Kiplinger Dividend 15: CVS Interrupts Its String of Hikes

Since we last updated the Kiplinger Dividend 15, the list of our favorite dividend-paying stocks, volatility has ruled the market. Despite the ups and downs, Standard & Poor’s 500-stock index has returned 11.9%, including dividends, since we launched the Dividend 15 in our December issue. By comparison, our collection returned an average of 5.4%. Of course, these stocks were chosen for their stable payouts, income growth or above-average yields, not their ability to outpace the market. (Prices and returns are through June 15.)

That said, a handful of the Dividend 15 beat the S&P 500. Texas Instruments (TXN (opens in new tab)) returned 31.6%, thanks to strong demand for its chips. Home Depot, helped by a strong housing market, returned 24.6%. Shares in Emerson Electric, which makes electrical and electronic products, have returned 17.5%. And Enterprise Products Partners, which runs oil and gas pipelines, posted a 12.9% gain.

Still, two consumer-products giants have been a drag on the group. Johnson & Johnson (JNJ (opens in new tab)) shares fell 3.8%, and Procter & Gamble dropped 12.8%. But we’re upbeat about the pair with regard to both their dividends and their solid prospects overall. Johnson & Johnson raised its quarterly payout by 7% in April. The company, says CFRA analyst Jeffrey Loo, has “unmatched depth and breadth in growing global health care markets and solid positions in drugs, medical devices and consumer products.” Procter & Gamble (PG (opens in new tab)) lifted its quarterly dividend by 4% in April, and analysts expect the company to report 7% earnings growth in 2018.

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A Long Streak Ends

CVS Health (CVS (opens in new tab)) was a laggard, too. The stock sank 12.0%. What’s more, despite expectations that the firm would continue its history of robust dividend hikes, it did not raise its payout for 2018, ending a 14-year record of consecutive annual increases. Analysts say a freeze of the dividend at current levels is a possibility following CVS’s deal to buy insurer Aetna for $69 billion. The merger, okayed by shareholders, still needs regulatory approval. If it goes through, a broader customer base will make CVS more competitive, says Value Line analyst Andre J. Costanza. And if regulators nix the deal, CVS should still deliver solid results. We’re keeping CVS in the Dividend 15 for now, but we are watching its dividend policy. Our other dividend growers are on track: Home Depot, Lockheed Martin and Texas Instruments have increased their annual payouts by double-digit percentages over their most recent fiscal years.

That brings us to Realty Income (O (opens in new tab)). Rising interest rates have put pressure on real estate investment trusts. Borrowing to buy new properties has become harder for REIT managers, and other investments’ yields have become more competitive. Since we launched the Dividend 15, Realty Income shares have lost 4.3%, while the S&P 500 Real Estate sector index was flat. Even so, Realty Income’s business is humming along. Revenue for the quarter ended in March rose 7% from the same quarter a year ago, and funds from operations (a profit measure roughly equivalent to earnings) climbed 20%. Plus, Realty Income yields 5%, more than the typical REIT yield of 4.1%.