Aristocratic Trap: 3 Overpriced Dividend Stocks Poised for a Fall


  • The following Dividend Aristocrats appear to trade at rich valuations despite their distinct qualities.
  • Clorox (CLX): Its household brands have generated robust sales for decades, but its profitability has worsened lately.
  • Colgate-Palmolive (CL): The consumer staples giant has increased its dividend for 63 consecutive years, but its organic growth has softened.
  • Consolidated Edison (ED): This regulated utility has an established customer base in New York State whose valuation raises concerns. 
Overpriced Dividend Stocks - Aristocratic Trap: 3 Overpriced Dividend Stocks Poised for a Fall

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Dividend Aristocrats are held in high regard amongst investors due to their proven ability to achieve robust financial results and pay growing dividends over extended time periods. Considering an essential requirement of being a Dividend Aristocrat is increasing dividends for 25 consecutive years, they deserve the praise they get.

However, what if I proposed that some of these beloved Dividend Aristocrat stocks might be trading at unjustifiably high prices? In fact, several names within this elite group appear to be poised for a fall at their current price levels.

Despite boasting some solid qualities and extended track records of dividend increases, the following three Dividend Aristocrat stocks are trading at rich valuations. Therefore, these overpriced dividend stocks could hamper investors’ total return prospects.

Clorox (CLX)

Clorox bleach bottles lined up on a store shelf.
Source: TY Lim /

Clorox (NYSE:CLX) has long been loved amongst conservative dividend growth investors looking for steady capital returns. Its household-name brands, among disinfectants, cleaning supplies and personal care products, have historically generated consistent sales even during economic downturns.

Clorox’s recession-proof business model is evident in its absolutely phenomenal dividend growth track record. It has 46 years of consecutive annual dividend increases. Its cleaning supplies and other day-to-day essentials stay in high demand regardless of the underlying condition of the economy. Clorox, therefore, retains exceptional pricing power. Consequently, this feat shouldn’t come as a surprise.

Nevertheless, CLX stock appears considerably overvalued. Its gross profit margins have been gradually getting compressed due to increased competition, dipping below 40% in recent years. Also, profitability has been worsening due to growing expenses and lackluster organic growth, which came in at just 2% in its most recent Q3 results. Thus, I find CLX a particularly overpriced dividend stock at a forward price-to-earnings ratio (P/E) of 21.7.

Colgate-Palmolive (CL)

Colgate toothpaste and mouthwash in a cup with a toothbrush
Source: monticello /

Colgate-Palmolive (NYSE:CL) is another great example of a rock-solid company with an exceptional dividend growth history whose stock appears to be quite overpriced. Much like Clorox, Colgate-Palmolive has a proven history of recording consistently strong sales patterns. That can be attributed to the essential nature of its oral care, personal care and pet nutrition products in households worldwide.

Its renowned brands, such as the namesake Colgate and Palmolive, and others like Ajax, Speed Stick, and Fabuloso, have earned consumers’ trust. They were instrumental in sustaining the company’s sales, even during some of the most vicious economic downturns of recent decades. Indeed, Colgate-Palmolive has increased its dividend annually for more than 60 years, demonstrating the qualities of its product portfolio.

That said, CL stock seems quite overpriced relative to its earnings growth prospects. Not only has it barely seen earnings grow over the past decade, but the trend will likely persist for years. Despite raising its FY2024 outlook, management sees sales growth of just 2% to 5%. With earnings growth charting a soft trajectory, I don’t see how CL stock’s forward P/E of 27.1 can be justified.

Consolidated Edison (ED)

Con Edison electricity gas and steam power company truck vehicle van parked on Manhattan street.
Source: BrandonKleinPhoto /

Moving from two consumer staples to a utility, Consolidated Edison (NYSE:ED) boasts one of the most extended dividend growth track records in the sector. If you’re unfamiliar, it provides electricity to roughly 3.7 million customers in New York City and most of Westchester County. It also delivers gas to 1.1 million customers in Manhattan, the Bronx, and parts of Queens. A smaller business distributes steam to about 1,530 customers in parts of Manhattan.

The company has historically generated predictable revenue and earnings growth. That is the case with most regulated utilities that enjoy stable demand for electricity and gas. Further, regulatory bodies allow the company to raise rates on a regular basis, while Consolidated Edison has already set up an established customer base and infrastructure. These factors have resulted in ED stock featuring a 50-year-long dividend growth track record.

Yet, ED appears to be another overvalued dividend stock amongst Dividend Aristocrats. With investors willing to pay a premium for its steady operations, reliable dividend and predictable prospects, shares are now trading at a forward P/E of about 18.1. With interest rates remaining high and consensus estimates predicting earnings-per-share (EPS) growth barely exceeding 5% over the medium term, ED stock could signal downside potential.

On the date of publication, Nikolaos Sismanis did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Nikolaos Sismanis is a professional research analyst with five years of experience in the field of equity research and financial modeling. Nikolaos has authored over 1,000 stock-related articles that focus on uncovering deep value opportunities, identifying growth stocks at reasonable valuations, and shining a spotlight on overlooked international equities.

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