Dividend Aristocrat Winners of 2012: Part 2
Income investors have favored dividend-paying stocks for many decades. These investments have gained even more popularity in recent years due to extremely low interest rates. In a previous article, I took a look at the five best-performing Dividend Aristocrat stocks of 2012. Today we'll focus on five more stocks that deserve an honorable mention.
Roll out the red carpet
Dividend Aristocrats adhere to the highest dividend-paying criteria. Companies in the exclusive group must boast 20 consecutive years of dividend increases.
Here's a list of Dividend Aristocrats that meet my guidelines to earn an honorable mention:
Dividend Payout Ratio
5-Year Dividend Growth Rate
Illinois Tool Works
Sources: Yahoo! Finance, The Motley Fool.
Three of these companies are relative newcomers to the list. Illinois Tool Works was crowned dividend royalty last year, and both McCormick and Ecolab joined the elite group in 2011. McGraw-Hill and Brown-Forman have been on the list since before 2011.
In 2012, all five companies returned respectable gains to shareholders last year. Four of these five stocks doubled the performance of the overall stock market. Specialty food company McCormick and diversified manufacturer Illinois Tool Works increased 26% apiece. Consumer goods companies Ecolab and Brown-Forman each returned 24%. Meanwhile, information services company McGraw-Hill returned 20%. By comparison, the S&P 500 returned roughly 12% last year.
A closer look
McCormick has been leading the spice and seasonings industry by introducing new products, specifically global and organic spices. While these innovative products will likely help the company grow, McCormick is also growing through emerging-market exposureand acquisitions. In recent years, the company acquired Zatarain's, Simply Asia, and Lawry's. But its huge dependence on commodity pricing is a risk.
Brown-Forman has also set its sights on emerging markets for growth. Its Jack Daniel's enjoyed 32% growth in Latin America last year, and its Finlandia is the No. 1 imported premium vodka brand in Russia. Brown-Forman also looks to gain market share through product innovation. It quickly entered the popular flavored brown spirits market and already holds 72% market share in the U.S. Brown-Forman paid a special dividend in late December, mostly financed with newly issued debt -- a controversial decision that led to a downgrade in the company's debt rating.
Ecolab boasts unparalleled expertise and a reputation for excellence in the cleaning and sanitation services industry. The company is sharpening its competitive edge through product development and acquisitions of new technologies. But Ecolab's recent acquisition of water-treatment company Nalco increases its exposure to cyclical industrial markets, like papermaking and oil refining.
Making strides in the higher-education digital textbook market, McGraw-Hill will unveil its SmartBook this spring. The device will act like a virtual tutor and adapt to a student's learning habits. But if the company wants to gain an edge in this market, it'll have to contend with Apple, which is making serious inroads in the education arena.
Investing is a marathon, not a sprint
Do these companies still have the legs to run in 2013 and beyond? For direction, we can look to a quick valuation metric -- the price-to-earnings ratio. Currently, the overall stock market trades at a P/E near 17. Meanwhile, Ecolab, Brown-Forman, McCormick, and McGraw-Hill trade at P/E ratios of 37, 24, 22, and 18, respectively. By comparison, Illinois Tool Works trades near 14, suggesting this stock may be undervalued and worth a closer look for bargain-hunting value investors.
Illinois Tool Works faced challenges during the past several years, mostly due to its vast exposure to industries like construction and transportation that were hard hit during the economic downturn. But this manufacturer boasts ample future growth opportunities, and no more than 17% of company revenues are derived from any one division. This diversification will help the company weather future storms.
Sorry, no crystal ball
Don't bet on past performance to predict future results. Instead, focus on buying attractively valued companies that possess an uninterrupted track record of paying and growing dividends. Before investing, roll up your sleeves and do your homework. We've got plenty of great Foolish resources to help you formulate an investing thesis. Let us help you make the New Year a great one for your portfolio.
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The article Dividend Aristocrat Winners of 2012: Part 2 originally appeared on Fool.com.Nicole Seghetti owns shares of Apple. The Motley Fool recommends Apple, Illinois Tool Works, and McCormick & Company. The Motley Fool owns shares of Apple, Ecolab, and The McGraw-Hill Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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