The 3 Worst Dividend Aristocrats for Income-Hungry Investors

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Investors appreciate the value of dividend income, and many people look closely at the list of Dividend Aristocrats to guide their decision-making about which stocks to buy for their own portfolios. Before you simply copy the Dividend Aristocrats list, however, you should know that just because a stock is a Dividend Aristocrat doesn't mean that it will meet your needs as an income investor. In particular, what many people don't realize is that becoming a Dividend Aristocrat has nothing to do with how much of a dividend a stock pays. That can lead to some surprising results when you look more closely at the list.

Why being a Dividend Aristocrat is not enough

In order to become a member of the Dividend Aristocrats, a stock has to develop a long track record of successfully growing its dividend over time. The threshold for membership is 25 straight years of higher dividend payments. There are roughly 50 Dividend Aristocrats in the S&P 500, and each year, new stocks that meet the requirements get added to the list, while those that failed to sustain their dividend-increase streaks are eliminated.

The problem with the Dividend Aristocrats is that there's no minimum dividend yield requirement. As long as a company boosted its payout, the relative size of that payout isn't important for purposes of membership. The three stocks that you'll see below have extremely low dividend yields. That doesn't mean that they're terrible stocks overall, but it does make unsuitable for income investors who want to concentrate on getting above-average levels of income from their investment portfolios.

C.R. Bard

The worst-yielding Dividend Aristocrat by far is C.R. Bard (BCR). The medical instrument maker has a dividend yield of less than 0.5%, which is less than half the yield of the next-lowest Dividend Aristocrats. Even with that low yield, though, Bard has a long 45-year track record of increasing its payout, and that's enough to get it on the list.

Fundamentally, however, Bard has plenty of earnings power, and that has produced double-digit returns over the long haul for shareholders. For instance, in its most recent quarterly results, Bard said that it expects full-year earnings in excess of $10 per share. In that light, even the just-boosted $0.26 per share quarterly payout that Bard makes amounts to barely 10% of the company's earnings. Retained profits have driven success in terms of capital appreciation, producing average annual total returns of more than 15% since 1996. Bard has been a great investment even if it has been the worst Dividend Aristocrat in terms of dividend yield.

Cintas

Next up is uniform specialist Cintas (CTAS -0.17%). The company pays an annual dividend, and its most recent $1.05 per share distribution last November represents a 1.1% yield at current prices. To be fair, the boost represented a more than 20% jump from last year's regular dividend, accelerating from what used to be minimal annual increases to satisfy the Dividend Aristocrat requirements. The company has a 33-year history of delivering rising dividends to investors.

For Cintas, a recovering job market has helped power its results. With the company's "Ready for the Workday" branding campaign, Cintas hopes to grow every aspect of its business, ranging from its well-known uniform offerings to its first aid, safety, and fire-protection equipment. Average 20-year returns of about 10% aren't quite as attractive as other Aristocrats. But understanding that Cintas pays out less than a fifth of its earnings in the form of dividends shows that income investors aren't getting everything that the uniform specialist could afford to pay points toward the potential for long-term share-price growth.

Sherwin-Williams

Finally, Sherwin-Williams (SHW -1.10%) has a long history as a Dividend Aristocrat, with 38 years of consecutive annual dividend increases. Yet the paint specialist's yield is less than 1.2%, making some income investors feel like Sherwin-Williams doesn't get the job done from an income standpoint.

As with C.R. Bard, Sherwin-Williams has put up strong total returns in excess of 15% over the past 20 years and 30 years. However, Sherwin-Williams pays a larger proportion of its earnings as dividends, with a payout ratio approaching 30%. Now that the company is seeking to expand through the acquisition of rival Valspar, Sherwin-Williams hopes that it will be able to accelerate its own organic growth and take full advantage of both its own paint-store sales and its partnerships with other retail outlets to maximize overall revenue. Despite global economic headwinds, Sherwin-Williams has growth prospects -- even if its dividend hasn't kept up with its share price.

Dividend Aristocrats are often strong stocks, but with some, current yields can leave something to be desired. If you're strictly looking for maximum income from dividends, then Sherwin-Williams, Cintas, and C.R. Bard aren't the ideal Dividend Aristocrats for your portfolio.