Is This Dow Stock Becoming a Dividend Aristocrat?

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Dividend aristocrats treat their payouts like nuclear safety protocols. One mistake can blow up your reactor -- or destroy your share price overnight. So their dividend checks never, ever shrink, and a true aristocrat increases its payouts every year. Income investors love these wealth-building policies, and for good reason: An unweighted portfolio of the 54 S&P 500 Dividend Aristocrats tickers would have returned 225% over the last 10 years, assuming you reinvested every dividend check in more shares.

By comparison, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) returned just 116% over the same period, dividend-adjusted and all. The dividend champs are an elite group indeed -- only nine of the 30 Dow components current qualify for a spot on the list, the rest having failed to increase dividends for at least 25 years straight. These stocks average 4.2 CAPS stars (out of five), with only two tickers rated "below average" by your fellow investors. It's a quality group by any measure.

Is this an impostor?
Hewlett-Packard (NYSE: HPQ  ) just raised its dividend by 10%. The board approved a modest increase last year as well, not to mention a 50% boost in 2011. Is this another dividend champion or what?

Well, no -- not even close. HP might have landed on the Aristocrats list 10 years ago, when the computer industry fired on all cylinders and the company had raised payouts without fail for many years. But then the dot-com bubble popped, and HP's payouts got stuck at $0.08 per share for 11 years.

HPQ Dividend Chart

HPQ Dividend data by YCharts.

The recent return to regular dividend increases coincides with a massive share-price drop. The company has lost its way, and investors can feel it. If you feel cynical today, you could call these increases an attempt to buy investor love with higher yields. So far, it's not working.

That's not just my own opinion. Strategy failures in recent years made some HP shareholders question the competency of its directors. In this week's annual shareholder meeting, three directors (including chairman Ray Lane) received only a narrow majority of "yea" votes.

To put that benchmark into context, remember that Walt Disney (NYSE: DIS  ) removed Michael Eisner from the board and then the CEO office after he received a 57% approval rating. That was absolutely the right move, as successor Bob Iger has led the company to fantastic success and a market-crushing 179% shareholder return in nine years on the job.

A similar shareholder-approved house-cleaning seems in order for HP today. Add the ticker to your Foolish watchlist and wait for more news on this.

Let the right one in
(NASDAQ: INTC  ) also declared another dividend today, steady at $0.225 per share but likely to rise in the following quarter. Why would I expect an increase? Because that's how the chip giant rolls. Compare and contrast Intel's serious dividend increases to HP's halfhearted attempts:

HPQ Dividend Chart

HPQ Dividend data by YCharts.

Keep in mind that both companies face largely the same market headwinds. Intel simply crushes HP in terms of execution, and it shows in metrics like revenue and operating cash flows.

HPQ Revenue TTM Chart

HPQ Revenue TTM data by YCharts.

That's why I don't expect HP ever to become a true-blue dividend aristocrat, while Intel is a champion in the making -- the company simply needs to keep doing what it's doing.

The massive wave of mobile computing has done much to unseat the major players in the PC market, including venerable technology names like Hewlett-Packard. However, HP is rapidly shifting its strategy under the leadership of CEO Meg Whitman. But does this make HP one of the least-appreciated turnaround stories on the market, or is it a minor detour on its road to irrelevance? The Motley Fool's technology analyst details exactly what investors need to know about HP in our new premium research report. Just click here now to get your copy today.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 21, 2013, at 3:13 PM, prginww wrote:

    Anders, another one of your amazing revelations concerning Hewlett Packard. How do you do it? Such insight, such vision. You're truly remarkable! What a Fool!

  • Report this Comment On April 05, 2013, at 8:57 AM, prginww wrote:

    This just in: The three directors who received less than 60% "yea" votes have resigned, chairman Ray Lane included. Maybe there's real change coming after all.


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DIS $92.20 Up +0.48 +0.00%
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