2 Strategies for Tapping Into Dividend Royalty

I recently touched on Dividend Kings and Dividend Aristocrats as well as some well-positioned water utility stocks that that are on both lists. I received a question from a subscriber about the nature of these lists and whether they are fixed. The answer is a firm no. Companies can qualify for the Dividend Kings provided they have 50 years plus of quarterly dividend increases each year, or the Dividend Aristocrats should they increase the quarterly dividends paid to shareholders for at least 25 years. Should a company fail to boost its quarterly dividend one year, it's off the list, but in examining these year-over-year increases they don't need to be big ones to qualify and continue to earn a passing grade. And, as one might expect, a company will fall off the list if it is acquired. The number of changes to the Dividend Kings list is rather few and far between compared to the Aristocrats, which can see some changes year to year. Earlier this year, S&P Dow Jones Indices, the group behind the S&P 500 Dividend Aristocrats index, announced the addition of Chubb Ltd. , People's United Financial Inc. , Caterpillar Inc. and United Technologies Corp. to the list, and no deletions for 2019. These additions and deletions are part of the annual rebalancing to the index performed by S&P Dow Jones. And that index is part of the larger S&P Dow Jones Dividend Aristocrats family of indices that include global variations, such as the S&P Global Dividend Aristocrats; more aggressive strategies, such as the S&P Dow Jones High Yield Dividend Aristocrats; and ones based on other S&P indices, such as the S&P Midcap 400 Dividend Aristocrats. Let's be clear. While there are a number of different strategies that S&P Dow Jones puts under this Aristocrats umbrella, when the average investor speaks about Dividend Aristocrats, he or she is referring to the 57 stocks found in the S&P 500 Dividend Aristocrats this year. While those 57 stocks can be easily bought in a basket of an ETF such as the ProShares S&P 500 Dividend Aristocrats ETF , there are more productive strategies an investor can utilize to generate larger gains than might be found in NOBL shares. The downside to that basket is it may contain companies with business models that are not firing on all cylinders even though the companies may eke out modest dividend increases. One such strategy is to cherry-pick those companies inside the index that have demonstrable tailwinds blowing on their businesses. One of my favorite Aristocrats is McCormick & Co. in light of the consumable nature of its products and the consumer shift to healthier eating. Another is Walmart Inc. as it continues to embrace digital commerce faster than a number of other retailers. Another strategy is to scoop up those in the index with share prices that are temporarily under pressure and offer a compelling dividend yield. One such example is AT&T Inc. shares, which currently sport a dividend yield of more than 6.5%. I like the sticky business of AT&T's mobile service, especially if the merger of Sprint Corp. and TMobile USA Inc. eventually goes through, and I see incremental opportunity for its WarnerMedia and advertising businesses across the mobile subscriber base. Another one to examine on this front is recently added Caterpillar considering the trade-related drop in its shares from $158 last October to the current $122 level. That drop has popped the $4.12 CAT is set to pay out in annualized quarterly dividends starting this August to a yield of 3.4%. In the coming days, I'll look to identify opportunistically priced and positioned stocks inside both the Aristocrats and Dividend Kings plus other higher-yielding dividend stocks.

2 Strategies for Tapping Into Dividend Royalty

There are ways to invest in the basket of companies that have increased their dividends for years on end that go beyond ETFs; here are a couple of them.

Columnist Conversation

Large CEO buy in Affiliated Managers Group (AMG)

Fibocall: Is MO Ready to 'MO've Higher?

Insider Buying in a Few of My Faves Last Week

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.