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Thursday, April 2, 2009

S&P Dividend Aristocrats under performing S&P 500 in 1Q 2009

S&P 500, which is the benchmark against which most money managers track their performance, lost 11.67% in the first quarter of 2009. The S&P Dividend Aristocrats however underperformed the benchmark by almost 2% after losing 13.84% in the first quarter. Now if we add dividends to the picture the S&P 500 loss drops to 11.01% while the loss for Dividend Aristocrats decreases to 12.90%.

The average performance of S&P 500 dividend payers was much lower than non-dividend payers in the S&P 500 for the first quarter -12.99% versus – 0.23%. The S&P is expecting dividends on the S&P 500 to drop to $21.92 in 2009 versus $28.39 in 2008. With expectations for dividend cuts across the board, investors who are looking to scoop bargains at depressed prices are seeing lots of opportunities. In their fear of dividend cuts some investors are putting all dividend payers in one basket. Just because one sector cut its dividends however, does not mean that all sectors will cut dividends. There are certainly dividend stocks, which won’t cut their dividends anytime soon. Some are even increasing them, despite the “worst crisis since the Great Depression”. Long term investors who focus on the big picture instead of focusing on intraday ticks would most likely be rewarded with double digit yields on cost two decades from now. Companies with wide moats, which have strong competitive advantages that enable them to reward shareholders with consistent dividend growth, have outperformed the S&P 500 over the past 20 years.


You could find the year to date performance of all dividend aristocrats in the table below:

The best performers so far this year include discount retailer Family Dollar (FDO), chemicals companies Rohm and Haas (ROH) and Air Products and Chemicals (APD) as well as the drug store chain Walgreen (WAG).

Some of the worst performers include this years dividend aristocrats, which have cut their payments to shareholders. Names like Ganett (GCI), General Electric (GE), US Bancorp (USB), Pfizer (PFE) and State Street (STT) are some of this years worst performers. The companies will certainly be booted out of the index by the end of the year.

One of the flaws in the S&P Dividend Aristocrats index is that it keeps any dividend cutters in the list until the annual rebalancing in December or until the stock is dropped from the S&P 500.
Full Disclosure: Long FDO, ROH, APD, ED, MHP, KO, ADM, PEP, WMT, CLX, ABT, ADP, GWW, JNJ, MCD, KMB, SHW, MMM, CB, DOV, MTB, CINF
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