Wednesday, 12 June 2013 - 20:00

 

Charts

Dividend Aristocrats ? The New Nifty 50?

The original Nifty Fifty stocks from the 1960’s and 1970’s were the type of shares that were supposed to be buy and hold shares. They were characterised as having consistent earnings growth and high PE ratios. A Barron’s article put it as “They were so-called one-decision stocks you were supposed to buy and put away forever because these supposedly elite growth companies would continue to grow no matter what.”

Many of these companies have indeed continued to grow, despite protracted bear markets, especially in the bear markets of the mid 1970’s and the early 2000’s. Some of the names included well known Coca Cola, IBM, McDonalds, and Johnson and Johnson. But then there were others such as Burroughs, Digital Equipment, and Eastman Kodak, which have all long gone.

Standard and Poor’s, which produces the well know S&P500 index, also produce what is known as the Dividend Aristocrats index. This is a subset of the top 500 companies, which have increased their dividend pay-outs for at least 25 consecutive years.

The companies that make up the Dividend Aristocrats cover ten different business sectors with both growth and value holdings. The index of shares is then equally weighted across the various shares and each quarter re adjusted back to an equal weight.

The list declined from 52 companies in 2009 to 42 companies in 2010, as many companies cut their dividend pay-outs. The index then remained steady in 2011 and in 2012 one company was removed and 10 added.

The chart below reflects that over the last three and five years the Dividend Aristocrat index has outperformed the larger S&P500 index mostly because these shares did not decline as much as the broader market in the 2007/2008 financial crisis. Over the last 12 months however the returns from the two series have been neck on neck.

Source: S&P500

BCA Research have a view that given the scarcity and low quantum of yield available for investors, the dividend attributes of these types of shares could become even more in favour than is already the case, potentially pushing up valuations to inflated levels. These shares are attractive for investors because of their fixed income type qualities.

BCA do point out, however, that while there is a belief that defensive stocks typically weather market shakeouts or corrections, the reality is that they rarely do. I.e. there is investment risk when investors overpay. A lot, however, does hinge on the actions of central bankers with regard to keeping interest rates low and providing liquidity. Over the last few weeks we have seen interest rates rise, once again causing some headwinds for shares, but resulting in losses for bondholders.

Kind regards,

Ian de Lange

www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966

Wed, 12 Jun 2013

Top News

Index Summary

Stock Exchange News Service

© 2013 Sharenet (Pty) Ltd
Box 30584, Tokai, Cape Town, South Africa
Tel +27 21 700 4800

**Top 5 listings shown.

The Sharenet Daily is provided free of charge by Sharenet
to clients who have registered on our site and elected to receive it.

To update your email address please goto www.sharenet.co.za/snet/der
If you have problems taking yourself off this list please forward a full copy of this email to support@sharenet.co.za

RM~LINK Click here if you wish to unsubscribe from The Sharenet Daily...