A Rough Day for Dividend Knights

Summary

Motley Fool Money: A Rough Day for Dividend Knights – July 29, 2025

Hosted by Emily Flippen alongside analysts Matt Argusinger and Ant Schiavone, this episode of Motley Fool Money delves into the current landscape of dividend-paying stocks, exploring recent earnings reports, shifts in investment preferences, and the evolving list of Dividend Knights.

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1. Introduction to Dividend Knights

The episode begins with Emily Flippen introducing the concept of Dividend Knights, a proprietary framework developed by analysts Ant Schiavone and Matt Argusinger. This framework aims to identify high-quality dividend-paying companies that not only provide consistent income but also generate substantial long-term returns.

Ant Schiavone explains the rationale behind Dividend Knights:

“We came up with the Dividend Knights... It follows a rule of 10, Emily, which is we looked at companies that have paid a dividend for 10 consecutive years, have grown that dividend at a 10% compound annual rate for those 10 years, and have outperformed the S&P 500 on a total return basis.”
[00:49]

Matt Argusinger adds depth to the framework by emphasizing the importance of total returns:

“When you look at total returns for stock as well, you have the income generating aspects, but also an element of capital gains here and growth that make it maybe a little bit more of a solid play than purely looking at the dividend.”
[02:06]

2. Shifting Preferences: Dividends vs. Share Buybacks

Emily and the analysts discuss a noticeable trend where companies and investors are increasingly favoring share buybacks over traditional dividends. This shift has led to a significant decrease in the S&P 500’s dividend payout ratio.

Emily Flippen observes:

“We've seen the S&P 500's dividend payout ratio come down dramatically as buybacks have become the preferred method to return cash to shareholders.”
[02:38]

She further contextualizes investor sentiment:

“Nobody cares about dividends when The S&P 500 is appreciating 25% a year. Today the S&P 500 yields about 1.2%... but when the market does hit a rough patch, income producing assets become more attracted to investors.”
[02:38]

Matt Argusinger echoes this sentiment, noting that during market downturns, investors pivot back to earnings and cash flow.

3. Earnings Reports: UnitedHealthcare and Novo Nordisk

Amidst earnings season, UnitedHealthcare (UNH) and Novo Nordisk reported challenging results, leading to their dividend yields surpassing 3%.

Emily Flippen characterizes the situation as a "falling knife":

“Is this a buying opportunity or is this a falling knife... these are probably two stocks that for me, I would put into the proverbial too hard pile.”
[05:05]

Ant Schiavone highlights the decline in qualified Dividend Knights within the healthcare sector:

“When we first did the Dividend Knights Back in 2022, there were 11 healthcare companies that qualified. Today, as of June of this year, there are just two.”
[07:25]

The analysts debate whether these companies are experiencing secular downturns or cyclical challenges, emphasizing the complexity of the healthcare sector.

4. Whirlpool’s Dividend Cut: A Rare Development

The conversation shifts to Whirlpool, a stalwart in the domestic appliance market, which recently faced a 15% stock drop and announced a significant dividend cut.

Ant Schiavone expresses disappointment:

“This was the big surprise... a company that has paid a dividend for over 70 years and not cut it once... yet yesterday announced that it was cutting its dividend by almost half.”
[09:11]

She attributes the cut to increased competition, inventory stockpiling by rivals, and a leveraged balance sheet:

“Management's going to cut that dividend, try to shore up the balance sheet and hope that the tariffs come through to help the business and that the housing market revitalizes...”
[09:11]

5. Declining Number of Dividend Knights: Where Are the Opportunities?

The Dividend Knights list has shrunk from approximately 175 companies in 2022 to 117 in 2025, signaling a tougher environment for dividend investors.

Ant Schiavone identifies sectors still offering potential:

“One sector that I look to that I think is interesting to me... real estate. Prologis, one of the world's largest REITs... is back on the Dividend Knights list.”
[11:00]

Emily Flippen highlights the energy sector as another area of interest:

“The energy sector stands out to me... management teams have become way more disciplined by only investing in the highest returning projects.”
[11:41]

Both analysts agree that Real Estate and Energy present promising opportunities within the remaining Dividend Knights.

6. Lightning Round: Key Considerations for Dividend Investors

The episode concludes with a lightning round, where the hosts and analysts address pressing topics for dividend investors.

a. Payout Ratio vs. Safety

Ant Schiavone sets a guideline:

“At 70% or lower payout ratio... Above that, I start to get a little worried.”
[13:46]

Emily Flippen emphasizes the importance of returning cash to shareholders:

“I'm usually looking for companies that pay out at least 50% of their earnings free cash flow as a dividend.”
[14:19]

b. ETFs vs. Individual Stock Picking

Emily Flippen recommends specific ETFs for diversified exposure:

“The Schwab US Dividend Equity ETF ticker symbol SCHD... is a good way to get cheap diversified exposure to high quality dividend payers.”
[15:10]

Ant Schiavone adds:

“I own several dividend ETFs... the Vanguard Dividend Appreciation ETF (VIG) and the Noble ETF (NOBL) are also solid choices.”
[15:46]

c. Growth vs. Yield

Ant Schiavone discusses the balance based on investor preference:

“If you're someone who wants to generate yield... go for high yield companies. If you have a longer time horizon... go for dividend growth.”
[16:59]

Emily Flippen proposes a combined approach:

“Look for companies where the dividend yield plus the expected dividend growth rate equals at least 10%.”
[17:37]

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7. Conclusion and Outlook

Emily Flippen wraps up the episode by acknowledging the challenges faced by Dividend Knights but remains optimistic about sectors like Real Estate and Energy. The discussion underscores the importance of strategic selection and adaptability in dividend investing, especially in a dynamic market environment.

Matt Argusinger leaves listeners with a hopeful note:

“Here's to hoping that tomorrow holds better things for some of our dividend paying investments.”
[18:01]

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Key Takeaways:

• Dividend Knights Framework: Focuses on companies with 10 years of dividends, 10% CAGR in dividends, and outperformance of the S&P 500.
• Shift to Buybacks: Increasing preference for share buybacks over dividends, reducing overall dividend payouts in major indices.
• Earnings Challenges: UnitedHealthcare and Novo Nordisk face headwinds, raising questions about their dividend sustainability.
• Whirlpool’s Surprise: A rare dividend cut from a long-standing dividend payer highlights the volatility in certain sectors.
• Opportunities in Real Estate and Energy: Despite a declining number of Dividend Knights, sectors like Real Estate (Prologis) and Energy show promising potential.
• Investor Strategies: Emphasizes the importance of payout ratios, considering ETFs for diversification, and balancing growth with yield based on individual preferences.

This episode provides dividend investors with a comprehensive analysis of current market conditions, highlighting both challenges and opportunities within the dividend landscape.

Transcript

[Emily Flippen]

Foreign.

[Matt Argusinger]

Two dividend paying stocks getting crushed today with yields above 3% is now the time to dig in. Today on Motley Fool Money, we'll be knighting some dividends. I'm Emily Flippen and today I'm joined by analysts Matt Argisinger and Ant Siobhan to talk about dividend stocks. We'll be covering some recent headlines for dividend paying companies and discuss opportunities should be on every investor's radars. But first, of course, we have to talk about the framework that you, Matt, and you, Ant, talk about and look at when looking at income generating investments. I know you both recently updated your list of dividend nights. Now remind us what that means and what you generally look for.

[Ant Schiavone]

Sure, Emily, and thanks for having us. So the dividend knights are something Ant and I came up with a few years ago and it was really in reaction to a lot of the other monikers that you hear out in the marketplace if you're a dividend investor, whether it's the Dividend Achie, Dividend Aristocrats, Dividend Kings, and a lot of those classes of stocks, those dividend paying stocks are based on consistent dividend raisers. So whether companies raise their dividend for 10 consecutive years, 25 consecutive years, or in the case of the Kings, 50 consecutive years, amazing. But we don't think it tells the whole story about how a company is doing and whether it can sustain the kind of dividend growth that we think is going to lead to great returns. So we came up with the dividend nights, which is it kind of follows a rule of 10, Emily, which is we looked at companies that have paid a dividend for 10 consecutive years, have grown that dividend, not necessarily raised it for 10 consecutive years, but have grown that dividend at a 10% compound annual rate for those 10 years. And maybe most importantly, over those 10 years, this is a company that has outperformed the S&P 500 on a total return basis. So three Big Ten rules. We also apply a little bit of quality factors as well just to make sure we're looking at quality companies. But it's that rule of 10 that is so key and that drives the dividend nights.

[Matt Argusinger]

Yeah. So just one step further, kind of when you look at total returns for stock as well, you have the income generating aspects, but also an element of capital gains here and growth that make it maybe a little bit more of a solid play than purely looking at the dividend. But to be honest, I mean, when I look at my own portfolio, I'm in my 30s but I still consider myself a younger investor, but I don't really spend a lot of time thinking or caring about dividends. If a stock pays a dividend, I'll just generally reinvest it. And are you noticing that there's a shift away from these, like, income based investments amongst investors, or is this just the same as it's ever been?

[Emily Flippen]

Yeah, I think it rhymes with the past, Emily. And, and what I mean by that is, sure, I, I think there has been a noticeable shift from companies and investors who now prefer share buybacks over dividends. And as a result, what we've seen, we've seen The S&P 500's dividend payout ratio come down dramatically as buybacks have become the preferred method to return cash to shareholders. Now, we could debate whether that's the correct method, but, but that is what's happening now. I also think that there's a valid reason why investors like, like yourself, Emily, don't really care about dividends right now. And I think that's kind of the relentless bit of the market. You know, nobody cares about dividends when The S&P 500 is appreciating 25% a year. Today the S&P 500 yields about 1.2%. So that percentage return that investors in a broad market index fund have received from dividends this decade is not really meaningful. But you know, when the market does hit a rough patch like we saw for the period from 2000 to 2009, that's when income producing assets become more attracted to investors.

[Matt Argusinger]

Yeah. All of a sudden people start caring about earnings and cash again whenever things are looking a little tough. And I know that there are at least a couple of interesting dividend paying companies that this morning are looking a little tougher on a comparative basis. So coming up next, we'll have to talk some health care earnings. Stick with us.

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[Ant Schiavone]

Captain, an unidentified ship is approaching.

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[Matt Argusinger]

Of course, we have to talk about earnings as we're here in the middle of earnings season. And this morning we have healthcare companies, Novo Nordisk and UnitedHealthcare both with some pretty headlines. UnitedHealthcare reporting poor earnings amidst high medical costs. And Novo Nordisk lowering their guidance for the year because of competition from compounders in the GLP1 market. And United Healthcare qualified as a dividend knight under your framework up until June of this year. And Novo Nordisk has been paying a dividend for nearly 30 years. So after today's fall, both of these companies now seem to have dividend yields above 3%. What are your thoughts? Is this a buying opportunity or is this a falling knife?

[Emily Flippen]

Yeah, well, it's a falling knife. That. That is the question to answer, I think. You know, as expected for United Healthcare, it was a challenging quarter. Adjusted earnings per share, well below anal estimates. But I think what investors were really looking for in support was the full year earnings guidance. And, well, that was. That was also bad. You know, management expects adjusted earnings per share of $16 in 2025. That's nearly half of what it originally expected at the beginning of this year. And, you know, so to me, this. This kind of feels like a bit of a kitchen sinking quarter, a sandbaging quarter, whatever you want to call it. You know, management might be trying to manage earnings expectations moving forward. They do have a new CEO, and prior to this year, UNH had more than 60 consecutive quarters where earnings actually beat analyst estimates. So I think it would make sense that the new CEO would want to come in here and set a low bar. And, you know, sure enough, in the press release, UNH said that they expect to generate earnings growth next year. So I guess from a valuation standpoint, I think UnitedHealthcare and Novo Nordisk, they're getting more interesting. But these are also very complex businesses. They both have some internal issues they're dealing with. They have competitive issues, and, you know, they're grappling with changes happening in Washington. So I think the question that investors need to answer is are these two companies going through a secular downturn or is this more of a cyclical downturn that will eventually correct itself over time? And, you know, that's a very hard question to answer considering the complexity of these businesses. So these are probably two stocks that for me, I would put into the proverbial too hard pile.

[Matt Argusinger]

It's really interesting to hear you say that. I mean, UnitedHealthcare, obviously the new management team, Novo Nordisk, actually today announcing their new CEO as well as their former CEO, got some pressure to leave and mix competition for WeGovy and Ozempic and how they handled competition in the United States. All of this is to say there's a lot of finger pointing that I think both these management teams are doing in regards to, look, it's not our fault this stuff is happening to us. Matt, when you look at your list of dividend nights, I expect that the too hardness of the healthcare industry isn't happening in a vacuum. Right. It's not just happening to UnitedHealthcare, Novo Nordisk. This kind of has implications for the broader industry as a whole. Are you worried at all about the dividend paying capacity for healthcare and how does healthcare play into the dividend nights?

[Ant Schiavone]

Yeah, great questions, Emily. It's interesting. When we first did the Dividend Knights Back in 2022, there were 11 healthcare companies that qualified as dividend nights. Today, as of June 30th, there are just two. It's Eli Lilly one. Speaking of a competitor maybe to Novo Nordisk and AbbVie. Those are the only two ones right now. That's surprising on a number of levels because I think in the past, health care, because it's countercyclical, because we know the enormous demographic tailwinds that the industry has or the sector has, that it should be a source of good cash flow, good earnings, good visibility and good dividend growth. And it just, it really hasn't been for the past few years. And it's startling to see the drop. And you just wonder, as Ant was getting to, is this a sector that's just. There's too many interplays between regulators, between the FDA when it comes to drug approvals, to insurance and how those claims are funded and what parts of the company that we serve, either through Medicaid or Medicare or through private insurance. It just, it's a very complex space. And so I think a lot of these companies have just run into challenges where they don't have as much cash flow and earnings visibility as they might have had in the past.

[Matt Argusinger]

Although in the case of UnitedHealthcare, Nova Nordisk, it hasn't yet, to our awareness, impacted their ability to continue paying their dividends. Although admittedly maybe not growing at the rate that you and ANT would normally look for. We also have some news outside of the healthcare space today. Another dividend paying company, Whirlpool, reported earnings. It's a dividend investor recommendation that unfortunately fell around 15% today. A bit of a big drop. Should we be concerned? I think they're also cutting their dividend alongside that.

[Ant Schiavone]

Yeah, this, that was the big surprise, Emily, not surprised that Whirlpool is facing a tough market right now. They're the leading domestic appliance maker for kitchens and baths. Right. But they have faced decades of competition from Asian suppliers, which often have cheaper labor, cheaper steel and so the hope was that the new tariff announcements that do apply to steel made appliances would help Whirlpool and management does expect they will. But unfortunately in the short term there's been a lot of stockpiling of inventory among Whirlpool's competitors, a lot of that coming from Asia. And so that in the short term I think is weighing on Whirlpool's business, forcing them to kind of lower guidance for the year. But the shock definitely was the dividend. This is a company that has paid a dividend for over 70 years and not cut it once. We're talking through many recessions, through the global financial crisis, through the housing crash, never cut its dividend and yet yesterday announced that it was cutting its dividend by almost half. And so this was a situation where I think the balance sheet got a little too levered, earnings got too challenging, cash flow was in trouble. Management's going to cut that dividend, try to shore up the balance sheet and hope that the tariffs come through to help the business and that the housing market revitalizes because a lot of their earnings are tied to the housing market. A lot of ifs right now with Whirlpool it was really disappointing for us to see the cut to the dividend.

[Matt Argusinger]

Well, it doesn't surprise me, not with the Whirlpool in particular, but because when I look at your list of dividend nights, the number of companies that qualify, of which you just keep a running list, has fallen from around 175 companies in 2022 to run 117 in 2025. Looks like Whirlpool is now one of those that is heading off the list here potentially. So I'd love to get your take when you look at that list of the remaining 120 or so companies that qualify as dividend nights, where do you see the most opportunity? Like do you have any stocks or sectors that you think our listene should be aware of?

[Ant Schiavone]

Yes, it's definitely been a dwindling number. And that's because with the market, what's led the market, the broader market the last couple of years of course has been a lot of the large cap tech which pay either no dividends or very little dividends. And so it's been a lot. It's been harder for a lot of companies that we follow to keep up. I would say the one sector that I look to that I think is interesting to me, there are only four from this sector at the latest seven nights and that's real estate. And one of the companies. Of the four real estate companies is Prologis, one of the world's largest REITs, a big player in warehouses and industrial space space and increasingly in data centers. I was happy to see prologis get back on the dividend knights list as of June. It's definitely one I own, I love and I think there's a lot of potential behind it.

[Matt Argusinger]

What about you, Ant?

[Emily Flippen]

Yeah, the energy sector stands out to me. There's only three energy companies on the dividend nights list and really there only should be three companies on this list because energy was one of the worst performing sectors in the 2010s and it had the highest volatility, probably the worst place you could have invested money in the 2010s, and that's because management teams did not allocate capital well. Whatever cash flow came in, it went right out the door into low returning production projects. But really, ever since, COVID investors have demanded that management teams return capital through a growing dividend and share buybacks. And now since energy companies have less free cash flow to reinvest, the management teams have become way more disciplined by only investing in the highest returning projects. So when I look out five years from now, I wouldn't be surprised to see many more energy names on the dividend knights list.

[Matt Argusinger]

I wouldn't either actually. In fact, when you look at some of the best performing companies over the last couple of years, those sectors that were out of favor kind of circle back into favor. And I think energy is one of those which still has a fair bit of opportunity, both with green energy as well as more traditional energy. So looking forward to see where that takes us. Coming up after this, we'll go lightning rounds on what all investors should be thinking about when buying dividend paying stocks. Stick with us.

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[Matt Argusinger]

See mintmobile.com as we wrap up here. I would love to go through in a short lightning round on some like broad and dividend Investor topics that all of our listeners should be thinking about when they're talking about expand. So a few different topics here. I'm going to go to each of you, 30, 60 seconds each. The first one is the payout ratio versus safety. Is there a certain range that you like when it comes to payout ratios and at what point does it turn from a green flag to a red flag?

[Ant Schiavone]

So there's no science behind this number, Emily. It's just a kind of a gut and years of observation because it really does depend on the type of company. But for the most part, I think at 70% or lower payout ratio, in other words, the percentage of earnings that are getting paid out for the dividend for a company is about. Right. Anything above that, I start to get a little worried. Especially if it's a cyclical company, you want probably a lower ratio. If it's a real estate, utilities or even a consumer staple where there's a lot more visibility and consistency to the earnings, you could probably go higher than 70%. But 70% is kind of that bar for me.

[Emily Flippen]

Yeah. And like Matt said, the cyclicality of the business matters when determining what an appropriate payout ratio looks like. But in general, and this might sound counterintuitive, but I'm usually looking for companies that pay out at least 50% of their earnings free cash flow as a dividend. And that's because going back to our conversation on energy, I don't want companies warehousing cash that belongs to the shareholders. So if a company doesn't have a good investment opportunity in front of it, it should return that cash to shareholders through a dividend. So maybe between 50 to 70% depending on the company.

[Matt Argusinger]

Again it's counterintuitive, but it makes sense. But what about ETFs? So whenever you're looking at investments, picking an exchange traded fund which gives you exposure to a lot of different companies versus hand pick those investment yourself, at what point, if ever, does it make sense just to buy a dividend ETF as opposed to going through all the trouble we just talked about about picking individual dividend companies?

[Emily Flippen]

Yeah, I mean there's, there's absolutely nothing wrong with buying a dividend etf. I know Matt. A dividend ETF that we tend to like is the Schwab US Dividend Equity ETF ticker symbol schd. And you know, it's a good way to get cheap diversified exposure to, to high quality dividend payers. So I think dividend ETFs make a lot of sense. But when I Look at@ sector ETFs like real estate in particular. I think hand picking stocks does make a little bit of sense and that's because many of those ETFs are concentrated into things like cell towers and data centers, which I would argue are not necessarily true real estate investments as much as apartments and warehouses.

[Ant Schiavone]

Yeah, I think ETFs definitely makes sense. I own several dividend ETFs in retirement accounts that I have and I own the one, the Charles Schwab one that Ant mentioned. I also think there's one called the Vanguard Dividend Appreciation etf. The ticker there is Vig. If you're interested in dividend and growth companies that may not pay a high yield right now, but are growing their dividend outsized rates. That's a good one. There's also the Noble ETF nobl, which is the Dividend Aristocrats etf, a really popular one. I think there are a lot of strengths with those companies and the consistency of those dividend raises. So maybe two more to look at.

[Matt Argusinger]

Yeah, it's actually good to hear the overwhelming encouragement for ETFs here. My assumption was going to be, hey, try to do your own due diligence and find the good companies out there. Whenever I was researching the cannabis industry, for instance, there's lots of cannabis ETFs. In my opinion, the vast majority of them are complete junk. Trying to pick the winners in a balanced basket was a better approach in my mind. But I guess this shows the difference between emerging industries and maybe some more established industries like dividend paying stocks. Lastly, as we wrap up here, I have to ask about growth versus yield. I know that this isn't always a direct trade off, but when you guys are looking, is there a balance? Does one matter more to the other to you when it comes to the.

[Ant Schiavone]

Dividend growth versus yield? This is the eternal question. I actually wrote an article about this not too long ago. Emily. There are so many studies. There are studies out there that show that actually dividend growth is the way to go. So focus on companies that are growing their dividend, not necessarily having high yields. And there's other studies that say, nope, you want to focus on yields, especially maybe not the highest yielding companies, but maybe like the second or third tier of yielding companies in the market. But I think it always comes down to personal preference. If you're someone who wants to generate yield, a lot of income right now in the short run, favor high yield companies. If you have a little more, a longer time horizon and not necessarily focused on generating income, go for dividend growth.

[Emily Flippen]

Yeah, like Matt said, the data is a bit mixed, so I think it largely depends on investor preference. Ideally, I think investors should want a stock that has an above average yield but is also growing its payout above the rate. Inflation. That's kind of the sweet spot. A good starting point might be to look for companies where the dividend yield plus the expected dividend growth rate equals at least 10%, which is roughly the market's long term annual return. So that might be a good place to start.

[Matt Argusinger]

Really great way of looking at it. Thank you all so much for joining me and coming to this quick roundtable on dividend investing. Here's to hoping that tomorrow holds better things for some of our dividend paying investments.

[Ant Schiavone]

Hear, hear. Thanks, Emily.

[Emily Flippen]

All right, thanks for having me, Emily, as always.

[Matt Argusinger]

People on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows the Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes For Ant Schiavone, Matt Argusinger, and the entire Motley fool team, I'm Emily Flippin. We'll see you tomorrow.