2010 Dividend Aristocrats: Dividend Safety Ratings
Statistics updated to reflect current share prices and outstanding shares.
NEW YORK ( TheStreet) -- The investment thesis behind the S&P 500 Dividend Aristocrats -- an index composed of large-cap S&P 500 companies that have increased dividends for 25 consecutive years -- is simple and effective: Increased dividend payouts will compound over time.
For example, a $1,000 investment in a stock yielding 4% -- growing dividend payout 7% annually -- will yield approximately 8% on the original $1,000, 10 years later (assuming no capital appreciation).
This concept is known as "yield-on-cost."In a perfect world, investors would be able to buy a Dividend Aristocrats ETF, sit back and watch their portfolio appreciate. Unfortunately, things aren't so simple. Every December, Standard and Poor's adds and subtracts stocks from the Dividend Aristocrats index as companies come into and fall out of compliance. In December 2009, two companies were added to the list while 10 companies were eliminated (notable eliminations include General Electric (GE), Pfizer (PFE) and US Bancorp (USB)). For an individual investor mimicking the index, losses will almost certainly be realized with every eliminated security. A cautious investor should use the Dividend Aristocrats index only as a starting point for dividend stock ideas -- paying careful attention to the financial condition and prospects of each company. In the past, we have suggested that income investors periodically subject their portfolio to a " Dividend Acid Test*" -- a pass/fail exam that indicates if a company's dividend payout is covered, in full, by the company's liability adjusted cash flow yield (LACFY). Of course, a failing grade does not ensure that a dividend cut or elimination is imminent, but rather, that the failed company may have difficulty continuing payouts in the face of operational adversity or a large debt maturity. Similarly, a passing grade offers no guarantee that a company will not face a prolonged hardship or that the company's management will sustain its current dividend policy. Investors must always be cautious. The following pages contain pass/fail results for 39 of the 42 companies that comprise the 2010 S&P 500 Dividend Aristocrats -- ranked in ascending order by liability adjusted cash flow yield**.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV