Is Woolworths Limited no longer a Dividend Aristocrat?

This year has been a disaster for dividend investors in Woolworths Limited (ASX:WOW).

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Back in February, I wrote about the SPDR S&P Global Dividend ETF (ASX: WDIV) which trades on the ASX and tracks the S&P Global Dividend Aristocrats Index.

The index selects 100 stocks from global markets on the basis of dividends which have been stable or growing for at least 10 years.

As was the case back in February, just four companies from the ASX are currently included in the index. These are APA Group (ASX: APA), Sonic Healthcare Limited (ASX: SHL), Challenger Ltd (ASX: CGF), and Woolworths Limited (ASX: WOW).

While the first three of these stocks continued to grow their payouts through 2016, the Woolworths dividend took a big hit. Shareholders received just 77 cents per share (cps), compared to 139 cps the year before.

Leading up to this, Woolworths had a great history of growing dividends, increasing them steadily from just 59 cps back in 2006.

So, needless to say, receiving a dividend of around half that of the prior year was a disappointing result for any investor relying on dividend income and hoping for dividend growth.

Troubles for Woolworths were largely due to its failed Masters venture, underperformance from Big W, and shrinking grocery profit margins. Although Masters has now been closed, chairman Gordon Cairns recently ruled out selling Big W, despite it losing nearly $15 million for Woolworths last year.

At around $23, shares in Woolworths are relatively unchanged since the start of the year. A forecast dividend of 86 cps for 2017 implies a yield of 3.7%.

Woolworths certainly has the potential to get back on track as a decent dividend stock, however, with its Big W challenges, existing pressures on grocery margins, and the threat of Amazon looming on the horizon, it is difficult to imagine dividend growth will be as strong in the future.

If I had to pick one of the four Dividend Aristocrats named above, my money would be on Challenger.

Its annuity business looks set to benefit from the tailwind of Australia's ageing population. However, after a run up of 60% this year, it isn't exactly cheap, and there are better blue chip dividend stocks to buy today.

Motley Fool contributor Matthew Bugden has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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