FR: 5 Sustainable Dividends for Your Portfolio

Article: 5 Sustainable Dividends for Your Portfolio

The next article in my “Fool Revisited” series goes back to the well for the screener idea, similar to my article on foreign banks. It looks like this article may have been the result of a class on dividend investing, but it is hard to say 6+ years later without digging into my notes from the time (that have most likely been lost to moves anyway).

The screening criteria for this particular article used four different factors: dividend yield over 5%, a payout ratio less than 100%, return on equity over 20%, and a sustainable growth rate over 5%. The five “sustainable” dividends in question came from four different industries, leading me to believe this article was more about income investing, but as you will see from some future articles, I went back to the “best dividends” thing when writing about some industries too.

Must have wanted to set the world on fire with this one, so I did actually share it via the tweets at the time:

All five companies have seen a gain since publication of the article, though only two exceeded the return of the S&P 500, and only one still maintains a dividend over 5%. This is primarily because of the growth of the stock prices, though there has been some dividend reductions at some of the companies as well due to financial struggles.

Nevertheless, on average, the five companies would have barely exceeded the return of the S&P 500, partially due to some of those early high dividend yields. Here’s how the five companies fared individually – using the compound annual growth rate (CAGR) and total growth – versus the S&P 500 from article publication (September 28, 2011) through January 12, 2018:

Stock Start Price End Price CAGR Total Growth Value of $10,000
Altria Group (NYSE: MO) $19.96 $69.61 21.95% 248.75% $34,875
AstraZeneca PLC (NYSE: AZN) $16.01 $35.65 13.56% 122.67% $22,267
Eli Lilly (NYSE: LLY) $30.28 $86.98 18.25% 187.25% $28,725
National Grid (NYSE: NGG) $39.12 $57.58 6.33% 47.19% $14,719
Southern Copper Corporation (NYSE: SCCO) $21.46 $49.93 14.35% 132.67% $23,267
S&P 500 $1,151.06 $2,786.24 15.07% 142.06% $24,206

Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits

The best performer of the bunch has been Altria Group, the parent company of domestic cigarette giant Philip Morris USA. Count me among the type of person that has issues investing in companies that peddle such a deadly product, but its performance cannot be denied. It has a fairly sustainable moat because of its horrible products and has succeeded for decades despite limits on advertising of tobacco products. Whether this success continues remains to be seen, but I would personally avoid it because of its heavy investment in tobacco products.

The only other company to beat the S&P 500 during this period was drug maker Eli Lilly, the company behind such well-known drugs as Cialis, Cymbalta, Methadone, Prozac, and many others. Pharmaceutical companies like Eli Lilly are typically driven by acquisitions, and Lilly is no different. They typically acquire smaller drug makers that are close to FDA approval with a fancy new drug and reap the benefits of the long-lasting drug patents in this country. Before investing in Eli Lilly or any other pharmaceutical company, I would have to check how much the patent cliff would affect future success of the company.

Until next time…

Disclaimer: I do not own currently own shares in any of the mentioned companies, and I have no plans to purchase shares of either company within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.

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