My Best Dividend Aristocrats For April 2022

2022 Review

After shedding 2.59% in February, NOBL is down 6.56% through month-end February. Aside from 2020 this is the worst 2-month start for the ETF since its inception. This past month was the 100th month of trading for NOBL and the fund is averaging a respectable 11.73% annualized rate of return since inception. March is shaping up to be much nicer, the ETF is up 4.25% through March 25th (inclusive of the declared dividend).

Not all of the dividend aristocrats are off to a poor start this year, 26 dividend aristocrats are beating NOBL through February and 18 have positive returns on the year. Here are the best performing aristocrats in 2022 (though February).

• Exxon (XOM) +29.59%
• Chevron (CVX) +24.01%
• People’s United (PBCT) +19.41%
• Archer-Daniels-Midland (ADM) +16.67%
• Nucor (NUE) +15.30%
• General Dynamics (GD) +13.09%
• Sysco (NYSE:SYY) +11.54%
• AbbVie (ABBV) +10.29%
• Becton, Dickinson (BDX) +7.87%
• Cincinnati Financial (CINF) +7.77%
• Atmos Energy (ATO) +5.48%
• Chubb (CB) +5.34%
• Aflac (AFL) +5.28%
• Coca-Cola (KO) +5.12%
• Cardinal Health (CAH) +4.90%
• Consolidated Edison (NYSE:ED) +1.50%
• Medtronic (MDT) +1.49%
• Emerson Electric (EMR) +0.47%

The S&P 500 lost 2.99% in February and is down 8.01% on the year, so the aristocrats continue to enjoy a modest lead after two full months. 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 7 full calendar years.

However, if you look further back in history, the dividend aristocrat index is outperforming the S&P 500 index by about 1.62% per year between 1990 and 2021. 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.

Even though the dividend aristocrats have trailed the S&P for the better part of the last 7 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 65 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 companies and lead to better performance than the dividend aristocrat index.

These strategies 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.

Most Undervalued

Strategy number 1 is a focus on valuation and more specifically it targets the 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.

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
Aug 21	0.49%	1.87%
Sep 21	-2.78%	-5.69%
Oct 21	3.76%	5.95%
Nov 21	-1.68%	-1.76%
Dec 21	11.21%	6.54%
Jan 22	-0.84%	-4.08%
Feb 22	-3.98%	-2.59%
2021 Partial	10.83%	6.54%
2022 YTD	-4.79%	-6.56%
Total	5.53%	-0.46%
Alpha	5.98%

The most undervalued strategy finished February with a loss of 3.98%, trailing NOBL by 1.39%. The strategy remains ahead of NOBL on the year by 1.77%, and 5.98% ahead since August 2021.

The strategy is not keeping up pace with NOBL in March posting a gain of just 2.09% vs. a gain of 4.25% from the ETF through March 25th. This places the strategy 2.16% behind NOBL for the month, with a few more trading days left. Inclusive of the partial March performance the most undervalued strategy is now 3.95% ahead of NOBL since inception.

Here are the 10 most undervalued dividend aristocrats chosen for the month of April 2022. The table below shows potential undervaluation (column Valuation) for each of the 10 chosen aristocrats for April. The data is from March 25th so the current dividend yield may differ slightly from the stated yield.

Fastest Expected Growth

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 five-year EPS growth forecasts combined with current valuation and the dividend yield to identify the 10 best aristocrats poised for the best total return in the future.

Month	Fastest Growth	NOBL
Aug 21	5.12%	1.87%
Sep 21	-4.37%	-5.69%
Oct 21	6.13%	5.95%
Nov 21	-2.31%	-1.76%
Dec 21	8.27%	6.54%
Jan 22	-5.30%	-4.08%
Feb 22	-1.82%	-2.59%
2021 Partial	12.84%	6.54%
2022 YTD	-7.02%	-6.56%
Total	4.91%	-0.46%
Alpha	5.37%

Strategy number 2 finished February with a loss of 1.82%, beating NOBL by 0.77%. The strategy still trails NOBL on the year by 0.46% but is ahead by 5.37% since August of 2021

March is shaping up to be another strong month for the fastest expected growth strategy as it is up 5.46% through March 25th versus a gain of 4.25% for NOBL. Inclusive of the March outperformance of 1.22% the lead over NOBL extends to 6.87% since inception.

Here are the 10 dividend aristocrats poised for the best total return right now. The table below shows the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats for April. The data is from March 25th so the current dividend yield may differ slightly from the stated yield.

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 companies 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
Aug 21	2.64%	1.87%
Sep 21	-3.40%	-5.69%
Oct 21	4.76%	5.95%
Nov 21	-2.08%	-1.76%
Dec 21	10.18%	6.54%
Jan 22	-1.40%	-4.08%
Feb 22	-4.31%	-2.59%
2021 Partial	12.05%	6.54%
2022 YTD	-5.65%	-6.56%
Total	5.73%	-0.46%
Alpha	6.18%

The blended strategy finished February with a loss of 4.31% trailing NOBL by 1.72%. The strategy remains ahead of NOBL by 0.91% on the year because of strong alpha generated in January. Following February the lead over NOBL shrinks to 6.18% since August 2021.

The strategy is performing poorly in March with a gain of 2.53% through March 25th, this places the strategy 1.72% behind NOBL for the month. Inclusive of the partial March performance the blended strategy drops to only 4.63% ahead of NOBL since inception.

Here are the 10 dividend aristocrats chosen for the blended strategy for April 2022. The table below shows potential undervaluation (column Valuation) and the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats for April. The data is from March 25th so the current dividend yield may differ slightly from the stated yield.

Performance Review

I started tracking these 3 simple strategies in August of 2021. After 7 months each strategy is performing quite nice and has a comfortable lead over NOBL. The best strategy during this time period has been the blended strategy that generated 6.18% of alpha. The strategy started off slowly, beating NOBL, but trailing the fastest expected growth strategy. Even though the fastest expected growth strategy has beaten NOBL for 5 out of the last 7 months, the blended strategy with only 4 winning months has been more consistent.

Mock buy-and-hold portfolios for each strategy are for the first time performing better than the individual monthly selections. All 3 buy-and-hold portfolios are beating NOBL by 5.64-8.50%. Here are the individual monthly returns for all 3 buy-and-hold portfolios through month end February.

Month	Most Undervalued	Fastest Growth	Blended	NOBL
Aug 21	0.49%	5.12%	2.64%	1.87%
Sep 21	-2.99%	-4.42%	-3.42%	-5.69%
Oct 21	3.63%	5.92%	2.70%	5.95%
Nov 21	-2.19%	-2.06%	-2.56%	-1.76%
Dec 21	10.37%	7.09%	10.07%	6.54%
Jan 22	1.04%	-4.42%	-0.71%	-4.08%
Feb 22	-1.94%	-1.41%	-0.81%	-2.59%
2021 Partial	9.05%	11.62%	9.18%	6.54%
2022 YTD	-0.92%	-5.77%	-1.51%	-6.56%
TOTAL	8.04%	5.19%	7.53%	-0.46%
Alpha	8.50%	5.64%	7.99%

All buy-and-hold portfolios outperformed NOBL and the individual strategies in February driven by strong returns of previously selected aristocrats.

A buy-and-hold investing approach is one of the easiest strategies to adopt and also very tax-friendly. Dividend aristocrats are great quality companies so it would make sense that you hold onto them for a very long period of time. I personally prefer and utilize a buy-and-hold approach in my own portfolios. For the first time since inception all three buy-and-hold portfolios are performing better than the individual monthly selections.

Here is a comparison of the buy-and-hold portfolios and the individual monthly selections for each strategy. The most undervalued strategy appears to be performing the best thus far, however, the blended strategy is not too far behind.

Type	Most Undervalued	Fastest Growth	Blended	NOBL
Individual	5.53%	4.91%	5.73%	-0.46%
Buy-and-Hold	8.04%	5.19%	7.53%	-0.46%
O/U	2.52%	0.27%	1.81%	0.00%

Final Thoughts

I personally believe each of the 3 strategies outlined above can theoretically beat the dividend aristocrat index over a longer 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 and has an annualized rate of return of 11.73% since inception.

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.