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Philip van Doorn

March 19, 2022, 12:40 p.m. EDT

10 highest-yielding Dividend Aristocrat stocks for uncertain times as interest rates rise and economic growth slows

By Philip van Doorn

Now that the Federal Reserve has started to raise interest rates to counter inflation, this is a good time to take a deep look at the S&P Dividend Aristocrats and isolate stocks with the highest yields. There are more aristocrats than you might expect, with three broad U.S. indexes maintained by S&P Global.

Below is a screen of all three of the indexes to list the 10 U.S. Dividend Aristocrats with the highest yields.

On March 16, the Federal Open Market Committee released its policy statement following a two-day meeting and said the target range for the federal funds rate would increase to 0.25% to 0.50% from its previous range of zero to 0.25%.

The Federal Reserve Board and FOMC also released a set of economic projections , which included an estimated gross domestic product growth rate for 2022 of 2.8%, which was down from the previous 4% estimate in December.

Read: Fed raises interest rates and plots a strategy of steady further increases

During a press conference following the release of the FOMC statement, Federal Reserve Chairman Jerome Powell said the committee had “made progress” on a plan to reduce the central bank’s balance sheet, which had ballooned during the coronavirus pandemic as the Fed made extraordinary purchases of government bonds and mortgage-backed securities, to increase the money supply and support the economy.

Powell said the FOMC would release details of that plan soon. Shrinking the balance sheet would reduce demand for bonds, possibly pushing long-term interest rates higher. As bond prices have declined, the yield on 10-year U.S. Treasury notes (XTUP:BX:TMUBMUSD10Y) has increased to about 2.23% from 1.51% at the end of 2021.

In line with the Fed’s prediction of slower economic growth, Jonathan Burton interviewed David Rosenberg, who predicts a recession this summer .

Old reliable — S&P 500 Dividend Aristocrats

Starting with the benchmark S&P 500 (S&P:SPX) Index, the S&P 500 Dividend Aristocrats Index (S&P:XX:SP50DIV) is made up of companies that have increased their regular dividends on common shares for at least 25 consecutive years. That’s the only criterion for inclusion as an Aristocrat — it makes no differences how high the dividend yield might be.

The index is equal-weighted, rebalanced quarterly and reconstituted annually. It is tracked by the $9.6 billion ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) , which was established in 2013.

There are 65 S&P 500 Dividend Aristocrats, with dividend yields ranging from 0.19% to 5.22%, based on closing prices March 15.

The idea of the Aristocrats isn’t that the stocks will necessarily generate high income for investors. It is that the consistency of dividend increases might signal a commitment by companies’ management teams to their shareholders and be an indicator for good performance over the long term. A commitment to continually raising the dividend might also provide comfort that a dividend won’t be cut — an action that is typically brutal for the share price as investors lose confidence.

A 15-year chart shows that S&P 500 Dividend Aristocrat have performed well against the full S&P 500:

To be sure, the Aristocrats haven’t outperformed for all periods. They lagged during the long bull market through 2021. Then again, they have fared better during the decline of 2022. Here’s a look at this year’s performance and average annual returns for various periods (all through March 15), with dividends reinvested:

Index Total return – 2022 Avg. return – 3 years Avg. return – 5 years Avg. return – 10 years Avg. return – 15 years Avg. return – 20 years Avg. return – 30 years
S&P 500 Dividend Aristocrats -6.7% 13.9% 12.8% 13.8% 11.2% 10.4% 11.7%
S&P 500 -10.3% 16.7% 14.4% 14.0% 10.0% 8.8% 10.3%
Source: FactSet

Expanding the pool of Dividend Aristocrats

S&P Global actually maintains a large number of Dividend Aristocrat indexes and you can see the full list here , and a shorter list of Aristocrat indexes tracked by exchange-traded funds (which are also listed) here .

Many of the Aristocrat indexes cover non-U.S. markets. In this article we are focusing on the three broad U.S. Dividend Aristocrat indexes, which have varying criteria and some overlap:

  • The S&P 500 Dividend Aristocrats Index, as described above, is made up of the 65 stocks in the benchmark S&P 500 that have raised regular dividends on common shares for at least 25 straight years. It is tracked by NOBL.

  • The S&P 400 Dividend Aristocrats Index (BATS:REGL) has 48 stocks of companies that have raised dividends for at least 15 consecutive years, drawn from the full S&P Mid Cap 400 Index (PSE:MID) . It is tracked by the $1.1 billion ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS:REGL) .

  • The S&P High Yield Dividend Aristocrats Index (1083:XX:SPHYDA) is made up of the 119 stocks in the S&P Composite 1500 Index (S&P:XX:SP1500) that have increased dividends for at least 20 straight years. It is tracked by the $20.1 billion SPDR S&P Dividend ETF (PSE:SDY) . The S&P Composite 1500 itself is made up of the S&P 500, the S&P Mid Cap 400 and the S&P 600 Small Cap Index (S&P:SML) . So the S&P High Yield Dividend Aristocrats Index includes all the stocks in the S&P 500 Dividend Aristocrats Index. However, it excludes some that are in the S&P 400 Dividend Aristocrats Index. The name of the High Yield Dividend Aristocrats Index is confusing, because the yields, again, aren’t necessarily high — they range from 0.19% to 5.22%.

So there are three broad U.S. indexes of Dividend Aristocrats, with varying criteria. Then again, they are all labeled as Aristocrats, so we screened the entire group by listing all the component stocks and removing duplicates, for a pool of 135 companies.

Highest-yielding Dividend Aristocrats

From the full list of 135 companies in the three broad U.S. indexes of Dividend Aristocrat stocks, here are the 10 with the highest dividend yields:

Company Ticker Industry Dividend yield
International Business Machines Corp. (NYS:IBM) Information Technology Services 5.22%
National Retail Properties Inc. (NYS:NNN) Real Estate Investment Trusts 4.95%
Mercury General Corp. (NYS:MCY) Property/Casualty Insurance 4.86%
Leggett & Platt Inc. (NYS:LEG) Home Furnishings 4.63%
Exxon Mobil Corp. (NYS:XOM) Integrated Oil 4.56%
Realty Income Corp. (NYS:O) Real Estate Investment Trusts 4.54%
Franklin Resources Inc. (NYS:BEN) Investment Managers 4.30%
Amcor PLC (NYS:AMCR) Containers/Packaging 4.27%
NorthWestern Corp. (NAS:NWE) Electric Utilities 4.24%
OGE Energy Corp. (NYS:OGE) Electric Utilities 4.24%
Source: FactSet

Click on the tickers for more about each company.

Click  here  Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

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