The New ‘Dividend Aristocrats’

• December 8, 2011, 8:00 AM ET

As I have commented numerous times before, more and more importance will be placed on stable dividend returns vs crazy returns that are hugely risky, like MF Global. Aivars Lode

By Ben Levisohn

Bloomberg News

Standard & Poor’s is adding AT&T and nine other companies to its S&P 500 Dividend Aristocrats Index, which consists of companies that have raised their dividend payment for at least 25 years.

AT&T may be the worst carrier in the U.S., according to a Consumer Reports survey, but it’s now a “dividend aristocrat,” says Standard & Poor’s.
So there.
S&P announced on Dec. 1 that it is adding AT&T and nine other companies to its S&P 500 Dividend Aristocrats Index, which consists of companies that have raised their dividend payment for at least 25 years.
AT&T’s addition will have a major impact on the index, which is weighted by the dollar amount of the dividend payment, because it is the largest dividend payer in the world, paying out about $10.2 billion, with a yield of about5.9%. The changes to the index will occur on Dec. 16. That could give AT&T a boost going into the end of the year, says S&P index analyst Howard Silverblatt, as funds that track the index or use it as a benchmark add the company to their portfolios.
S&P is also adding three financial companies to the index—Franklin Resources, HCP and T. Rowe Price, doubling the number of financial companies. Silverblatt noted that investors shouldn’t shy away from financials, despite the damage caused during the Great Recession. In a note this morning, he wrote:

I counted 40 financial listed issues which have increased their dividend rate at least ten years in a row, averaging a 4.11% yield, with 24 of them having…a dividend coverage rate (12-month earnings divided by the current dividend rate) of at least 1.5.  While the financial sector remains the most volatile, investors should not discount the entire sector, but explore for potential dividend issues, evaluating the higher degree of risk, along with the return.

Also added to the index were Colgate-Palmolive, Genuine Parts, Illinois Tool Works, Medtronic, Nucor and Sysco. CenturyLink was removed from the index.
Silverblatt says that interest in dividends is extremely high, but warned investors not to invest on yield alone. “We found out in 2007 and 2008 that buying dividend on a yield is a suicide run,” he says, referring to the period when dividend payers got hammered along with the rest of the market. “Companies should be making money and not straining themselves.”