Word
Gems
What is a
man but the sum of his thoughts?
Wealth
& Economics:
Mergent's
Dividend Achievers
Mergent, Inc., formerly a division of Moody’s Investors Service™(Moody’s),
has been collecting data on publicly traded companies since 1900. Today, Mergent’s
databases contain key financial, fundamental and descriptive data for more than 10,000
U.S. public companies, 20,000 non-U.S. public companies from nearly 100 countries, and
20,000 U.S. municipal issuers, as well as extensive company analysis, corporate bond, unit
investment trust, corporate actions, mutual fund and dividend information. Mergent offers
financial, business and legal professionals, information specialists and individual
investors a full range of powerful research tools in online and print formats. Mergent’s
premier products include Mergent’s Dividend Achievers™ and the Index of Dividend
Achievers.
In 1979, Mergent (Moody’s) began identifying companies that have increased their
annual dividend payments for ten or more consecutive years. In recognition of the
dividend-paying companies’ performance, Moody’s created the Handbook of Dividend
Achievers. Among the first companies that were recognized for their exemplary dividend
history are Bank of America Corporation, American International Group, Inc., PepsiCo, Inc.
and Johnson&Johnson. These companies remain as Dividend Achiever constituents as they
continue their record of dividend increases.
The first Handbook of Dividend Achievers was published in January of 1983. After two
successive editions, the Handbook went on hiatus. From 1986 to 1990 the Dividend Achiever
constituents were included as an extra feature in the spring editions of Moody’s
Handbook of Common Stocks. In 1991, The Handbook of Dividend Achievers reemerged with
features not seen since the publication of 1985, including top 20 ranking for the ten-year
dividend growth rate, return on equity, and yield. Today, Mergent’s Dividend
Achievers profiles each constituent with a business description, summary financial
information, key ratios, long-term and short-term price scores, recent developments,
quarterly earnings and dividend information, as well as a price chart. Additional
information, gathered through analysis, includes longest records of dividend achievement,
dividend achiever arrivals and departures, top 20 companies by total assets and highest
price/earnings information. In order to further fulfill investors’ desire for timely
and accurate information, the publication schedule of Mergent’s Dividend Achievers
has been changed from annually to quarterly in 2003.
Today, 311 companies, just 3.0% of 10,000-plus North American-listed, dividend-paying
common stocks are recognized as a Dividend Achiever. The current class of Dividend
Achiever constituents represents five economic sectors and more than 50 industries. In
1987 the number of Dividend Achiever constituents peaked at 437 companies. Ongoing
analysis and further screening, which have led to the current selection methodology, may
have partly contributed to the decline in the number of constituents. In many instances,
however, a company’s inability to increase dividends year over year is a reflection
of market and geo-political conditions and economic uncertainty.
With the class of 2004, Mergent has launched its Index of Dividend Achievers. The Index is
compiled from the constituents of Mergent’s Dividend Achievers. In 2005, the
constituents for the Index have posted extremely compelling results:
- Includes only 3.0 of U.S. listed, dividend-paying common stocks.
- 15 of the 20 NAICS sectors are represented.
- 12.1% average annual compound dividend growth rate in
the last 10 years.
- 48% of the constituents increased dividends for the 20 or more years.
- For the trailing twelve months ended July 31, 2005 , 88% of the Dividend Achievers
earned a positive total return
- Based on the latest available year end data, 99% of the Dividend Achievers were
profitable
- The Dividend Achievers Index outperformed the S&P
500 by more than 2.41% per year (on an annualized basis) for the trailing ten
year period ending July 31, 2005
- The Dividend Achievers out-performance was achieved at considerably lower total
annual volatility (13.47% vs. 15.67%) than the S&P® 500
Most noteworthy, over the last ten years the companies comprising the Dividend
Achievers reported an 12.2% average annual compound dividend growth rate.
It is obvious that the companies comprising the Dividend Achievers, which
represent both Mergent’s Dividend Achievers and the Index of Dividend Achievers, are
high quality, stable companies. These companies outlasted the technology bubble that began
in March 2000, declining market returns in 2000, 2001 and 2002, and corporate malfeasance.
Dividend Achievers have historically been blue-chip companies with a strong cash reserve.
Moreover, these companies have a proven track record of solid, steady earnings
improvement. Earnings growth typically enables a company to allay investor ambivalence
with dividend payments. It is these dividend payments that promote investor confidence. In
today’s market, investor confidence is paramount to the success of any company.
Vanguard has announced plans to launch a "Dividend
Achievers Index Fund" and an exchange-traded fund that will track the performance of
an index of approximately 300 stocks with a consistent history of increasing dividends.
Compared to investing in bonds that pay a fixed rate of interest, investing in stocks that
increase dividends regularly can allow investors to receive a growing stream of income
over time, while possibly also seeing stock prices go up (of course, prices can go down
too).
Qualifying dividends, at least through 2008 when the current law expires, are taxed at
lower rates than bond interest income. A portfolio of just dividend-growing stocks,
however, is not as diversified as one including other types of securities, including
nondividend-paying growth stocks.
The growing-dividend strategy is hardly new, and the well-established iShares Dow Jones
Select Dividend Index exchange-traded fund (ticker symbol DVY on the New York Stock
Exchange) has been around since November 2003. The Vanguard fund, expected to open in
March, will add a no-commission option for investors. The Vanguard fund and its
exchange-trade fund will track the performance of the Mergent Dividend Achievers Select
Index, a subset of the Mergent Dividend Achievers Index.
Last fall, four exchange-traded funds based on the Mergent Index also began trading on the
American Stock Exchange -- the Broad Dividend Achievers Portfolio (ticker symbol PFM),
High Growth Rate Dividend Achievers Portfolio (PHJ), International Dividend Achievers
Portfolio (PID) and PowerShares High Yield Equity Dividend Achievers Portfolio (PEY).
Another exchange-traded fund launched last fall, the State Street Global Advisors' SPDR
Dividend (ticker symbol SDY) tracks the Standard & Poor's High Yield Dividend
Aristocrats Index.
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