The table ranked the dividend aristocrats by total returns, and annualized total returns over the past decade. A dividend aristocrat is a company that is a member of the S&P 500, which has managed to raise dividends to shareholders for at least 25 consecutive years. There were only 57 such companies at the end of 2019, and now there are 64 of them in 2020. These are great quality businesses, which excel at capital allocation, whose business models should be studied carefully by investors.
The table shows information on each company including forward P/E ratio and dividend yield.
Why am I posting this chart?
I believe it is helpful to look at how things turned out, and compare them to our expectations at the beginning of the study period. I would bet that few in 2009 or 2010 would have expected that Cintas (CTAS), Sherwin - Williams (SHW) and S&P Global (SPGI) would be the best performing dividend aristocrats over the next decade. Needless to say, fewer investors expected the good returns and economy over the past decade in the gloomy days of 2009 and 2010.
I know that I did not expect these companies specifically to be so successful, although I profiled all of them except for Cintas I did know that a diversified portfolio consisting of all or a selection of dividend aristocrats is a good long-term bet. You may like my article on the best dividend stocks for the long run from the end of 2008. You may also like my update from the end of 2018 ( ten years later).
I had very modest expectations when investing in dividend stocks. It has always been to find a good company paying a sustainable dividend that can grow with the business, and buy it without overpaying. As long as the dividend is paid and grows, I am a happy camper. I believe that having low expectations is key to successful long-term investing. I also believe in investing regularly, as long as I have money to invest.
We need to challenge ourselves, and learn from history. The lessons to me are to buy quality dividend growth stocks, to diversify, and to continue learning. If you missed out on the best companies over the past decade, perhaps you may want to challenge your process. It is possible that it needs to be updated for the current environment, or it is too strict and would work only in distressed situations such as the 2007 - 2009 crisis or 2000 - 2002 recession. These long and harsh bear markets are more of an exception over the past century than the rule, at least in the US. Either way, it is good to challenge our process, and try to improve over time.
I have tweaked my process, since I was a little too strict in requiring a certain dividend yield at entry. I have learned to relax that for companies with higher expected earnings and dividend growth. I have also learned to relax my criteria for a P/E ratio to be at or below a certain number, based on expected growth, industry the company is operating in and levels of the cost of capital.
One mistake I have made is selling companies, because I thought that a certain company is overvalued, and I could buy a better value elsewhere. I have seen others grow impatient when their stock price goes nowhere for a while, or the dividend growth rate slows down temporarily or earnings per share slow down temporarily. By the time they sell, the stock market is negative on the stock, and it is about to rebound in price, the business is about to recover, and the replacement stock is about to have its own fair share of troubles. I have found that these investments have been a mistake, and that I would have been better off simply to buy a collection of companies and hold, for as long as the dividend is not cut. I have tried to drill this lesson in everyone that I come in contact with, so I will say it one more time - selling is usually a mistake. This applies to selling a dividend aristocrat or achiever stock, not some risky company. The exception I am willing to make for selling is due to a dividend cut or if you are forced to sell due to an acquisition. But I have found that an investor would have been better off simply doing nothing, instead of selling and paying taxes and commissions in process, and buying another company with the reduced proceeds. Just buy and hold, buy regularly, diversify, and hold for the long-term, while keeping costs low.
Of course, the best lesson is to continue screening the list of dividend aristocrats and dividend champions for good companies to buy and hold for the long run. The dividend aristocrats index has done very well for its investors since its inception in 1989. While past performance is not indicative of future results, I still believe that companies with a 25 year track record of annual dividend increases are a special type that needs to be studied by enterprising value investors.
Thank you for reading!
Relevant Articles:
- What I learned from analyzing my investment record
- Five Dividend Growth Investing Lessons I Have Learned Over the Years
- The Do Nothing Dividend Portfolio
- Dividend Aristocrats List