My Best Dividend Aristocrats For August 2022

2022 Review

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) lost 6.31% in June, suffering its 4th worst single month return since its inception. The 3 worse months than June of 2022 were: December 2018 -7.93%, February 2020 -8.63% and March 2020 -13.74%. This month is thus far looking better as the ETF is up 3.39% through July 25th. But even with the gain this month NOBL is on pace to lock in its worst 7-month start to a year. The prior worst 7-month return was in 2020 with the ETF being down 5.23%. In order to catch up to that return we would need to see a gain of about 4.2% in the next 4 trading days. Since inception, the ETF continues to enjoy a strong 10.50% annualized rate of return, that will likely increase once July is over.

Not all of the dividend aristocrats are off to a poor start this year; 31 dividend aristocrats are beating NOBL through June and 16 have positive returns on the year. Here are the best-performing aristocrats in 2022 (through June).

• Exxon (XOM) +42.97%
• Chevron (CVX) +25.73%
• Archer-Daniels-Midland (ADM) +15.91%
• AbbVie (ABBV) +15.32%
• Consolidated Edison (ED) +13.48%
• Sysco (SYY) +9.73%
• Atmos Energy (ATO) +8.34%
• International Business Machines (IBM) +8.23%
• General Dynamics (GD) +7.89%
• Coca-Cola (KO) +7.85%
• Cincinnati Financial (CINF) +5.61%
• Amcor plc (AMCR) +5.54%
• Johnson & Johnson (JNJ) +5.08%
• Cardinal Health (CAH) +3.37%
• Chubb (CB) +2.52%
• Becton, Dickinson (BDX) +1.16%

The S&P 500, as measured by SPY, lost 8.25% in June but is up 4.55% in July thus far (through 7/25). NOBL continues to outpace SPY this year with a year-to-date loss through 7/25 of 9.34% versus a loss of 16.33%. The dividend aristocrat ETF has beaten SPY for each of the last 6 months but this trend will likely be broken in July. 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 64 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 Partial	2.82%	3.39%	4.55%
2021 Partial	9.05%	6.54%	9.06%
2022 YTD	-1.47%	-9.34%	-16.33%
TOTAL	7.44%	-3.42%	-8.76%
Alpha over NOBL	10.86%
Alpha over SPY	16.20%

The table above shows the monthly and annual returns for the buy-and-hold portfolio of the most undervalued strategy.

The portfolio finished June with a loss of 7.3%, losing to NOBL by 0.57% but beating SPY by 0.95%. Through July 25th the portfolio has a return of 2.82% and is trailing both NOBL and SPY. As a result, the portfolio, is giving up some more alpha this month to both benchmarks. However, on a year-to-date basis, the portfolio is outperforming NOBL by 7.87% and SPY by 14.86%. Since inception this portfolio has generated 10.86% of alpha over NOBL and 16.20% of alpha over SPY. After 4 more trading days we will have 1 full year of returns for this strategy and it’s been quite a good first year for this portfolio.

The portfolio consists of 29 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 all of the positions, the current market value, capital invested, total return and allocation as of July 25th.

TICKER	MARKET VALUE	CAPITAL INVESTED	TOTAL RETURN	CURRENT ALLOCATION
ABBV	143.66	100	43.66%	1.17%
AFL	292.62	300	-2.46%	2.38%
AMCR	331.66	300	10.55%	2.70%
AOS	198.84	200	-0.58%	1.62%
APD	96.19	100	-3.81%	0.78%
ATO	948.82	800	18.60%	7.73%
BDX	105.95	100	5.95%	0.86%
BEN	580.22	600	-3.30%	4.73%
CAH	481.05	400	20.26%	3.92%
CLX	1,142.06	1200	-4.83%	9.30%
CVX	461.51	300	53.84%	3.76%
ECL	488.93	500	-2.21%	3.98%
ED	522.29	400	30.57%	4.25%
GD	225.82	200	12.91%	1.84%
HRL	760.29	700	8.61%	6.19%
IBM	218.67	200	9.33%	1.78%
KMB	110.27	100	10.27%	0.90%
LEG	97.47	100	-2.53%	0.79%
LOW	111.52	100	11.52%	0.91%
MDT	369.28	400	-7.68%	3.01%
MKC	106.67	100	6.67%	0.87%
MMM	630.56	700	-9.92%	5.14%
PPG	196.83	200	-1.59%	1.60%
SWK	384.06	400	-3.99%	3.13%
T	694.66	700	-0.76%	5.66%
TROW	465.52	500	-6.90%	3.79%
VFC	742.63	900	-17.49%	6.05%
WBA	1,034.27	1200	-13.81%	8.42%
XOM	335.25	200	67.62%	2.73%
TOTAL	12,277.58

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

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 Partial	4.07%	3.39%	4.55%
2021 Partial	11.62%	6.54%	9.06%
2022 YTD	-8.10%	-9.34%	-16.33%
TOTAL	2.58%	-3.42%	-8.76%
Alpha over NOBL	6.00%
Alpha over SPY	11.33%

The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.

The portfolio finished June with a loss of 8.94%, underperforming NOBL by 2.21% and SPY by 0.69%. Through July 25th the portfolio is up 4.07%, beating NOBL by 0.68% but trailing SPY by 0.48%. The portfolio continues to struggle this year as compared to the most undervalued portfolio. However, it remains ahead of NOBL and SPY on a year-to-date basis with a loss of 8.1% compared to a loss of 9.34% and 16.33% for NOBL and SPY respectively. Since inception, this portfolio has generated 6% of alpha over NOBL and 11.33% of alpha over SPY.

The portfolio consists of 19 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 (PBCT) 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 all of the positions, the current market value, capital invested, total return and allocation as of July 25th.

TICKER	MARKET VALUE	CAPITAL INVESTED	TOTAL RETURN	CURRENT ALLOCATION
ALB	508.81	500	1.76%	4.36%
CAT	1,004.56	1100	-8.68%	8.60%
CB	1,019.96	1000	2.00%	8.73%
ECL	637.49	700	-8.93%	5.46%
IBM	1,045.53	1000	4.55%	8.95%
ITW	180.94	200	-9.53%	1.55%
LIN	266.60	300	-11.13%	2.28%
LOW	571.54	600	-4.74%	4.89%
MCD	717.53	700	2.50%	6.14%
MDT	191.46	200	-4.27%	1.64%
MMM	299.16	300	-0.28%	2.56%
NUE	1,214.58	1100	10.42%	10.40%
PPG	499.25	500	-0.15%	4.27%
PBCT		200		0.00%
SWK	471.23	500	-5.75%	4.03%
SYY	1,376.88	1200	14.74%	11.79%
T	97.59	100	-2.41%	0.84%
TGT	111.51	100	11.51%	0.95%
TROW	485.95	500	-2.81%	4.16%
VFC	978.26	1200	-18.48%	8.38%
TOTAL	11,678.84

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. The data is from July 25th so the current dividend yield may differ slightly from the stated yield.

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	12.04%	6.54%	4.63%
Jan 22	-0.71%	-4.08%	-5.27%
Feb 22	0.59%	-2.59%	-2.95%
Mar 22	3.39%	3.86%	3.76%
Apr 22	-7.00%	-3.42%	-8.78%
May 22	1.28%	0.31%	0.23%
Jun 22	-6.23%	-6.73%	-8.25%
Jul 22 Partial	2.95%	3.39%	4.55%
2021 Partial	11.15%	6.54%	9.06%
2022 YTD	-6.11%	-9.34%	-16.33%
TOTAL	4.36%	-3.42%	-8.76%
Alpha over NOBL	7.77%
Alpha over SPY	13.11%

The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.

The portfolio lost 6.23% in June, beating NOBL by 0.50% and SPY by 2.02%. Through July 25th the portfolio is up 2.95% and is trailing NOBL by 0.44% and SPY by 1.60%. The blended strategy is thus far performing better than the fastest expected growth strategy but worse than the most undervalued strategy. With almost one full year of history, it has generated ample alpha over both NOBL and SPY. I believe it will continue to do so in the future as well.

The portfolio consists of 29 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 (PBCT) 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 all of the positions: the current market value; capital invested; total return; and allocation as of July 25th.

TICKER	MARKET VALUE	CAPITAL INVESTED	TOTAL RETURN	CURRENT ALLOCATION
AMCR	331.66	300	10.55%	2.77%
AOS	178.97	200	-10.52%	1.49%
APD	391.74	400	-2.07%	3.27%
ATO	735.28	600	22.55%	6.13%
BDX	412.60	400	3.15%	3.44%
BEN	171.82	200	-14.09%	1.43%
CAH	366.78	300	22.26%	3.06%
CAT	101.71	100	1.71%	0.85%
CTAS	235.39	200	17.69%	1.96%
ECL	599.25	600	-0.13%	5.00%
GD	564.35	500	12.87%	4.71%
HRL	659.16	600	9.86%	5.50%
IBM	1,045.53	900	16.17%	8.72%
ITW	98.43	100	-1.57%	0.82%
KMB	138.28	100	38.28%	1.15%
LOW	111.52	100	11.52%	0.93%
MDT	649.08	700	-7.27%	5.41%
MMM	1,029.38	1200	-14.22%	8.58%
PBCT		200	-100.00%	0.00%
PPG	321.82	300	7.27%	2.68%
ROP	94.83	100	-5.17%	0.79%
SHW	342.74	300	14.25%	2.86%
SWK	542.28	600	-9.62%	4.52%
SYY	572.34	500	14.47%	4.77%
T	97.59	100	-2.41%	0.81%
TGT	111.51	100	11.51%	0.93%
TROW	565.36	600	-5.77%	4.71%
VFC	764.06	900	-15.10%	6.37%
WBA	422.98	500	-15.40%	3.53%
XOM	335.25	200	67.62%	2.80%
TOTAL	11,991.67

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

Performance Review

The 10 chosen aristocrats for the most undervalued strategy are up 6.21% in July and beating NOBL by 2.82%. The fastest expected growth strategy selections are up 7.94% and beating NOBL by 4.55%. The blended strategy is up 7.45% this month and beating NOBL by 4.06%. All 3 strategies made excellent selections in July and are performing far better than NOBL. However, the strong performance doesn’t always convert to the buy-and-hold portfolios immediately. I still believe that a buy-and-hold approach is the optimal investing method for these strategies and performance should be measured over longer periods of time.

Below are the partial returns (inclusive of dividends) through July 25th for the 10 chosen aristocrats under each strategy last month. The best selections are: Lowe’s (LOW) +11.52%, Nucor (NUE) +17.08%, Sherwin-Williams (SHW) +15.68% and Target (TGT) +11.51%, all posting double digit gains thus far.

TICKER	MOST UNDERVALUED	FASTEST GROWTH	BLENDED
ALB		9.08%
BEN	9.48%
CAT		1.71%	1.71%
CLX	4.82%
ECL	6.19%		6.19%
LOW	11.52%	11.52%	11.52%
MDT	1.87%	1.87%	1.87%
MMM	3.64%		3.64%
NUE		17.08%
SHW			15.68%
SWK	9.02%	9.02%	9.02%
SYY		4.30%
TGT		11.51%	11.51%
TROW	5.83%	5.83%	5.83%
VFC	7.49%	7.49%	7.49%
WBA	2.24%
AVERAGE	6.21%	7.94%	7.45%
NOBL	3.39%	3.39%	3.39%
ALPHA	2.82%	4.55%	4.06%

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. The strong results for July did shift these returns a bit and now the blended buy-and-hold portfolio is not performing better than the individual monthly watchlists. However, I believe this trend will reverse in the long run. Not to mention that the high turnover of buying and selling individual stocks each month may create a significant tax drag on the final results.

Type	Most Undervalued	Fastest Growth	Blended	NOBL
Individual	-0.25%	2.15%	4.99%	-3.42%
Buy-and-Hold	7.44%	2.58%	4.36%	-3.42%
O/U	7.69%	0.42%	-0.64%	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 and has an annualized rate of return of 10.50% 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.