You’d think the S&P 500 dividend aristocrats had fairly secure dividends, given that all 65 companies have made higher payouts for at least 25 consecutive years.
Barron, however, wanted to add another layer of protection and included one more factor: the dividend safety rankings conferred by Simply Safe Dividends, a website for individual investors.
From the 14 aristocrats with the highest dividend security ratings on this website, we selected the six companies with the highest yields. They are healthcare conglomerates
Johnson & johnson
(ticker: JNJ), with a yield of 2.6% recently; insurer
(HRL) and consumer products company
Procter & Gamble
(PG), both 2.4%; and producer of public services and alternative energy
(NEE) and manufacturer of medical devices
(MDT), both at 1.9%.
Simply Safe Dividends scores companies from 0 to 99, with 99 considered the safest for dividends. All of these six companies scored 99, which means that Simply Safe sees little chance of reducing its dividends.
However, the market did not treat most of these stocks with great respect. Hormel is down around 11% year-to-date, including dividends. The others made progress, but only one, Aflac, beat the
S&P 500 Index
at the close of Wednesday – and not by much. Its return was around 19%, less than a percentage point ahead of the S&P 500.
The aristocrat with the lowest dividend security score from Simply Safe is
(T), which returns 7.6% and a score of 40. There has been a lot of debate about this stock, the dividend of which some investors see as risky. In May, AT&T announced that its dividend would be reduced as part of a deal to combine its WarnerMedia assets with content from Discovery. The impending dividend cut has angered some investors, although the company stressed that the stock would still have an attractive yield once the deal is closed.
But it shows that not all aristocrats can handle dividend increases in perpetuity.
Better than a dividend?
(LAUR), which manages a portfolio of higher education institutions in Latin America, posts a dividend yield of 0%. That doesn’t tell the whole story, however.
The company plans to make a tax-advantaged cash distribution as part of its recent sale of Walden University for approximately $ 1.5 billion. Laureate, based in Baltimore, has a market capitalization of approximately $ 3.2 billion.
Laureate recently said it plans to pay $ 7.01 for each Class A and Class B common share of the company to each registered holder as of October 6. The distribution is expected to be around $ 1.29 billion and scheduled for October 29.
In recent years, the company has sold off various parts of its global operations to focus on Mexico and Peru, two markets it sees ripe for the growth of higher education for in-person and online offerings. These asset sales have enabled the company to repay a large portion of its debts. The winner lost $ 1.48 per share last year on an adjusted basis, according to FactSet.
The stock is up about 18% this year as of Wednesday’s close.
An important point to remember, however, is that “these types of distributions are extremely rare but quite beneficial for shareholders, as they are treated largely as a return of capital rather than a dividend,” explains Robert Willens, who runs a consulting firm. specializing in tax and accounting matters. This allows “shareholders to receive a large portion of the distribution tax-free”.
For a company that does not pay dividends, a tax-efficient distribution pays its own reward.
Corrections and amplifications
The special Laureate Education distribution applies to all shareholders. An earlier version of this article incorrectly stated that company owners were not eligible for distribution.
Write to Lawrence C. Strauss at [email protected]