In 2010, I created a list of companies that were listed on the Dow 30, the S&P 500, or the Nasdaq 100 indices that had a minimum dividend yield of 4% and had at least 40% excess levered free cash flow compared to the amount of money paid out as dividends. I posited that these were companies that would be able to continue to pay their dividends through difficult economic times. During the year, these companies had an average return that almost doubled the S&P 500 index return.
At the beginning of this year, I identified the following companies that met the same criteria:
Pfizer
Verizon
CenturyLink (now merged with Qwest Communications, another qualifier)
Pitney-Bowes
R.R. Donnelly
Lorillard
Integrys Energy Group
Eli Lilly
Cincinnati Financial
Leggett & Platt
Phillip Morris International
People’s United Financial
Lockheed Martin
In that post I stated that “if economic growth is slow in 2011, these stocks could outperform the general market.” Now seven months later, in a tepid stock market environment, how have these stocks performed compared to the general market?
Once again, the relative return for the secure dividend stocks is impressive. From the beginning of the year to August 1, 2011, the S&P index has increased by 2.33%, while the secure dividend stocks have risen by an average of 4.09% during the same period, which represents a return over 75% higher than the market benchmark. As well, these returns only consist of capital appreciation and do not include dividend payments. On an annualized basis, the secure dividend stocks have an average dividend yield of 5.5%, compared to a 2.2% average dividend yield for S&P 500 stocks.
If the current uncertain economic climate continues for the balance of the year, I expect this trend to continue. I will reassess these returns again at the conclusion of the year.
