My Best Dividend Aristocrats For June 2023
Summary
Dividend aristocrats are struggling in 2023, with the ProShares S&P 500 Dividend Aristocrats ETF down 4.71% in May.
Three strategies for identifying winning aristocrats include focusing on undervalued stocks, fastest expected growth, and a blend of the two.
Despite recent underperformance, long-term investors can find value in dividend aristocrats, as they have historically outperformed the S&P 500 index.
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2023 Review
The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is not doing great in May, with 2 trading days left the ETF is down 4.71%. Should the ETF finish the month with this return its year-to-date return will turn negative, -0.95% at the moment.
Not all of the dividend aristocrats share the fate of NOBL's return in 2023; 34 dividend aristocrats are beating NOBL through month-end April, and 43 are generating positive total returns. These aristocrats are outpacing NOBL after March:
West Pharma (WST) +53.69%.
Pentair (PNR) +30.25%.
Grainger (GWW) +25.37%.
Church & Dwight (CHD) +20.88%.
A.O. Smith (AOS) +20.43%.
Clorox (CLX) +19.86%.
Medtronic (MDT) +18.05%.
Stanley Black & Decker (SWK) +16.02%.
Ecolab (ECL) +15.70%.
Linde plc (LIN) +13.70%.
Brown & Brown (BRO) +13.25%.
McDonald's (MCD) +12.87%.
Nucor (NUE) +12.80%.
PPG Industries (PPG) +12.09%.
C.H. Robinson (CHRW) +10.83%.
Illinois Tool Works (ITW) +10.41%.
S&P Global (SPGI) +8.54%.
Dover Corp. (DOV) +8.31%.
Exxon Mobil (XOM) +8.12%.
Kimberly Clark (KMB) +7.76%.
Cardinal Health (CAH) +7.51%.
Walmart (WMT) +6.92%.
Target (TGT) +6.51%.
McCormick (MKC) +6.48%.
Pepsi (PEP) +6.36%.
Expeditors Int'l (EXPD) +5.87%.
Roper Technologies (ROP) +5.39%.
Lowes (LOW) +5.37%.
Essex Property Trust (ESS) +4.86%.
Cincinnati Financial (CINF) +4.66%.
Proctor & Gamble (PG) +4.49%.
Becton Dickinson (BDX) +4.33%.
Consolidated Edison (ED) +4.23%.
T. Rowe Price (TROW) +4.17%.
The S&P 500, as measured by SPY, was up 1.60% in April and is up another 0.98% through May 26th. NOBL beat SPY in 2022 with a loss of 6.5% compared to a loss of 21.65%. SPY started 2023 on a stronger footing and is beating NOBL by 11.21% year-to-date through May 26th. The dividend aristocrats are not known to consistently beat the S&P 500 index, in fact, the dividend aristocrat index underperformed the S&P 500 index for 6 out of the last 8 full calendar years.
However, if you look further back in history, the dividend aristocrat index is outperforming the S&P 500 index by about 2.18% per year between 1990 and 2022. A significant portion of this long-term outperformance is attributable to the dot com bubble and the financial crisis as well as the immediate years following each market crash. This pattern was broken with the 2020 market crash, perhaps the much shorter duration of the crash and recovery are the reason. The dot com bubble and the financial crisis both extended for multiple years while the 2020 market crash was fully recovered in a matter of months. 2022 also proved to be a strong year for the aristocrats as they earned 15.15% of alpha on the S&P, making up for 3 years of underperformance.
Even though the dividend aristocrats have trailed the S&P for the better part of the last 8 years, long-term investors can rest assured that based on history, over a much longer time period, the dividend aristocrats can hold their own. There are currently 67 companies in the dividend aristocrat index but strong historical returns for the index can be attributed to only a handful of them. As an investor, I am always curious how to identify these drivers of outperformance.
I want to present 3 strategies that theoretically could identify winning aristocrats and lead to better performance than the dividend aristocrat index. These strategies work best with a buy and hold long-term investing approach as will be evidenced by the results. They are based on quantitative models that do not consider qualitative data, therefore it is prudent that further due diligence is performed on all chosen stocks.
The Most Undervalued Strategy
Strategy number 1 is a focus on valuation and more specifically it targets the potentially most undervalued dividend aristocrats. In theory, this is a long-term strategy since it may take some time to fully see the reward of leveraging a valuation approach. My preferred method for valuation is dividend yield theory, mainly for its simplicity. Unlike other valuation methods, dividend yield theory does not require making assumptions aside from assuming that a given stock will revert back to its long-term trailing dividend yield.
This valuation technique works best for mature businesses with long histories of dividend growth, making the dividend aristocrats an ideal pool of companies to value using this technique.
Selecting the 10 most undervalued dividend aristocrats each month and adopting a buy and hold investing approach can lead to long-term outperformance when/if the targeted stocks return to fair valuation. It may take a few months or even years to see if this strategy actually pays off. I predict that it will underperform NOBL for the first few months while we wait for bargain stocks to return to fair value.
Month | Most Undervalued | NOBL | SPY |
Aug 21 | 0.49% | 1.87% | 2.98% |
Sep 21 | -2.99% | -5.69% | -4.66% |
Oct 21 | 3.63% | 5.95% | 7.02% |
Nov 21 | -2.19% | -1.76% | -0.80% |
Dec 21 | 10.37% | 6.54% | 4.63% |
Jan 22 | 1.04% | -4.08% | -5.27% |
Feb 22 | -1.94% | -2.59% | -2.95% |
Mar 22 | 3.40% | 3.86% | 3.76% |
Apr 22 | -2.14% | -3.42% | -8.78% |
May 22 | 3.11% | 0.31% | 0.23% |
Jun 22 | -7.30% | -6.73% | -8.25% |
Jul 22 | 5.00% | 6.56% | 4.55% |
Aug 22 | -3.25% | -2.78% | -4.08% |
Sep 22 | -11.39% | -9.15% | -9.24% |
Oct 22 | 10.07% | 10.31% | 8.13% |
Nov 22 | 6.99% | 7.12% | 5.56% |
Dec 22 | -5.41% | -4.12% | -5.76% |
Jan 23 | 4.83% | 3.23% | 6.29% |
Feb 23 | -3.33% | -2.36% | -2.51% |
Mar 23 | -0.86% | 0.99% | 3.71% |
Apr 23 | 3.06% | 2.12% | 1.60% |
May 23 | -7.07% | -4.71% | 0.98% |
2021 Partial | 9.05% | 6.54% | 9.06% |
2022 | -3.91% | -6.50% | -21.65% |
2023 | -3.78% | -0.95% | 10.26% |
TOTAL | 0.82% | -1.33% | -5.79% |
Alpha over NOBL | 2.15% | ||
Alpha over SPY | 6.61% |
The table above shows the monthly and annual returns for the buy-and-hold portfolio of the most undervalued strategy.
The portfolio beat both NOBL and SPY in April, by 0.94% and 1.46% respectively. May, on the other hand, is looking pretty awful, the portfolio is down 7.07% through May 26th. While NOBL is down 4.71% and SPY is up 0.98%. Year-to-date the portfolio is grossly underperforming both NOBL and SPY. However, since inception, it maintains a modest level of alpha, 2.15% over NOBL and 6.61% over SPY. Many dividend aristocrats are struggling this year while technology stocks are driving strong returns for the S&P 500.
The portfolio consists of 37 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split among the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock.
Here are the 10 most undervalued dividend aristocrats chosen for the month of June 2023. The table below shows potential undervaluation (column Over/Under) for each of the 10 chosen aristocrats. The image below is taken from a new spreadsheet I recently created where I am self-computing the 5-year trailing dividend yield. Previously I used Seeking Alpha as a source for the historical yield.
Most Undervalued Dividend Aristocrats June 2023
Here is a closer look at Target (TGT). $Target(TGT)$
Target currently looks to be approximately 24% undervalued. In the image below the black line is the actual price since May of 2016. The light green shaded area represents a 0 to 15% undervalued zone. The dark green area represents an undervaluation in excess of 15%. The light red shaded area represents a 0 to 15% overvalued zone.
Dividend Yield Theory chart for TGT
An estimated daily return test for the period May 2016 through May 2022 yielded positive results in the application of dividend yield theory as a valuation tool. The average return of investing in the stock on all days when the stock appeared to be undervalued was 16.37%. The average return of investing in the stock on all days regardless of valuation was 4.26%. And the average return of investing in the stock on all days when it appeared overvalued was -4.05%. It appears that Target has fallen back into a reasonable valuation based on dividend yield theory.
The Fastest Expected Growth Strategy
Strategy number 2 is a focus on dividend aristocrats that are expected to grow the fastest in the near future. Historically, there has been a correlation between earnings per share growth and share price appreciation. Companies that have grown their earnings faster have also seen higher total returns. One way to gauge how fast earnings for a company will grow is to leverage analyst forecasts. For this strategy, I decided to use a discounted five-year EPS growth forecast combined with a return to fair valuation and the dividend yield to identify the 10 best aristocrats poised for the best total return in the future.
Month | Fastest Growth | NOBL | SPY |
Aug 21 | 5.12% | 1.87% | 2.98% |
Sep 21 | -4.42% | -5.69% | -4.66% |
Oct 21 | 5.92% | 5.95% | 7.02% |
Nov 21 | -2.06% | -1.76% | -0.80% |
Dec 21 | 7.09% | 6.54% | 4.63% |
Jan 22 | -4.42% | -4.08% | -5.27% |
Feb 22 | -0.10% | -2.59% | -2.95% |
Mar 22 | 3.71% | 3.86% | 3.76% |
Apr 22 | -2.19% | -3.42% | -8.78% |
May 22 | 0.12% | 0.31% | 0.23% |
Jun 22 | -8.94% | -6.73% | -8.25% |
Jul 22 | 6.09% | 6.56% | 4.55% |
Aug 22 | -2.69% | -2.78% | -4.08% |
Sep 22 | -11.37% | -9.15% | -9.24% |
Oct 22 | 13.68% | 10.31% | 8.13% |
Nov 22 | 6.14% | 7.12% | 5.56% |
Dec 22 | -7.53% | -4.12% | -5.76% |
Jan 23 | 9.41% | 3.23% | 6.29% |
Feb 23 | -3.01% | -2.36% | -2.51% |
Mar 23 | -1.79% | 0.99% | 3.71% |
Apr 23 | 0.37% | 2.12% | 1.60% |
May 23 | -5.50% | -4.71% | 0.98% |
2021 Partial | 11.62% | 6.54% | 9.06% |
2022 | -9.86% | -6.50% | -21.65% |
2023 | -1.15% | -0.95% | 10.26% |
TOTAL | -0.54% | -1.33% | -5.79% |
Alpha over NOBL | 0.79% | ||
Alpha over SPY | 5.24% |
The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.
After a great start to the year in January, it's been a rough ride for this strategy. It underperformed once again in April mustering up a measly return of 0.37%, trailing both NOBL +2.12% and SPY +1.60%. May is shaping up to be a continuation of this year's struggle. Through May 26th this portfolio is down 5.5%, compared to -4.71% for NOBL and +0.98% for SPY. However, since inception, the portfolio is still beating NOBL by 0.79% and SPY by 5.24%
The portfolio consists of 34 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split amongst the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. People's United was removed from the portfolio in April, as the company was acquired by M&T Bank (MTB); the value of the position was reinvested equally amongst the 10 chosen aristocrats for April.
Here are the 10 dividend aristocrats poised for the best total return for the month of June 2023. The table below shows the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats.
Fastest Growth Dividend Aristocrats June 2023
Here is a deeper look at Automatic Data Processing (ADP). Below is the 7-year dividend yield theory chart.
Dividend Yield Theory Chart for ADP
The average return of investing in the stock on all days when it appeared to be undervalued was 15.23%. The average return of investing in the stock on all days regardless of valuation was 10.54%. And the average return of investing in the stock on all days when it appeared overvalued was 8.67%. ADP has been trending lower this year and appears to be at a good valuation from a dividend yield theory perspective.
The Blended Strategy
Strategy 3 is a blend of the first two strategies, with a focus on the fastest expected growth but applied only to undervalued aristocrats. A blend of undervaluation and expected growth could narrow down the best aristocrats between the two strategies. The most undervalued aristocrats may not necessarily be poised for the fastest growth. Additionally targeting only undervalued aristocrats can offer a margin of safety in that securities are purchased for fair or better prices.
Month | Blended | NOBL | SPY |
Aug 21 | 2.64% | 1.87% | 2.98% |
Sep 21 | -3.42% | -5.69% | -4.66% |
Oct 21 | 2.70% | 5.95% | 7.02% |
Nov 21 | -2.56% | -1.76% | -0.80% |
Dec 21 | 10.07% | 6.54% | 4.63% |
Jan 22 | -0.71% | -4.08% | -5.27% |
Feb 22 | 0.49% | -2.59% | -2.95% |
Mar 22 | 3.48% | 3.86% | 3.76% |
Apr 22 | -5.04% | -3.42% | -8.78% |
May 22 | 1.28% | 0.31% | 0.23% |
Jun 22 | -6.23% | -6.73% | -8.25% |
Jul 22 | 4.56% | 6.56% | 4.55% |
Aug 22 | -3.29% | -2.78% | -4.08% |
Sep 22 | -10.88% | -9.15% | -9.24% |
Oct 22 | 9.97% | 10.31% | 8.13% |
Nov 22 | 6.38% | 7.12% | 5.56% |
Dec 22 | -5.32% | -4.12% | -5.76% |
Jan 23 | 4.15% | 3.23% | 6.29% |
Feb 23 | -3.45% | -2.36% | -2.51% |
Mar 23 | -0.31% | 0.99% | 3.71% |
Apr 23 | 2.31% | 2.12% | 1.60% |
May 23 | -5.82% | -4.71% | 0.98% |
2021 Partial | 9.18% | 6.54% | 9.06% |
2022 | -7.04% | -6.50% | -21.65% |
2023 | -3.41% | -0.95% | 10.26% |
TOTAL | -1.96% | -1.33% | -5.79% |
Alpha over NOBL | -0.63% | ||
Alpha over SPY | 3.82% |
The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.
The portfolio posted a modest beat in April with a return of 2.31%, outpacing NOBL by 0.19% and SPY by 0.61%. May is not shaping up to be a good month as the portfolio is down 5.82% through May 26th, trailing NOBL by 1.11% and SPY by 6.80%. Since inception the portfolio falls behind NOBL for the first time ever, trailing the ETF by 0.63%. It still maintains a very modest lead over SPY of 3.82%, but this lead has been shrinking very quickly this year.
The portfolio consists of 39 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split amongst the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. People's United was removed from the portfolio in April as the company was acquired by M&T Bank; the value of the position was reinvested equally amongst the 10 chosen aristocrats for April.
Here are the 10 dividend aristocrats chosen for the blended strategy for June 2023. The table below shows potential undervaluation (column Over/Under) and the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats. $Automatic Data Processing Inc(ADP)$ $Cincinnati(CINF)$ $Clorox(CLX)$ $Essex Property(ESS)$ $3M(MMM)$ $Realty Income(O)$ $Stanley Black & Decker(SWK)$ $Sysco(SYY)$ $VF Corp(VFC)$ $Walgreens Boots Alliance(WBA)$
Best Dividend Aristocrats June 2023
Here is a deeper look at Cincinnati Financial (CINF). Below is the 7-year dividend yield theory chart.
Dividend Yield Theory Chart for CINF
The average return of investing in the stock on all days when it appeared to be undervalued was 12.37%. The average return of investing in the stock on all days regardless of valuation was 3.30%. And the average return of investing in the stock on all days when it appeared overvalued was 1.63%. CINF started the year with a nice pop but it quickly deflated and more recently the price has trended lower. Dividend yield theory suggests the valuation is attractive at the moment.
Performance Review
The 10 chosen aristocrats for the most undervalued strategy are down 7.81% in May and trailing NOBL by 3.10%. The fastest expected growth strategy and the blended strategy selections were the same for the month of May, they are down 4.08% and beating NOBL by 0.63%. The fastest expected growth strategy is off to the best start this year seeing positive gains in all 4 months thus far but that streak is set to end in May. The individual selections are also fairing much better than the long-term buy-and-hold portfolios. However, I still believe that a buy-and-hold approach is the optimal investing path to take with these strategies.
Here is a comparison of the buy-and-hold portfolios and the individual monthly selections for each strategy. As you can see the buy-and-hold portfolios are still performing much better than if we bought and sold the 10 chosen aristocrats each month. A buy-and-hold approach is also a much more tax-friendly investing strategy.
Type | Most Undervalued | Fastest Growth | Blended | NOBL |
Individual | -8.90% | 5.49% | -0.27% | -1.33% |
Buy-and-Hold | 0.82% | -0.54% | -1.96% | -1.33% |
O/U | 9.71% | -6.03% | -1.70% | 0.00% |
Final Thoughts
I personally believe each of the 3 strategies outlined above can theoretically beat the dividend aristocrat index over a long period of time. These strategies are based on simple principles of valuation and expected returns, and they are easy to understand and implement. Investors should keep in mind that selecting individual stocks carries more risk than investing in an index. The simplest and possibly the safest way to invest in the dividend aristocrats is to purchase shares of NOBL. The fund finished 2021 with a fantastic return, performed much better than the S&P in 2022 and has an annualized rate of return of 10.68% since inception.
2023 is shaping up to be an interesting year for dividend strategies. The S&P 500 had a very poor return in 2022 and seems to be bouncing back this year, driven by strong returns from technology stocks. Dividends aristocrats fared much better in 2022 but are struggling this year. Dividend investing is a marathon, not a sprint and you will find yourself in a slow period from time to time, like right now. The best course of action is to stick with your long-term strategy so long as it still fits your long-term objectives.
The dividend aristocrat data in the images of this article came from my live Google spreadsheet that tracks all of the current dividend aristocrats. Because this data is updated continuously throughout the day, you may notice slightly different data for the same company across the images.
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