Dividend Aristocrats That Dodge Disasters

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Dividend Aristocrats That Dodge Disasters
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• Hi, My name is Aaron and Im with Dividend Stocks
  Research, today were reviewing our recently
  published article

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• Dividend Aristocrats That Dodge Disasters

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• My good friend Large Lou Sapino is an expert on
  vodka. Not long ago he asked me about Russian
  stocks.
• (A few weeks ago I told him that investing in
  Russian stocks is a dividend disaster.)

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• Lou also happens to be a very smart real estate
  investor. He told me that investing in land out
  on the edge of town and waiting for the town to
  sprawl out, has been a good strategy for him.

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• I buy this dirt for peanuts, sit back, and
  wait. So when I told Large Lou that investing in
  dividend stocks is pretty much the same thing, he
  wanted to know more. The patient behavior was
  something he could relate to.

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• But heres the thing, Lou, I told him. You
  cant always buy one of the best dividend stocks
  for peanuts. I explained that the best dividend
  paying stocks are often found on the lineup of
  the SP 500 Dividend Aristocrats.

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• These are large cap stocks that have been paying
  a growing dividend for at least the past 25
  years. This kind of performance comes with a
  price.

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• Youre paying a premium for the hope that the
  company can make it through tough times and still
  have enough money to pay the dividend. To avoid a
  dividend disaster, you need to size up the
  financial health of the company.

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• If revenues are soft, and if profits are
  shrinking, there could be trouble ahead.
• So youve got this balancing act. Youre paying a
  premium for a stock thats supposedly safe
  because its a reliable dividend-payer.

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• But youve also got the possibility that todays
  dependable Dividend Aristocrat could be
  tomorrows dog if it cuts the dividend and is
  thrown off the list.

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• How To Size Up The Health Of A Dividend
  Aristocrat

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• First, go to the financial statements. Look at
  the income statement and the balance sheet. With
  the big, global companies you usually find on the
  SP 500, this can be difficult.

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• Its not always easy to see where a company is
  making money, and where its keeping its money. A
  company like Colgate Palmolive CL, which does
  business all over the world, can be tricky to
  decode.

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• A company like Consolidated Edison ED, which
  does most of its business in New York, is more
  straightforward. Each one of these stocks is a
  Dividend Aristocrat. Colgate Palmolive has been
  paying a growing dividend since 1964.

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• Consolidated Edison has been paying a growing
  dividend since 1975. Is there a good reason to
  think either one of these stocks is about to fly
  off the rails and cut the dividend? Not really.
  But theyre not exactly cheap.

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• Whats a reasonable price to pay based on the P/E
  ratio (price earnings ratio)? Right now, the
  average for the SP 500 stocks is 19. Colgate
  Palmolive has a P/E ratio of 24.65. Consolidated
  Edison has a P/E ratio of 16.91.

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• The Relationship Between Stock Price And Dividend
  Growth

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• My friend Large Lou Sapino wont pick up either
  one of these dividend stocks for peanuts. But
  he might like the fact that Consolidated Edison
  is cheaper than the overall market.

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• Does this discount mean investors think the stock
  is in trouble, and could be on the verge of
  slashing the dividend?
• Probably not.

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• Its more a reflection of how investors think the
  stock price will perform. Utility stocks arent
  high-fliers. Chances are, there wont be a
  stunning run-up in the price of the Consolidated
  Edison stock.

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• Consolidated Edison stock is priced at about the
  same level as most utility stocks. Something else
  this low P/E ratio could tell us...investors
  dont expect much in the rate of dividend growth
  for the stock.

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• Dividend growth for ED was 2.4 in 2014 and 1.7
  in 2013. Colgates dividend growth for 2014 was
  6.8 and 9.0 for 2013.

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• This stronger dividend growth is one of the
  reasons why you pay more for Colgate than you do
  for Consolidated Edison.

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• See the balancing act? Take a look at this
  stuff and youll get a better handle on how a
  stock behaves, and what kind of early warning
  signals could let you know its about to cut the
  dividend.

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• Is This Dividend Aristocrat Heading For Trouble?

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• The SP Dividend Aristocrat that pays the highest
  yield right now is a REIT, a Real Estate
  Investment Trust.
• HCP HCP pays a lofty yield of 6.1.

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• It invests in senior housing communities, medical
  buildings, medical labs, hospitals, and nursing
  facilities both here in the U.S. an in the U.K.
  One of the reasons why the yield is high..the
  stock price has been sliding this year.

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• Take a look.

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• Does the sliding stock price, the unusually high
  yield for a Dividend Aristocrat, and the high
  dividend payout ratio, add up to signal that HCP
  is headed for a dividend cut?
• Probably not.

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• Thats because were dealing with a REIT, which
  by law needs to plow a large share of profits
  into dividends s to avoid paying high taxes. But
  at 71.5, the dividend payout ratio for HCP is
  definitely on the high side.

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• Its one of the dividend payout ratio essentials
  that are good to keep an eye on. Despite the high
  yield, which may be a bit unsettling... This REIT
  has been rewarding dividend investors with
  dividend growth for 30 years.

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• And thats one of the beautiful things about the
  SP 500 Dividend Aristocrats. Their track record
  - a history that stretches back for decades.

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• Its this kind of dividend history that gives you
  an advantage, because dividend history helps you
  pull in higher income.

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• For my friend Large Lou Sapino, the bottom
  feeding real estate investor, higher income from
  dividend stocks might not be dirt cheap. But its
  not a bad way to pull in a few extra dollars.

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