In a development that has sent only minor shockwaves through the investment community, two of the highest-yielding Dividend Aristocrats have significantly reduced their dividends, with one almost eliminating it. This event, which was not unexpected, underscores the volatility and uncertainty in the market. Despite this, the group of stocks we have closely monitored for years still stands strong with 65 remaining members. However, the possibility of more companies in this exclusive group facing similar challenges must be considered as interest rates remain high.

Investors looking for defensive companies paying big dividends have been drawn to the Dividend Aristocrats for years, and with good reason. The 67 companies that initially made the cut for the 2024 S&P 500 Dividend Aristocrats list have increased dividends (not just remained the same) for 25 years straight. But the requirements go even further, with the following attributes also mandatory for membership on the Dividend Aristocrats list:

• Companies must be worth at least $3 billion each quarterly rebalancing.
• Average daily volume of at least $5 million transactions for every trailing three-month period at every quarterly rebalancing date.
• Be a member of the S&P 500

Why are we covering this?

We have written about the Dividend Aristocrats and Dividend Kings for over 10 years. While extolling the virtues of this exclusive group of stocks, we felt it important to let our readers know that two of the companies we have included in numerous posts over the years have decided to slash their dividends.

3M

This was a no-surprise call across Wall Street, and a significant company with international exposure and a slew of products like 3M Co. (NYSE: MMM) is not often forced to lower the dividend paid to shareholders. But in recent years, giants like AT&T Inc. (NYSE: T) and Walgreens Boots Alliance Inc. (NYSE: WBA) have both cut their dividends and lost their membership in the Dividend Aristocrats.

The cut by the company ends a 64-year run of raising dividends, and while known for a wide range of products from Post-it notes to Scotch Brite cleaning materials to Scotch Gard and more, the legacy company is expected to drop the dividend as much as 53%. That move would lower the current $6.04 per share to approximately $2.85 per share. While will in turn drop the payout to shareholders to 2.93% from 6.04%

The official announcement of the cut actually came on April 1 when executives reported that the dividend would be set to 40% of adjusted free cash flow. The move comes in addition to the company spinning off Solventum, the healthcare silo of 3M.

Leggett & Platt

This was also a zero surprise move as Leggett & Platt Inc. (NYSE: LEG) all but eliminated the dividend they had paid to stockholders for 52 years. The company dropped the payout to shareholders to $0.20 per year from $1.84, which comes on the heels of a very disappointing earnings report for the first quarter that saw the company miss analysts’ estimates by 8% and earnings down by 41% year over year.

The company cited weak demand across most segments and a very weak pricing environment. Management pointed to the need to free up capital in an attempt to lower the debt on the balance sheet as one of the biggest motivating facts for the draconian move. The stock has been in a freefall over the last year with a 52-week trading range of $11.02 to $33.28. The shares traded recently at $13.40

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