Dividends can play a key role in an investor’s total return. Studies show that companies that increase their payouts consistently are generally well-managed and have competitive advantages.Getty Images/iStockphoto
A solid majority of the best-performing U.S. blue chips in the past year have been strong dividend growers.
Consistent dividend growth is a big contributor to share price gains, but there are exceptions. If you're looking for bargains in the U.S. stock market, these under-performing dividend growers might be worth a look.
Our pool of stocks for this screening exercise is the S&P 100 index, which is made up of the biggest stocks in the S&P 500. Stocks in the 100 index were ranked by five-year annualized dividend growth, a list that was topped by the likes of Citigroup, Bank of America and Cisco Systems. The trio delivered total returns of 43 per cent, 88 per cent and 30 per cent, respectively, in the past 12 months.
But buried in the list of top five-year dividend growers are some well-known stocks that have negative total returns for the past year. A few of the notable names are:
- CVS Health Corp.: This pharmacy company has posted five-year annualized dividend growth of 25 per cent, but its one-year total return is a loss of 16 per cent.
- Ford Motor Co.: The automaker's five-year dividend growth averaged 24.6 per cent, while the shares delivered a total return of negative 3.7 per cent.
- Starbucks Corp.: Five-year dividend growth of 24 per cent, but a one-year total return of minus 1.6 per cent.
- Target Corp.: The department store chain's dividend rose 15 per cent annually over the past five years, while the 12-month total return was a nasty loss of 29 per cent.
- Nike Inc.: Dividend growth of 15 per cent, and a one-year total return of negative 3.7 per cent.
- Coca-Cola Co.: The longtime dividend growth stalwart increased its payout to shareholders by an average 8.3 per cent over the past five years, while its shares fell 1.4 per cent in the past 12 months.
Dividend growth has become one of the most universal investing strategies of the past five years. Investors have bid the price way up on a lot of dividend growers, but there are exceptions.
Rob Carrick