Why Invest in Dividend Aristocrats?
By: Ned Piplovic,
By NED PIPLOVIC
What are the dividend aristocrats?
Dividend Aristocrats compose an exclusive group of S&P 500 companies that have raised their annual dividend for at least 25 consecutive years and have a minimum market capitalization of $3 billion.
Is the Aristocrats title a mere status symbol or does it have a more profound implication?
Some experts claim that dividends are irrelevant to the overall performance of a stock. However, back-tested history indicates that public companies with rising dividends produce higher overall returns for their shareholders and experience lower volatility over a long-term investment horizon.
While long-term rising dividends might not be the only reason for a company’s lasting performance, rising dividends over an extended period indicate efficient capital management, as well as sufficiently strong cash flow and profit to support the growing dividend payouts.
Some companies in the Dividend Aristocrats category have specific policies for raising dividends year after year. The companies with these rising-dividend policies in place are usually the best picks for reliable and growing dividend income and long-term asset appreciation.
Are there any additional advantages to investing in Dividend Aristocrat companies?
In addition to the aforementioned efficient capital management and sufficient cash flow, long-term rising dividends also indicate that a company is able to withstand changing market conditions. During a 25-year period, a company will go through several boom-bust cycles. A company that can effectively get through the up-and-down cycles of the market and maintain its rising dividends clearly is well-managed and will provide dividend income, dividend growth and asset appreciation.
Why is 25 years the minimum for Dividend Aristocrats?
The minimum 25 years for achieving consecutive payments is somewhat arbitrary and there are other lists that group long-term dividend-paying companies into distinct groups depending on the length of their rising dividends record. Dividend Kings are companies with 50 or more years of consecutive dividend hikes and only 11 companies currently meet that standard.
Besides the two widely accept classifications above, investment analysts and investors created additional categories with slightly different requirements. Companies that have boosted their dividends for 10 or more years are sometimes called Dividend Achievers or Dividend Challengers. Some investment analysts designated companies with five or more consecutive dividend boosts as Dividend Contenders.
While the Achievers, Challengers and Contenders number in the hundreds, the list of about 50 Dividend Aristocrats is a relatively focused one of dividend-paying companies. Just lowering the cutoff by five years to 20 would triple the number of companies on the list to more than 150.
Therefore, 25 years might be a little arbitrary, but it also keeps the list of companies to a manageable size.
Is there a way take advantage of these companies without dealing with individual stocks?
Exchange-traded funds (ETFs) that invest in stocks of these Dividend Aristocrat companies include the SPDR S&P Dividend (NYSE:SDY), which tracks the S&P High Yield Dividend Aristocrats Index, and ProShares S&P 500 Dividend Aristocrats (BATS:NOBL). Both are examples of index funds that track stocks with long-term rising dividends.
What kind of companies are in the Dividend Aristocrats group?
The current Dividend Aristocrats list contains 51 companies spread across 11 market sectors. However, sector representation of the Dividend Aristocrats group differs slightly from the S&P 500 sector makeup. While the Materials, Consumer Staples and Industrials sectors are relatively better represented in the Dividend Aristocrats group, the S&P 500 is relatively more invested in Information Technology, Energy and Real Estate. The Dividend Aristocrats are typically older, more established companies that are generally underrepresented in the technology sector. The table below shows the full details.
Where can I find the individual Dividend Aristocrats?
Dividendinvestor.com is one of the few financial advisory websites that has search tools capable of providing information on consecutive dividend increases that can be used to filter out the companies with long-term rising dividends. Additionally, some sites have specialized lists for these long-term dividend-paying stocks – such as those in Dividendinvestor.com‘s Dividend Allstars™ list.
Should I be aware of any additional considerations?
While the companies that compose the Dividend Aristocrats have proven their ability to sustain rising dividend payments for decades, this track record is based on just a single criterion. Some of these companies have dividend yields that are considerably below sector or market averages. That variation shows that companies which have been raising dividends for just the past few years but pay a higher yield might offer superior income investment opportunities.
Additionally, there is no minimum dividend increase requirement that the companies must meet to remain on the list. Therefore, a company that hikes its annual dividend by a mere fraction of a penny can retain its Dividend Aristocrat designation.
Also, the company’s share price could be in a downward spiral and that would not affect the company’s Aristocrat status in the least.
What companies are currently on the list?
Use the form below to download the complete list of the 51 companies that currently hold the distinction of Dividend Aristocrats for paying rising dividends 25 years in a row or longer.
The downloadable file is more than just a list of company names and information on the number of consecutive dividend boosts. In addition to the names and stock symbol, the list contains 15 other columns that provide a breadth of company information and performance metrics that will be very helpful for analyzing and picking the best investment options.
The file contains the following information:
- Company Name
- Stock Symbol
- Consecutive Dividend Increases
- Market Cap
- Dividend Yield
- Quote (stock price as of the most recent file update)
- Dividend Payout Ratio
- Dividend Growth
- Total Return % 12 Months
- Total Return % 3 Years
- Total Return % 5 Years
- Percent of Shares Held by Institutions
- Price-to-Earnings (P/E) Ratio
- Debt-to-Equity Ratio
- Dividends Paid Last 12 Months (number of distributions)
- Dividend Paid Since
Additionally, once you download the file, you can sort and filter the list in multiple ways to find the stocks that are best suited for your investment strategy.
Just enter your e-mail address in the form below and you will gain immediate access to the Dividend Aristocrats list.
The Dividend Aristocrats list provides a straightforward way to identify companies that have proven their ability to sustain rising dividend payments at least 25 straight years. However, investors should consider a few additional indicators, such as share-price trends, price-to-earnings (P/E) ratios, moving averages, etc.
Professional investors and active traders might be able to achieve higher total returns by trading other equities with higher yields over shorter periods. Nevertheless, frequent trading can incur additional fees, which will reduce total returns. Some of the equities with high yields can be very volatile and expose investors to considerable loss risk.
For investors who have a diversified portfolio of growth equities and are looking for a steady and secure income, Dividend Aristocrats might be the answer. While there are ways to potentially increase total returns on investment by trading more risky equities frequently, the small additional return might not be worth the additional risk exposure.
In that case, taking long positions in a few of the Dividend Aristocrats – or a fund that tracks such stocks – could be the right move for investors who are willing to forego potentially higher, but risky returns in favor a long-term, low-volatility and steady income stream produced by the Dividend Aristocrats.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.