38 BARRON’S December 7, 2020
INCOME INVESTING
U
ntil value stocks perked up in
recent weeks on the positive
news about Covid vaccines,
many dividend stocks had
languished this year.
Some dividend strategies worked bet-
ter than others, however, before the ro-
tation into value.
“Investors have preferred to focus on
companies with a long-term history of
increasing their dividend,” Chris Senyek,
chief investment strategist at Wolfe Re-
search, wrote in a recent note. Mean-
while, he added, they “largely avoided
dividend-yielding stocks this year over
dividend cut concerns and their ‘value’
investment style tilt.”
Consistent dividend growth over at
least 25 years was the best-performing
basket of dividend stocks tracked by
Wolfe Research. Senyek’s list of about 65
stocks that meet those criteria include
many of the S&P 500 Dividend Aristo-
crats. Members of that group have paid
out a higher dividend every year for at
least 25 years.
The Aristocrats, which includeJohn-
son & Johnson(ticker: JNJ),Target
(TGT), andMcDonald’s(MCD), have
returned 7.5% this year, dividends in-
cluded, as of Dec. 1. That compares with
a 15.3% result for the S&P 500 through
the same date.
As is the case for many dividend
stocks, 2020 performance has been a
tale of two distinct periods for the Aris-
tocrats. (See page 17 for dividend payers
benefiting from the recent rotation into
value stocks.)
From Dec. 31 of last year through Nov.
6, the Aristocrats eked out a return of
about 1%. But the Nov. 9 news from
Pfizer(PFE) andBioNTech(BNTX)
that their Covid vaccine was more than
90% effective marked the beginning of a
rotation into value stocks—and a boon
for many dividend stocks. From Nov. 6
through Dec. 1, the Aristocrats returned
6.3%.
The top-performing Aristocrats this
year hail from a variety of sectors.
Albemarle(ALB), a specialty chemi-
cal company and lithium miner, finished
first with a total return of 88%. The
shares have benefited in part from opti-
mism about future lithium sales for bat-
teries used to power electric vehicles.
The stock, however, yields 1.1%, one
of the lowest among the Aristocrats. Its
strong year-to-date performance was
followed by Target, up 40%, dividends
included;Clorox(CLX), up 34%; and
Cintas(CTAS), which gained 35%. Cin-
tas, whose products include employee
uniforms, yields 0.8%. Clorox was at
2.2%, and Target was at 1.5%.
A
s one might expect given the
inverse relationship between
price performance and yield,
the highest-yielding Aristocrats
have been among the worst performers
in 2020.
At 9% recently,Exxon Mobil(XOM)
sports the highest yield and, with a re-
turn of about minus 40%, it has been
the worst-performing Aristocrat this
year as of Dec. 1. The company, which
has struggled with lower oil prices, has
maintained its quarterly dividend at 87
cents a share, the first time in early 40
years that it hasn’t boosted the payout.
However, the stock will remain in the
Aristocrats for now because it will have
paid out more in dividends this year
than it did in 2019.
Other laggards in the group include
AT&T(T), down 21%;Walgreens
Boots Alliance(WBA), off 32%; and
Chevron(CVX), which has lost 23%,
including dividends.
But as a group, the Aristocrats have
been a solid option for defensive investors
during the pandemic. One way to play
that is with theProShares S&P 500
Dividend AristocratsETF (NOBL).B
By Lawrence C. Strauss
THE ECONOMY
Covid Spike Hits Hiring,
And It’s Likely to Worsen
T
he economy may not have
shrunk in November, despite
the resurgence of the corona-
virus and the continued un-
winding of government support. But
that’s thin gruel to the roughly 12 million
Americans who remain underemployed
compared with February.
Employers reported 338,000 addi-
tional jobs last month, according to the
Department of Labor’s latest nonfarm
payrolls report, after excluding layoffs
associated with the end of the census. A
year ago, that would have been a strong
number, but relative to the magnitude of
the jobs gap, it represents something close
to stagnation. After all, the private sector
added an average of 945,000 jobs each
month from August through October.
Moreover, the underlying details of
the data suggest that the U.S. job market
could easily turn negative in the months
ahead, assuming it hasn’t already. That
risks inflicting hardship on tens of mil-
lions of people while we wait for the
vaccine to be widely distributed.
Big hiring numbers for delivery and
warehouse services—which together
added about 120,000 jobs—offset outright
declines in a wide range of sectors, includ-
ing retail, restaurants, schools, tech, pub-
lishing, banking, accounting, consulting,
and nursing homes, which together lost
almost 120,000 jobs. Meanwhile, there
was almost no job growth in many other
sectors, including construction, manufac-
turing, personal services, hospitals, and
local governments excluding education.
The hit to retail and restaurants can
probably be explained by the resurgence
of the virus—and that hit will probably
worsen in coming months due to the
soaring number of new confirmed cases.
The current jobs report, after all, is a
snapshot of the week ended on Nov. 14,
when there were 993,000 new cases, up
from 383,000 new confirmed cases in the
corresponding October week. In the past
seven days, there were more than 1.2 mil-
lion new cases.
At least as concerning as the retail and
restaurant hit is the continuing weakness
in professional-services employment,
which reflects the spread of the economic
pain from directly affected sectors to the
rest of society. In percentage terms, the
monthly drop in employment at “com-
puter systems design and related ser-
vices” was twice as bad as the decline at
restaurants and bars. As ofNovember,
employment across America’s total tech
sector was down about 2.2% compared
with February. That’s worse than the
peak-to-trough decline in 2008-09.
P
erhaps the biggest warning sign
of a negative turn comes from the
jobs report’s separate survey of
households, which implies that
employment fell by about 450,000 after
accounting for the sharp increase in the
number of workers who were probably
misclassified as “employed with an un-
paid absence.” At 0.3%, the implied drop
in November employment is comparable
to what’s happening in tech, restaurants,
retail, and public schools.
The number of people counted as
unemployed barely dropped, thanks to
a downtick in people reporting they were
on “temporary layoff”—but that was only
because 400,000 Americans stopped
actively looking for work due to a lack of
jobs. As a result, there are still 12 million
Americans who are either out of work
or who are working part time but would
prefer to have full-time jobs.
With multiple vaccines ready to be
distributed, it’s likely that the economy
will be able to rebound strongly before
the end of next year. It’s also likely that
things will continue to get worse before
they get better, and that the potential for
permanent damage to workers and busi-
nesses will rise the longer Americans go
without income support.B
By Matthew C. Klein
BestBetinaDownYear:
The Dividend Aristocrats