As an income investor, you’ve probably heard of the illustrious “Dividend Aristocrats.”
These 54 companies have continuously raised their dividends over the last 25 years or more.
And because dividend growth – not just yield – is critical for achieving outperformance, the Aristocrats are popular investments for income seekers.
But some of these regal companies may be hiding behind their spotless reputation.
Just a little digging reveals that several of these lauded stocks are teetering on the edge of losing their Aristocratic rank…
Indeed, just because a stock has raised its dividend for a quarter of a century doesn’t mean it’ll continue to do so forever.
Thus, it’s important to look at the financials of the 54 Aristocrats and identify which dividends may be in danger of a freeze… or even a cut.
First, let’s take a look at the dividend payout ratio. Anything above 80% should be a red flag for investors. Yet, four of the Dividend Aristocrats (excluding HCP, Inc. (HCP), which, as a real estate investment trust, is held to a different standard) are above this important threshold:
The chart above shows both the 2014 dividend payout ratio and the trailing 12-month payout ratio. The latter gives an idea of whether the company is moving toward a more or less sustainable dividend, as its most recent quarter is included.
Now, let’s take a closer look at these four companies to see whether their dividends are truly in danger.
