starting point and their performance during the recent Coronavirus Crisis.
Part 2: Recession-proof dividend aristocrats
In this second article, we zoom in on the probably well-known dividend aristocrats. Dividend Aristocrats (DA) are stocks with 25+ years of consecutive dividend increases and member of the S&P 500. An attractive quality of DA stocks is that they managed to outperform the S&P 500 during the Internet Bubble, The Great Recession (2007-2009) and the recent Coronavirus Crisis.
We first analyzed each Dividend Aristocrat by looking at their earnings, dividends, maximum drawdown (MDD) and stock price performance during the 2007-2009 financial crisis. Based on the maximum drawdown (MDD) and the stock performance during the 2007-2009 (excluding dividends). The table below contains the top-10 dividend aristocrats with a “minimum” MDD and indeed with a dividend growth during this period.
During the recent Coronavirus Crisis, most of the top-10 recession-proof stocks managed to outperform the S&P 500. The S&P 500 is down -14.4% year-to-date, while some stocks even managed to realize positive returns. For example, Clorox(CLX), Walmart (WMT) and Colgate-Palmolive (CL).
Below is the performance chart of the other dividend aristocrats mentioned. Only Exxon Mobil (XOM) had a difficult year so far and it underperforming the S&P500 as only DA, since it was also “hit” by an oil price war between Saudi Arabia and Russia, which has driven crude prices down. A good replacement for Exxon Mobil would be Hormel Food (HRL). The Hormel stock has increased by 3% year-to-date and also managed to outperform in the 2007-2009 each separate year.
So here is the top-10 safest dividend stocks based on recession performance and 25+ years of consecutive dividend growth and not surprisingly mainly active in the “Consumer” and “Healthcare” sectors:
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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