My Best Dividend Aristocrats For April 2024

2024 Review

February was a solid month for the ProShares S&P 500 Dividend Aristocrat ETF (NOBL), the fund posted a gain of 2.72%. The good streak extended through March with NOBL being up another 4.19% (not factoring in the dividend payment). This has been NOBL’s best first quarter of the year since 2021.

Several dividend aristocrats have started 2024 on an even better note than NOBL. Let’s take a look at which individual aristocrats are driving the ETFs return through month-end February. The following 35 aristocrats are all outperforming NOBL (+2.24%) this year:

• Brown & Brown (BRO) +18.62%
• Grainger (GWW) +17.70%
• AbbVie (ABBV) +14.69%
• International Business Machines (IBM) +14.15%
• Caterpillar (CAT) +13.47%
• Fastenal (FAST) +13.37%
• Ecolab (ECL) +13.35%
• Walmart (WMT) +11.53%
• Sysco (SYY) +11.46%
• Chubb (CB) +11.36%
• Cardinal Health (CAH) +11.09%
• Hormel (HRL) +10.97%
• Nucor (NUE) +10.49%
• Emerson Electric (EMR) +10.33%
• Cincinnati Financial (CINF) +10.18%
• Linde PLC (LIN) +9.28%
• Colgate (CL) +9.19%
• Procter & Gamble (PG) +9.15%
• Lowes (LOW) +8.70%
• Genuine Parts Company (GPC) +8.49%
• Clorox (CLX) +8.42%
• Abbott Labs (ABT) +8.31%
• Target (TGT) +8.16%
• Dover Corporation (DOV) +7.86%
• Automatic Data Processing (ADP) +7.80%
• Pentair (PNR) +7.33%
• Sherwin Williams (SHW) +6.70%
• Church & Dwight (CHD) +6.18%
• General Dynamics (GD) +5.79%
• Exxon Mobil (XOM) +5.52%
• Brown-Forman (BF.B) +5.49%
• T. Rowe Price Group (TROW) +5.26%
• Cintas (CTAS) +4.54%
• Johnson & Johnson (JNJ) +3.74%
• Chevron (CVX) +2.98%

The S&P 500, as measured by SPDR S&P 500 Trust ETF (SPY), was up 5.22% in February, outperforming NOBL during the month. The price return for SPY in March was +2.95%, considerably lower than NOBL. 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 7 out of the last 9 full calendar years.

However, if you look further back in history, the dividend aristocrat index is outperforming the S&P 500 index by about 2.18% per year between 1990 and 2022. 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. 2022 also proved to be a strong year for the aristocrats as they earned 15.15% of alpha on the S&P, making up for 3 years of underperformance.

Even though the dividend aristocrats have trailed the S&P for the better part of the last 9 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 67 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.

Several changes were made to the dividend aristocrat list during the course of 2023 and in early 2024. Last year we saw V.F. Corporation (VFC) and Walgreens (WBA) fall off the list. Kenvue (KVUE) joined after it was spun off from Johnson and Johnson. And in early 2024 we welcomed a new dividend aristocrat, Fastenal (FAST).

Since last months update 4 aristocrats have announced dividend increases.

1. Colgate Palmolive +4.17%
2. General Dynamics +7.58%
3. Linde PLC +9.02%
4. Walmart +9.21%

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.

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

The portfolio outperformed NOBL in February by 0.12% but trailed SPY by 2.38%. March, excluding dividends, is thus far looking much better, the portfolio is up 6.32% (price only return) through March 28th, while NOBL is up 4.19% and SPY is up 2.95%. Since inception, the portfolio is beating NOBL by 1.15%, but trails SPY by 2.77%.

At its peak, this strategy was ahead of both NOBL and SPY by double-digit gains. While such outperformance is not something I am expecting out of this strategy, it has shown merit when stock valuations revert to historical means. It’s expected that a strategy based heavily on valuation will cycle in and out of favor.

The portfolio consists of 40 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.

Here are the 10 most undervalued dividend aristocrats chosen for the month of April 2024. The table below shows potential undervaluation (column Over/Under) for each of the 10 chosen aristocrats. The image below is taken from a new spreadsheet I recently created where I am self-computing the 5-year trailing dividend yield. Previously I used Seeking Alpha as a source for the historical yield.

The top 10 list has two changes compared to the prior month. Archer Daniel Midland (ADM) and T. Rowe Price (TROW) drop off and are replaced by Medtronic (MDT) and Realty Income (O).

Here is a closer look at the dividend yield theory valuation for Medtronic which looks approximately 19% undervalued.

In the image below the black line is the actual price since April of 2017. The light green shaded area represents a 0 to 15% undervalued zone. The dark green area represents an undervaluation in excess of 15%. The light red shaded area represents a 0 to 15% overvalued zone.

Here is a closer look at the dividend yield theory valuation for Realty Income which looks approximately 20% undervalued.

The Fastest Expected Growth Strategy

Strategy number 2 is a focus on dividend aristocrats who 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.

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

The portfolio outperformed NOBL by 0.51% in February but trailed SPY by 1.99%. March thus far is looking better, through March 28th the portfolio is up 4.68% (price only return) while NOBL is up 4.19% and SPY is up 2.95%. Since inception, the portfolio maintains a modest level of alpha over both benchmarks, 7.34% over NOBL and 3.42% over SPY.

The fastest expected growth portfolio is currently performing the best out of the 3 strategies. At one point it trailed the most undervalued strategy by a wide margin but it fared much better in the most recent market rally.

The portfolio consists of 36 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. Dividends are reinvested back into the issuing stock and positions are only trimmed if they lose aristocrat status.

Here are the 10 dividend aristocrats poised for the best total return for the month of April 2024. The table below shows the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats.

The top 10 list has two changes compared to the prior month. McCormick (MKC) and 3M Company (MMM) drop off and are replaced by Air Products and Chemicals (APD) and Franklin Resources (BEN).

Here is a closer look at the dividend yield theory valuation for Air Products and Chemicals which looks approximately 20% undervalued.

Here is a closer look at the dividend yield theory valuation for Franklin Resources which looks approximately 4% undervalued.

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.

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

The portfolio underperformed NOBL in February by 0.03% and SPY by 2.53%. March is thus far looking much better, the portfolio is up 5.05% (price only return) through March 28th, while NOBL is up 4.19% and SPY is up 2.95%. Since inception, the portfolio is ahead of NOBL by 2.92% but trails SPY by 1.00%.

The blended strategy was an attempt to merge the best of the most undervalued and fastest expected growth strategies. For the longest time, this was the worst-performing strategy, however, since November of 2023 this portfolio slid ahead of the most undervalued portfolio but continues to trail the fastest expected growth portfolio.

The portfolio consists of 39 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. Dividends are reinvested back into the issuing stock and positions are only trimmed if they lose aristocrat status.

Here are the 10 dividend aristocrats chosen for the blended strategy for April 2024. The table below shows potential undervaluation (column Over/Under) and the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats.

The top 10 list has two changes compared to the prior month, they are exactly the same changes as in the fastest expected growth strategy.

Performance Review

We have already seen how the buy-and-hold strategies are performing in March so now let’s look at how the chosen stocks for the month are doing as well. The 10 chosen aristocrats for the most undervalued strategy are up 6.88%, and performing the best. The fastest expected growth strategy selections are up 6.51%, and since the blended strategy selections for the month were the same, this strategy has the same return. The fastest expected strategy is off to the best start in 2024, year-to-date through March 28th it has a return of +9.05%. Relative to +8.31% for the blended strategy and +5.46% for the most undervalued strategy.

Here is a comparison of the buy-and-hold portfolios and the individual monthly selections for each strategy. A buy-and-hold approach is a much more tax-friendly investing strategy.

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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, performed much better than the S&P in 2022, and posted a respectable gain in 2023. Since inception, the fund has had an annualized rate of return of 10.43% since inception.

2023 was a wild year for dividend stocks but unfortunately, the market was driven by more growth-oriented stocks and companies focused on Artificial Intelligence. I think there is a place for dividend stocks in everyone’s portfolio. Dividend investing is a marathon, not a sprint and you will find yourself in a slow period from time to time. The best course of action is to stick with your long-term strategy so long as it still fits your long-term objectives.

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. Also, some of my returns may be off by a few basis points from those you’ll see from other sources on the web.