My Best Dividend Aristocrats For July 2022

2022 Review

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) gained 0.31% in May, but is thus far 6.22% down in June. If this negative return holds during the last two trading days in the month, the exchange-traded fund (“ETF”) will be down nearly 12% year-to-date. The ETF is on pace to lock in its worst half year return since its inception. The prior worst 6 month return for NOBL was -9.79% in 2020. Since inception, the ETF continues to enjoy a strong 10.51% annualized rate of return, but one that is trending closer to a single digit gain.

Not all of the dividend aristocrats are off to a poor start this year; 30 dividend aristocrats are beating NOBL through May and 21 have positive returns on the year. Here are the best-performing aristocrats in 2022 (through May).

• Exxon (XOM) +60.26%
• Chevron (CVX) +51.68%
• Archer-Daniels-Midland (ADM) +35.66%
• Consolidated Edison (ED) +18.44%
• Nucor (NUE) +16.43%
• Cincinnati Financial (CINF) +12.81%
• Atmos Energy (ATO) +12.41%
• Albemarle (ALB) +11.62%
• Amcor plc (AMCR) +11.22%
• AbbVie (ABBV) +10.96%
• Cardinal Health (CAH) +10.33%
• Chubb (CB) +9.71%
• General Dynamics (GD) +9.06%
• Sysco (SYY) +8.42%
• Coca-Cola (KO) +7.85%
• Johnson & Johnson (JNJ) +6.28%
• International Business Machines (IBM) +6.44%
• Aflac (AFL) +5.11%
• Caterpillar (CAT) +4.93%
• Becton, Dickinson (BDX) +4.60%
• Hormel (HRL) +0.74%

The S&P 500, as measured by SPY, tacked on a gain of 0.23% in May and is down 7.82% in June thus far (through 6/28). NOBL continues to outpace SPY this year with a year to date loss through 6/28 of 11.84% versus a loss of 19.6%. The dividend aristocrat ETF has beaten SPY for each of the last 5 months and June will likely see this trend extend to 6 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 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 Partial	-5.85%	-6.22%	-7.82%
2021 Partial	9.05%	6.54%	9.06%
2022 YTD	-2.67%	-11.84%	-19.60%
TOTAL	6.13%	-6.07%	-12.32%
Alpha over NOBL	12.20%
Alpha over SPY	18.45%

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

The portfolio finished May with a strong gain of 3.11%, beating NOBL by 2.8% and SPY by 2.88%. Through June 28th the portfolio has a return of minus 5.85% and is beating NOBL by 0.37% and SPY by 1.97%. As you can see the portfolio is performing very well given all of the volatility this year. The year-to-date return is a modest loss of 2.67% compared to a loss of 11.84% for NOBL and 19.60% for SPY. Since inception this portfolio has generated 12.20% of alpha over NOBL and 18.45% of alpha over SPY.

The portfolio consists of 28 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 June 28th.

TICKER	MARKET VALUE	CAPITAL INVESTED	TOTAL RETURN	CURRENT ALLOCATION
ABBV	145.83	100	45.83%	1.31%
AFL	293.87	300	-2.04%	2.64%
AMCR	324.10	300	8.03%	2.92%
AOS	186.22	200	-6.89%	1.68%
APD	98.52	100	-1.48%	0.89%
ATO	920.38	800	15.05%	8.28%
BDX	106.79	100	6.79%	0.96%
BEN	449.65	500	-10.07%	4.05%
CAH	443.90	400	10.97%	3.99%
CLX	961.19	1100	-12.62%	8.65%
CVX	470.48	300	56.83%	4.23%
ECL	358.11	400	-10.47%	3.22%
ED	526.83	400	31.71%	4.74%
GD	226.28	200	13.14%	2.04%
HRL	749.46	700	7.07%	6.74%
IBM	243.11	200	21.55%	2.19%
KMB	107.62	100	7.62%	0.97%
LEG	87.34	100	-12.66%	0.79%
MDT	258.91	300	-13.70%	2.33%
MKC	109.05	100	9.05%	0.98%
MMM	517.91	600	-13.68%	4.66%
PPG	185.81	200	-7.09%	1.67%
SWK	258.75	300	-13.75%	2.33%
T	772.63	700	10.38%	6.95%
TROW	352.30	400	-11.93%	3.17%
VFC	616.46	800	-22.94%	5.55%
WBA	996.68	1100	-9.39%	8.97%
XOM	344.18	200	72.09%	3.10%
TOTAL	11,112.36

Here are the 10 most undervalued dividend aristocrats chosen for the month of July. The table below shows potential undervaluation (column Valuation) for each of the 10 chosen aristocrats. The data is from June 28th 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 Partial	-7.52%	-6.22%	-7.82%
2021 Partial	11.62%	6.54%	9.06%
2022 YTD	-10.31%	-11.84%	-19.60%
TOTAL	0.11%	-6.07%	-12.32%
Alpha over NOBL	6.18%
Alpha over SPY	12.43%

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

The portfolio finished May with a modest gain of 0.12%, underperforming NOBL by 0.19% and SPY by 0.11%. Through June 28th the portfolio is down 7.52%, once more losing to NOBL by 1.3% and slightly beating SPY by 0.3%. The portfolio is struggling this year as the growth oriented strategy is beaten up by the market. However it continues to remain ahead of both NOBL and SPY since inception, beating the ETFs by 6.18% and 12.43% respectively.

The portfolio consists of 18 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 June 28th.

TICKER	MARKET VALUE	CAPITAL INVESTED	TOTAL RETURN	CURRENT ALLOCATION
ALB	390.70	400	-2.32%	3.76%
CAT	930.78	1000	-6.92%	8.97%
CB	1,049.86	1000	4.99%	10.11%
ECL	596.47	700	-14.79%	5.75%
IBM	1,162.38	1000	16.24%	11.20%
ITW	170.66	200	-14.67%	1.64%
LIN	271.64	300	-9.45%	2.62%
LOW	411.88	500	-17.62%	3.97%
MCD	695.99	700	-0.57%	6.70%
MDT	86.74	100	-13.26%	0.84%
MMM	294.04	300	-1.99%	2.83%
NUE	964.90	1000	-3.51%	9.29%
PPG	471.32	500	-5.74%	4.54%
PBCT		200		0.00%
SWK	340.77	400	-14.81%	3.28%
SYY	1,218.03	1100	10.73%	11.73%
T	108.54	100	8.54%	1.05%
TROW	372.30	400	-6.92%	3.59%
VFC	845.15	1100	-23.17%	8.14%
TOTAL	10,382.15

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 June. The data is from June 28th 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	10.07%	6.54%	4.63%
Jan 22	-0.71%	-4.08%	-5.27%
Feb 22	-0.81%	-2.59%	-2.95%
Mar 22	2.01%	3.86%	3.76%
Apr 22	-2.82%	-3.42%	-8.78%
May 22	1.28%	0.31%	0.23%
Jun 22 Partial	-5.21%	-6.22%	-7.82%
2021 Partial	9.18%	6.54%	9.06%
2022 YTD	-6.27%	-11.84%	-19.60%
TOTAL	2.34%	-6.07%	-12.32%
Alpha over NOBL	8.42%
Alpha over SPY	14.66%

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

The portfolio gained 1.28% in May, beating NOBL by 0.97% and Spy by 1.05%. Through June 28th the portfolio is down 5.21% and is outperforming NOBL by 1.01% and SPY by 2.61%. Although not performing quite as well as the most undervalued portfolio, 8.42% of alpha over NOBL and 14.66% over SPY after almost 11 months is still very impressive.

The portfolio consists of 26 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 June 28th.

TICKER	MARKET VALUE	CAPITAL INVESTED	TOTAL RETURN	CURRENT ALLOCATION
AMCR	324.10	300	8.03%	3.01%
AOS	167.61	200	-16.19%	1.56%
APD	401.20	400	0.30%	3.73%
ATO	713.25	600	18.87%	6.63%
BDX	415.87	400	3.97%	3.86%
BEN	164.12	200	-17.94%	1.52%
CAH	338.45	300	12.82%	3.14%
CTAS	195.10	200	-2.45%	1.81%
ECL	461.33	500	-7.73%	4.29%
GD	565.51	500	13.10%	5.25%
HRL	649.76	600	8.29%	6.04%
IBM	1,162.38	900	29.15%	10.80%
ITW	92.84	100	-7.16%	0.86%
KMB	134.95	100	34.95%	1.25%
MDT	529.82	600	-11.70%	4.92%
MMM	909.90	1100	-17.28%	8.45%
PBCT	0.00	200		0.00%
PPG	303.81	300	1.27%	2.82%
ROP	89.72	100	-10.28%	0.83%
SHW	196.28	200	-1.86%	1.82%
SWK	407.60	500	-18.48%	3.79%
SYY	547.80	500	9.56%	5.09%
T	108.54	100	8.54%	1.01%
TROW	450.08	500	-9.98%	4.18%
VFC	637.26	800	-20.34%	5.92%
WBA	452.32	500	-9.54%	4.20%
XOM	344.18	200	72.09%	3.20%
TOTAL	10,763.77

Here are the 10 dividend aristocrats chosen for the blended strategy for July. 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 June 28th so the current dividend yield may differ slightly from the stated yield.

Performance Review

The 10 chosen aristocrats for the most undervalued strategy are losing 7.08% in June and trailing NOBL by 0.86%. The fastest expected growth strategy selections are losing 7.66% and trailing NOBL by 1.44% and the blended strategy is losing 6.03% and beating NOBL by 0.19%. Often times the selected aristocrats underperform NOBL in a single month but prove to offer alpha in the long term. As I mentioned in the beginning a buy and hold approach is the optimal application method for 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 performing much better than if we bought and sold the 10 chosen aristocrats each month. 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	-3.94%	-2.64%	-0.60%	-6.07%
Buy-and-Hold	6.13%	0.11%	2.34%	-6.07%
O/U	10.07%	2.75%	2.94%	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 10.51% 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.