“Enjoying the service and well done on your presentation at the Contrary Opinion forum
“In a recent daily commentary (17/10.2012) you suggested that Reckitt Benckiser was no longer a dividend aristocrat. This surprised me and you might explain your logic here"
Eoin Treacy's view Thank you for your kind words and this question which is sure to be of interest to other subscribers. Dividend Aristocrat is an S&P designation which we have no control over. For European companies, S&P look at their Europe 350 Index and includes companies that have increased their dividends for 10 consecutive years. There are a significant number of dividend aristocrats and former dividend aristocrats among the companies we refer to as Autonomies.
From our perspective, the fact that a company pays a reliable dividend is important but is not the only characteristic we are interested in. We also look for companies that dominate their respective niches, have truly global operations, brand recognition and solid balance sheets when including them in our list of Autonomies. We then monitor the Autonomies for consistency in their respective chart patterns.
Some of the less remarked on qualities of S&P dividend aristocrats is that they need to have a free float adjusted market cap of more than $3 billion and an average daily traded volume in excess of 3 million shares. Reckitt Benckiser fulfils the dividend and market cap conditions but with a daily traded volume below 2 million shares it does not qualify under the S&P's strict guidelines. However, we still include Reckitt Benckiser in our list of Autonomies. The share featured in my presentation at the Contrary Opinion Forum because of its valuation contraction and it broke upwards this week.
I maintain a list of former dividend aristocrats because while they may have dropped out of the S&P's Index many are still interesting from the perspective of a global investor. I mentioned a number of these companies in my review on the 17th . Since a company can be dropped from the S&P dividend aristocrats for a number of reasons there is a possibility that they may have simply undergone a temporary setback. These occasions can represent investment opportunities. Here is a pdf of those which have dropped out of the S&P Europe 350 Dividend Aristocrat Index over the last few years.
For example, UK listed ARM Holdings has rallied impressively from the lower side of its range since April and surged to new all time highs this week. (Also see Comment of the Day on October 17th).
UK listed Tate & Lyle found support in the region of 625p between June and September and has rallied to test the year's highs. While there is scope for some consolidation of recent gains, a sustained move below the 200-day MA, currently near 670p would be required to question medium-term scope for additional upside.
UK and Netherlands listed Unilever is an autonomy and has been consolidating since early August. A sustained move below 2200p would be required to question medium-term uptrend consistency.
France listed Vivendi has been cutting its dividend, diluting its shares and currently yields 6%. It rallied impressively from the May lows and ranged mostly above the 200-day MA from July. It hit a new 7-month high this week and the benefit of the doubt can be given to the upside provided it continues to hold above €15. (Also see Comment of the Day on June 8th).
Essilor International has unwound its short-term overbought condition and found support this week in the region of the 200-day MA. Provided it continues to hold above €67, the benefit of the doubt can continue to be given to the upside. (Also see Comment of the Day on July 11th ).
WPP Group and Severn Trent have returned to test the region of their respective 200-day MAs and will need to find support soon if the benefit of the doubt is to continue to be given to the medium-term upside.
Reed Elsevier continues to hold its breakout from the three-year range and a sustained move below the 200-day MA, currently near 550p, would be required to question medium-term scope for additional upside.
Next continues to hold a progression of higher major reaction lows but having tested its high last week, looks susceptible to some consolidation.