The Rule of Dividend Growth: Walgreens Out, Fastenal In

Introduction

In the world of investing, a rule and a discipline hold great significance. If a company decides to cut its dividends, it's out. On the other hand, if a company achieves 25 consecutive years of dividend growth, it's in. This principle is what determines the inclusion or exclusion of companies in the prestigious ProShares S&P 500 Dividend Aristocrats exchange-traded fund.

ProShares and the Dividend Aristocrats Fund

Managing an impressive $11.6 billion, ProShares runs the ProShares S&P 500 Dividend Aristocrats exchange-traded fund. The fund successfully gained 8% in 2023, including dividends. It stands as a testament to the power of investing in companies with a track record of consistent dividend growth.

A Shift in the Index

In recent news declared by S&P Dow Jones Indices, changes to the index were announced after the market closed on Wednesday. These adjustments will come into effect when the market opens on February 1st. One notable change involves the removal of Walgreens from the esteemed index.

Fastenal: A Strong Performer

Distributor of industrial and construction supplies, Fastenal, has seen promising results in the face of manufacturing challenges. As reported, its fourth-quarter earnings exceeded expectations, solidifying Fastenal's position as a reliable performer in the market.

Embracing Shareholder Commitment

One standout aspect of Fastenal's recent earnings presentation was the remarkable commitment to shareholders. The company allocated $1.02 billion in total dividends to its shareholders in 2023, which accounts for 80% of its free cash flow. This level of dedication demonstrates Fastenal's partnership with its shareholders and their mutual success.

Investing in Companies with a Vision

Investing in companies that have achieved 25 consecutive years of dividend growth is not just a financial decision but also a choice in management. Hyman emphasizes that such companies are deeply committed to their shareholders, creating a strong bond between the two parties.

In conclusion, the removal of Walgreens from the ProShares S&P 500 Dividend Aristocrats exchange-traded fund highlights the significance of consistent dividend growth. Fastenal's exceptional performance and steadfast commitment to shareholders position them as a worthy addition to this exclusive index.

Dividend Aristocrats and Kings: A Picture of Growth and Stability

Fastenal, a leading supplier of industrial and construction products, has seen a significant increase in its return on assets. Over the past 12 months, its return on assets has risen to an impressive 25.6%. This growth highlights why Fastenal has earned its status as a Dividend Aristocrat.

For investors looking to gain exposure to Dividend Aristocrats, the ProShares S&P 500 Dividend Aristocrats ETF offers a reliable and equal-weighted option. This fund serves as a good proxy for these dividend-paying shares.

The S&P 500 Dividend Aristocrats Index features several well-known blue-chip companies that have consistently raised their dividends. Among these members are Chevron, Target, Walmart, and Colgate-Palmolive.

An even more exclusive group within the dividend-paying universe is the Dividend Kings. These companies have raised their annual payouts for an impressive 60 years or more. This select group includes Procter & Gamble, Coca-Cola, Johnson & Johnson, and Colgate-Palmolive, as well as lesser-known companies like Lancaster Colony and Northwest Natural Holding.

In recent years, dividend stocks have fallen out of favor as investors flocked to tech and growth stocks. Additionally, rising bond yields presented a tempting alternative for income-focused investors.

Despite the shift in sentiment, the S&P 500 Dividend Aristocrats Index managed to deliver a respectable return of 8.44% in 2023, including dividends. However, this paled in comparison to the 26% return achieved by the broader S&P 500 index.