| Dear Reader, You might have heard of a class of stock called the ‘dividend aristocrats’. Put simply: these are really big companies that have not just paid consistent dividends…but increasing ones…over the last 25 years. The term springs from companies selected by Forbes from the US' S&P 500. But there are dividend aristocrat equivalents on markets everywhere. The idea is a sound one…in principle… As the pendulum swings away from growth and back to passive income…you should back the proven horses. It’s a pretty select group. In the US, there are just 68 publicly traded dividend aristocrats. These are deemed the 68 best firms in terms of passive income…among the 500 largest publicly traded companies in the US. These include: Nothing ground-breaking there, as you can see. But then…investors have found out over the last two years ‘ground-breaking’ no longer pays the bills. When payouts now trump capital gains — you go for the most dependable payers. They’re not going to lose you a ton of money if the market takes another down dip. Their businesses are steadfast and stable. Many are deemed ‘recession-proof’. Meaning they keep making profits…rewarding shareholders with income…even when other companies are hitting the wall. So who are Australia’s
dividend aristocrats? The pool here is much smaller than 68. In fact, if you’re going to get technical about it… Zero Australian companies fit the US dividend aristocrat criteria of a 25-year streak of rising dividends. So, let’s lower that bar to 10 years. Do that and you find that there are currently 17 ASX dividend aristocrats. Here they are… | Source: Market Index, Norgate Data |
Now…if you’re looking to build a portfolio of pure-income stocks…I guess you could do worse than just investing in all the above. Investing in shares is riskier than money in the bank. But when it comes to income from stocks…these 17 dividend aristocrats are often looked at as the most attractive option. Stable passive income. They’re not necessarily the highest payers on the ASX. But they’re the most consistent. That ever-increasing dividend paid to investors means they’re on solid financial footing, too. Which is handy in these uncertain times. Also…if you choose to reinvest your dividends, it amps up the power of compounding. What’s not to like about a brilliant dividend track record? Well, a lot right now, actually… There’s a problem with blanket-buying dividend aristocrats too…unless you have a VERY long-term time horizon.
It’s that you’re buying with no view on true valuation. A dividend yield tells you nothing about what a company is actually worth. Blindly buying just ‘consistent’ dividend payers puts your hard-won capital at risk… Look, most of these Aussie ‘dividend aristocrats’ are good companies. I have no problem with them. What I do have a problem with is investing according to simple rules and expecting an above-average outcome. Take Iress [ASX:IRE], for example. Its share price is the same now as it was back in 2015. Dividends, yes, but no capital growth. For this reason, I think you should ignore dividend aristocrats as a strategy… …and instead, target what I call
ROYAL Dividend plays Here’s what I mean by that… Yes, the market’s chopped nowhere for the last two years. But… Based on historical ranges…there are a LOT of stocks out there right now that are trading at a significant discount to their intrinsic value. And many of these stocks are currently paying great dividends. In other words… The dividend yields are stellar income right now. Often at least a couple of per cent more than the best term deposit. But there’s significant VALUE to be found as well…if you know what you’re looking for… It’s a ‘sweet spot’ with regard to dividend stocks that most investors are ignoring right now. I’ve selected six specific stocks with this sweet spot in mind. Click here to learn about my Royal Dividend Portfolio. Regards, Greg Canavan,
Editorial Director, Fat Tail Investment Research | 