Admission to the S&P 500 Dividend Aristocrats is a badge of growth and consistency. The group’s 65 members have paid out a higher dividend annually for at least 25 straight years.
Five of its constituents are on the clock after not having increased their payouts in 2020, however, and will have to distribute more cash to shareholders in 2021 to retain their status. They are
Leggett & Platt
(LEG), and Sysco (SYY).
Having so many companies in this situation at once “is not a very common event,” says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, which administers the rules for the Aristocrats. Still, he does say the companies deserve some credit for maintaining their payouts during the pandemic. “It was a tough year, but these companies continued to pay” a dividend, he adds.
Prices and returns as of Jan. 4; yields are as of Jan. 5.
For now, these stocks remain Aristocrats because companies within the group don’t necessarily have to raise their dividend in a calendar year as long as the annual payout is greater than the prior year.
Consider Exxon Mobil, which last year decided not to increase its dividend for the first time since 1982. In 2019, it paid quarterly dividends on its common stock of 82 cents, 87 cents, 87 cents, and 87 cents for a total of $3.43 a share. Last year, it paid a slightly higher amount of $3.48 a share, or 87 cents times four. It stays in the Aristocrats for now.
But if the energy giant were to skip an increase in its quarterly disbursement in 2021, it would total $3.48 again for the year and trigger its removal from the group. Under the rules, it would have to make a higher dividend payment, as opposed to just declaring one, by year end, Silverblatt says.
Global energy company
(CVX), a longtime Aristocrat, found itself in the same boat in 2017 when it distributed four quarterly dividends of $1.08 a share. It boosted its dividend in early 2018 to $1.12 a share, and it’s now at $1.29, having declared an increase early last year.
As Barron’s has observed, Exxon Mobil has been under pressure from weak oil prices. The stock was recently yielding 8%, a high level but below the 10%-plus it was at in early November.
During the company’s third-quarter earnings call in late October, Chief Financial Officer Andrew P. Swiger said that “our long-term capital-allocation priorities remain unchanged.” He pointed to projects with good returns along with maintaining a “strong balance sheet” and “paying the reliable and growing dividend.”
In a Nov. 30 press release, the company said it remains committed to a “reliable dividend,” among other goals.
In the case of Caterpillar, its chairman and CEO, Donald J. Umpleby, recently touted the importance of being a Dividend Aristocrat. “We are proud of our Aristocrats status where, for 27 consecutive years, including 2020, we’ve paid higher annual dividends to shareholders,” he said during the company’s third-quarter earnings call in October.
He added that “the dividend remains a high priority through all economic cycles” and that the company’s board anticipates increasing the dividend in 2021. The company couldn’t be reached for additional comment.
Caterpillar, which makes equipment for agriculture, mining, and other industries, last year paid out four quarterly dividends of $1.03 a share. It last declared an increase in May 2019 when it boosted the quarterly disbursement by nearly 20% from 86 cents a share.
Caterpillar was in a similar situation in 2016 when kept its quarterly payout at 77 cents a share throughout the year. It declared an increase, albeit of only a penny, midway through the following year. Caterpillar declined to comment on its dividend plans for 2021.
Food-services company Sysco, meanwhile, might have a harder time staying in the Aristocrats. In the fourth quarter of fiscal 2020, which ended last June, the company entered into an amendment of its long-term revolving-credit facility that requires it “to suspend share repurchases and dividend increases until the earlier of [September 2021] or the date on which Sysco has achieved a certain ratio of consolidated [earnings before interest, taxes, depreciation, and amortization] to consolidated interest expense,” according to a company filing.
In an email to Barron’s, a company representative wrote that Sysco remains committed to increasing its dividend over the long term but that “it is unlikely that we will be able to increase our dividend this fiscal year due to restrictions from our amended credit agreement.”
The company’s fiscal year ends in June. In theory, Sysco could pay out a higher dividend in the fourth quarter of this calendar year, in compliance with the credit agreement, and retain its status as an Aristocrat.
Sysco continues to pay out a quarterly dividend of 45 cents a share, most recently declaring one in November.
AT&T, with its recent yield of 7.1%, is popular among equity income investors. It usually announces an increase in December. Last month, though, it maintained its quarterly disbursement at 52 cents a share—the amount it paid out in all four quarters of 2020.
In an update to shareholders on Tuesday, CFO John J. Stephens said in part that the company “expects to have the financial flexibility in 2021 to continue to invest in growth areas, sustain the dividend at current levels, and focus on debt reduction.”
The company’s board most recently declared a dividend increase in December of 2019. At that time, the dividend was boosted by a penny, or 2%.
Leggett & Platt, whose product portfolio includes bedding, furniture, and flooring, is another Aristocrat to watch. Last year marked the 49th straight in which the company had paid out a higher annual dividend.
But since it has maintained its quarterly disbursement at 40 cents a share since May 2019, its membership is threatened. “It is our intention to remain a Dividend Aristocrat,” a company representative wrote in an email to Barron’s on Wednesday.
For Leggett and these other four companies, there is a year to make that happen.
Write to Lawrence C. Strauss at firstname.lastname@example.org