What does a portfolio of ASX ‘Dividend Aristocrats’ look like?

‘Dividend Aristocrats’ are companies famed for their ability to weather any downturn and generate income through the economic cycle. In the face of the most anticipated recession in history – It might be a good time to have that kind of status. 

But first, an explanation – The US definition of a Dividend Aristocrat is a company that has increased the size of its payout for at least 25 consecutive years. Unfortunately, the ASX does not have that kind of track record – We’ve only been around since 1987. In that case, we’ve modified the definition (or rather, lowered the bar) to 10 or more consecutive years.

Introducing the 17 ASX Dividend Aristocrats

The table below is a list of companies that have increased their nominal annual Ordinary and/or Special dividends for ten or more years. 

Correction: The table looks at companies that have increased their total dividend (ordinary plus special) for ten or more years. Washington H Soul Pattinson reached out to confirm that the company is on a 22-year streak for increasing its annual ordinary dividend - which is an impressive record and closest we have to the US definition of a dividend aristocrat. 

It’s worth noting that the above companies survived the ultimate stress test: The COVID-19 pandemic. 

There was a long list of companies with dividend streaks of more than 10 years heading into 2020. This included household names like AGL Energy (ASX: AGL), REA Group (ASX: REA),  Seek (ASX: SEK), Transurban (ASX: TCL) and most major banks. 

Making it through Covid might be a testament to the company’s defensive earnings profile and management’s commitment to paying out dividends.

How has a portfolio of Dividend Aristocrats performed?

The short and long term performance of a portfolio of Dividend Aristocrats has been relatively impressive. Here are some quick stats (vs. the ASX 200):

• 3-month average: +2.1% vs. +0.5%

• 1-year average: +11.7% vs. 8.2%

• 5-year average: +100.6% vs. 30.1% 

Share price performance as at 24 July 2023 close (Source: Market Index)

The companies come from a rather broad range of sectors including:

• Industrials: 2

• Healthcare: 3

• Financials: 2

• Materials: 1

• Real Estate: 3

• Utilities: 1

• Tech: 3

• Discretionary: 2

There were no candidates from Telcos, Staples and Energy sectors. 

How are yields looking?

The average trailing 12-month yield across the 17 companies is 2.95%.

Isn’t that a little low?

At face value – Yes. The Australian 3-year bond is currently fetching almost 4.0% and some term deposits are offering as much as 4.5%.

But it’s worth noting a few things:

• The average Dividend Aristocrat has rallied 11.7% over the past twelve months

• These are trailing dividends – This will change after reporting season

• Altium, Pro Medicus and Technology One traditionally do not yield very much

'Yield' refers to twelve month trailing dividend based on 24 July 2023 close (Source: Market Index)

Dividend Aristocrats at risk

When trailing dividend yields begin to approach more than 5.0% – Things tend to get a little bit suspicious. The Dividend Aristocrats with those kinds of yields also happen to be the ones that are underperforming on a 1-year basis.

This includes (1-year share price performance):

• APA Group 5.59% yield (-16.6%)

• Dexus 6.37% yield (-13.3%)

• JB Hi-Fi 7.9% yield (-0.5%)

Interestingly, Morgan Stanley expects JB Hi-Fi’s dividend to fall from 316 cents per share in 2022 to 304 per share in 2023. Likewise, Macquarie analysts expect Dexus to drop its 2023 dividend to 50.9 cents per share from 53.2 cents. 

APA Group is the only one that’s expected to hold onto Aristocrat status, growing its dividend per share from 53 cents per share to 53 cents in 2023.

I guess a list of Dividend Aristocrats draws similarities to a momentum portfolio – It cuts the losers and keeps the winners.