Can New Dividend Aristocrats Maintain Status Amid Economic Downturn?
By: Ned Piplovic,
The new companies that joined the Dividend Aristocrats rank in 2020 might be in danger of losing their newly gained designation if they are unable to maintain dividend boosts, or if they are forced to cut distributions as a result of the current economic slowdown.
After the most recent quarterly rebalancing, in January 2020, seven companies were added to the prestigious group of S&P 500 Dividend Aristocrats — companies with 25 consecutive years of annual dividend hikes. This addition increased the number of Dividend Aristocrats more than 12% from 57 last year to 64. The addition of seven new companies to the ranks of Dividend Aristocrats is the largest increase since 2012 when nine companies joined the group.
These seven new Dividend Aristocrats have been diligently raising their annual dividend payouts for more than two decades. Unfortunately, those long streaks of dividend hikes might be in danger already. As the current economic downturn, stemming from the coronavirus, continues, many companies will be forced to evaluate all operational and financial options to survive. Consequently, many companies will have to skip dividend hikes, or consider dividend cuts, as well as outright suspensions.
To preserve cash, some companies, like the Ford Motor Company (NYSE:F) and Macy’s, Inc. (NYSE:M) have already made the difficult decision to suspend their quarterly dividend payouts until further notice. While refraining from cutting the quarterly payout, missing even just one distribution will reduce the total annual dividend payout compared to previous years, which effectively amounts to a dividend cut for 2020.
Listed below, in ascending order, by current dividend yields, are the seven new Dividend Aristocrats.
New Dividend Aristocrats for 2020: #7
Ross Stores, Inc. (NASDAQ:ROST)
Ross Store’s quarterly payout of $0.285 for the upcoming distribution on March 31, 2020 is nearly 12% higher than the $0.255 payout amount from last year. This new quarterly distribution amount is equivalent to a $1.14 annualized distribution and a 1.4% forward dividend yield, which is 40% higher than the company’s own 0.99% average.
With the current payout ratio of just 23%, dividend payouts are well-covered by the company’s earnings. Therefore, the dividend distributions should be relatively safe against suspension and perhaps even cuts.
Amid the current economic slowdown, the share price declined more than 25% year-to-date and almost 10% over the trailing 12-month period. The dividend income offset some of that decline and reduced the total loss to 8.3%. However, over the past three years, the company delivered total returns of 27% and more than 62% over the last five years.
New Dividend Aristocrats for 2020: #6
Expeditors International of Washington, Inc. (NASDAQ:EXPD)
Just over the past two decades, the company enhanced its annual dividend distribution more than 75-fold. This advancement corresponds to an average dividend growth rate of 24% per year. The current $0.50 semi-annual dividend payout amount is 11% higher than the $0.45 distribution last year. The annualized dividend payout of $1.00 is equivalent to a 1.55% forward yield which is 10% higher than the company’s own 1.41% five-year average.
A 29% dividend payout ratio indicates that the company currently uses less than one-third of its earnings to cover dividend payouts. Therefore, while there are no guarantees that dividends will not be cut, Expeditor’s dividends appear to be safer than many other companies with significantly higher payout ratios.
The recent share price decline erased all gains and offset any dividend income gains for a total loss of more than 11% over the last one-year period. Over the more extended period of the last three and five years, the company rewarded its shareholders with total returns of 20% and 42.5%, respectively
New Dividend Aristocrats for 2020: #5
Atmos Energy Group (NYSE:ATO)
The company’s current $0.575 quarterly distribution marks a 9.5% boost over last year’s $0.525 payout. This new amount converts to a $2.30 total for the year and yields 2.55%, which is 14.2% above Atmos’ own 2.23% average yield over the last five years. The company doubled its annual dividend payout amount over the past two decades for an average annual growth rate of 3.5%.
Unlike the first two entries above that have very low payout ratios, Atmos Energy’s current dividend payout ratio is at 50%, which most investors consider as the upper limit of the sustainable dividend payout range for most companies. However, Atmos Energy’s dividend should still be relatively safe, as companies in the natural gas transport, storage and distribution industry segment tend to have higher payout ratios than the overall market averages.
The share price decline over the past 30 days resulted in a 10% total loss over the trailing 12 months. However, even with that short-term decline, shareholders enjoyed a total return of more than 20% over the past three years. Over the past five years, the total return exceeded 82%
New Dividend Aristocrats for 2020: #4
Albemarie Corporation (NYSE:ALB)
This specialty chemicals manufacturer’s $0.385 upcoming quarterly dividend for distribution, on April 1, 2020, is 4.6% higher than the $0.368 payout from the previous period. The new payout amount corresponds to a $1.54 annualized distribution and a 2.57% forward dividend yield. A Share price decline of more than 40% since late 2017 made the current yield two-thirds higher than the 1.54% average yield over the past five years.
Furthermore, the annual dividend distribution amount advanced nearly 10-fold over the past two decades. This advancement pace corresponds to an average annual growth rate of nearly 12%. The current payout ratio of 30% is significantly lower than Albemarie’s own payout ratio average of 75% over the past five years, which indicates that the company might be able to avoid dividend cuts during the current downturn.
The current market decline emphasized the share price pullback since late 2017, which resulted in total losses of 24.6% and 38.6% over the past one and three years, respectively. However, the share price growth and the rising dividend income over the past five years delivered total returns of more than 30%.
New Dividend Aristocrats for 2020: #3
Essex Property Trust (NYSE:ESS)
After hitting 25 consecutive years of annual dividend hikes last year, Essex Property Trust began 2020 with its 26th annual boost by raising its quarterly payout by 6.5% from $1.95 in the last quarter 2019 to $2.0775 for this year. This quarterly payout is equivalent to an $8.31 annual payout and yields 4.14%, which is 40% above Essex’s own 2.95% five-year yield average.
The company enhanced its annual dividend distribution nearly five-fold over the past five years. That level of advancement converts to an average growth rate of 8% per year. With a 117% payout ratio, the current streak of dividend hikes might be in danger. However, since Essex operates as a Real Estate Investment Trust (REIT), payout ratios that high are quite common. To maintain that status and enjoy the benefits of no taxation on corporate earnings, REITs must dispense at least 90% of their earnings as dividend distributions. Therefore, barring any other external events or operational issues, the dividend should be reasonably safe.
Before declining amid the current market downturn, the share price increased six-fold between the 2008 financial crisis and its all-time high in October 2019. Unfortunately, the current share price pullback erased all capital gains for total losses over the past one and three years. Over the past five years the company delivered only marginal total gains of 1.2%.
New Dividend Aristocrats for 2020: #2
Amcor plc (NYSE:AMCR)
The Australian-based global manufacturer of various packaging products currently pays an annualized dividend distribution of $0.31, which is equivalent to a 4.5% forward dividend yield. The dividend payout ratio of 42% is near the 50% upper limit of what investors consider a sustainable payout range.
The current global economic downturn will have negative effects on businesses across the globe. However, even after the current viral outbreak is under control, demand for packaging materials could rise as more people transition to online shopping on residual fears of future epidemics. This trend could offer Amcor an opportunity for a quick post-downturn recovery with strong revenues and robust profits to protect and maintain its streak or rising dividend distributions.
New Dividend Aristocrats for 2020: #1
Realty Income Corporation (NYSE:O)
This REIT has paid 596 consecutive monthly dividends since Realty Income’s public listing in 1994. While the Realty Income Corporation pays monthly dividend distributions, the company generally hikes it dividend payouts quarterly. The Realty Income Corporation has boosted its dividend payout for the past 105 consecutive quarters. Over the past two decades, the company enhanced its total annual dividend payout nearly 160%. This advancement pace corresponds to an average growth rate of 4.8% per year for two decades.
The REIT’s current $0.233 monthly dividend payout corresponds to a $2.80 annualized distribution. This annualized payout is equivalent to a 5.14% forward dividend yield. While lower than the 218% five year average, the current 198% payout ratio is still very high, even for REITs that generally distribute at least 90% of their earnings. Therefore, investors should be cautious and monitor for potential dividend cut suspension announcements.
The recent share price pullback put the current yield nearly 20% above the company’s own five-year yield average of 4.33%. The share price decline delivered a total loss of nearly 22% over the trailing 12 months. Over the past three and five years, REIT has delivered total returns of 5% and 30% respectively.
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