Dividend Aristocrats – What They Are and Reasons to Consider Investing

Whether you notice it or not, most individuals’s final cash aim is monetary independence: the power to cowl your residing bills with passive revenue from investments. 

Most folks don’t attain this aim till they retire. But whether or not you attain monetary independence at age 30 or 70, the day comes while you not need to work — or can not work — and also you want passive revenue to pay your payments. 

Dividends are one of many easiest sources of passive revenue. And dividend aristocrats supply the surest dividend investments on the planet. 

What Are Dividend Aristocrats?

Every 12 months, Standard & Poor Dow Jones Indices updates their record of dividend aristocrats. This record options corporations within the S&P 500 which have raised their dividend yearly for the previous 25 years. Companies should even have a market capitalization of at the very least $3 billion, and common at the very least $5 million in each day buying and selling quantity for the final three months. 

In different phrases, these are giant, established, blue chip corporations with constant dividends. 

Current Dividend Aristocrats

There are at the moment 65 corporations that meet S&P’s definition and qualify as dividend aristocrats. These corporations embody:

Company Years of Dividend Growth
Dover (NYSE:DOV) 65
Genuine Parts (NYSE:GPC) 65
Procter & Gamble (NYSE:PG) 64
Emerson Electric (NYSE:EMR) 64
3M (NYSE:MMM) 63
Cincinnati Financial (NASDAQ:CINF) 60
Coca-Cola (NYSE:KO) 59
Johnson & Johnson (NYSE:JNJ) 59
Colgate-Palmolive (NYSE:CL) 57
Hormel Foods (NYSE:HRL) 55
Stanley Black & Decker (NYSE:SWK) 53
Federal Realty Investment Trust (NYSE:FRT) 53
Clorox (NYSE:CLX) 52
Sysco (NYSE:SYY) 52
Leggett & Platt (NYSE:LEG) 50
Target (NYSE:TGT) 50
W.W. Grainger (NYSE:GWW) 50
Illinois Tool Works (NYSE:ITW) 50
Becton, Dickinson & Co. (NYSE:BDX) 49
PPG Industries (NYSE:PPG) 49
AbbVie (NYSE:ABBV) 49
Abbott Laboratories (NYSE:ABT) 49
Kimberly Clark (NYSE:KMB) 49
PepsiCo (NASDAQ:PEP) 49
Nucor (NYSE:NUE) 48
S&P Global (NYSE:SPGI) 48
VF Corp. (NYSE:VFC) 47
Archer Daniels Midland (NYSE:ADM) 47
Walmart (NYSE:WMT) 47
Automatic Data Processing (NASDAQ:ADP) 46
Consolidated Edison (NYSE:ED) 46
Lowe’s (NYSE:LOW) 46
Walgreens Boots Alliance (NASDAQ:WBA) 45
McDonald’s (NYSE:MCD) 45
Pentair (NYSE:PNR) 45
Medtronic (NYSE:MDT) 44
Sherwin-Williams (NYSE:SHW) 42
Franklin Resources (NYSE:BEN) 40
Air Products & Chemicals (NYSE:APD) 39
Aflac (NYSE:AFL) 38
Amcor PLC (NYSE:AMCR) 38
Cintas (NASDAQ:CTAS) 38
Brown-Forman (B Shares) (NYSE:BF.B) 37
Atmos Energy Corporation (NYSE:ATO) 37
ExxonMobil (NYSE:XOM) 37
McCormick & Co. (NYSE:MKC) 35
AT&T (NYSE:T) 35
Cardinal Health (NYSE:CAH) 34
T. Rowe Price Group (NASDAQ:TROW) 34
Chevron (NYSE:CVX) 33
General Dynamics (NYSE:GD) 30
Ecolab (NYSE:ECL) 29
A.O. Smith (NYSE:AOS) 29
Linde (NYSE:LIN) 29
West Pharmaceutical Services, Inc. (NYSE:WST) 28
Roper Technologies (NYSE:ROP) 28
Chubb (NYSE:CB) 28
Caterpillar (NYSE:CAT) 27
People’s United Financial (NASDAQ:PBCT) 27
Albemarle Corp. (NYSE:ALB) 27
Essex Property Trust, Inc. (NYSE:ESS) 27
Expeditors International of Washington, Inc. (NASDAQ:EXPD) 27
Realty Income Corporation (NYSE:O) 26
International Business Machines (NYSE:IBM) 26
NextEra Energy Inc (NYSE:NEE) 26

Note nonetheless that Exxon Mobil and AT&T are each vulnerable to dropping their dividend aristocrat standing. Both corporations have failed to boost their dividend for greater than 4 quarters.

Finally, you may as well analysis lists of “dividend champions,” which meet the requirement for 25 years of constant dividend progress however don’t meet the market cap and buying and selling exercise standards.

Dividend Kings

The elite of the elite, dividend king shares have raised their dividends yearly for the previous 50 years. Few corporations can declare this lofty title. 

Standard & Poor doesn’t launch an official record of dividend kings, so many pundits don’t impose the identical market cap and liquidity necessities on them. Most merely embody all corporations which have raised their dividend for at the very least 50 years in a row — a slender sufficient qualification. 

As of 2021, 31 corporations make the minimize: 

Company Years of Dividend Growth
American States Water (NYSE:AWR) 67
Dover Corporation (NYSE:DOV)  66
Emerson Electric (NYSE:EMR) 65
Northwest Natural Holding (NYSE:NWN) 65
Genuine Parts (NYSE:GPC) 65
Procter & Gamble (NYSE:PG)  65
Parker Hannifin (NYSE:PH) 65
3M (NYSE:MMM) 63
Cincinnati Financial (NASDAQ:CINF) 61
Johnson & Johnson (NYSE:JNJ) 59
Coca-Cola (NYSE:KO) 59
Lowe’s (NYSE:LOW)  59
Lancaster Colony (NASDAQ:LANC) 58
Colgate-Palmolive (NYSE:CL) 58
Nordson (NASDAQ:NDSN) 58
Farmers & Merchants Bancorp (OTC:FMCB) 56
Hormel Foods (NYSE:HRL) 55
California Water Service Corp. (NYSE:CWT) 54
Stanley Black & Decker (NYSE:SWK) 54
Federal Realty Investment Trust (NYSE:FRT) 54
ABM Industries (NYSE:ABM) 53
Stepan (NYSE:SCL) 53
SJW Group (NYSE:SJW) 53
Commerce Bancshares (NASDAQ:CBSH) 53
Sysco (NYSE:SYY) 52
H.B. Fuller (NYSE:FUL) 52
Altria Group (NYSE:MO) 51
Grainger (NYSE:GWW) 50
Leggett & Platt (NYSE:LEG) 50
PPG Industries (NYSE:PPG) 50
Target (NYSE:TGT) 50

In 2022, 4 extra corporations are anticipated to affix these ranks: Abbott Laboratories (NYSE:ABT), AbbVie (NYSE:ABBV), Becton, Dickinson & Co. (NYSE:BDX), and PepsiCo (NASDAQ:PEP). 

Why Invest in Dividend Aristocrats

The benefits supplied by dividend aristocrats are fairly apparent. 

These established, giant cap corporations present constant revenue yield. With sufficient shares, they supply revenue which you can dwell on. 

And as a result of these company giants are so effectively established, they provide extra security and safety than most corporations. Startups fail on a regular basis, however corporations with many years upon many years of success and expertise not often fold. 

Once achieved, corporations don’t relinquish the status of dividend aristocrat standing evenly. If an organization fails to boost its dividend and falls out of the record, you’ll be able to think about it an early warning signal and promote your shares earlier than the corporate will get into actual bother. 

Downsides to Investing in Dividend Aristocrats

As with a lot else in life, the best strengths of dividend aristocrats are additionally their best weaknesses. 

They’re giant, protected, and safe, with excessive revenue yields. Which means they’ve already reached mammoth proportions, and that quick early-stage progress lies far within the rearview mirror. 

Large corporations can nonetheless develop in income and share value, in fact. But not sometimes on the similar meteoric speeds that startups or small-cap corporations can. 

A excessive dividend yield additionally means paying shareholders somewhat than investing income in progress. Again, it signifies a mature firm with restricted progress potential.

Finally, the IRS taxes some dividends at your common revenue tax price. In distinction, you solely get taxed on value progress after promoting, and even then you might have many choices for deferring or decreasing capital features taxes. 

Strategies for Investing in Dividend Aristocrats

Consider dividend shares within the context of your bigger asset allocation. They rank among the many lower-risk shares in your portfolio, in order you get nearer to retirement, think about transferring a few of your extra growth-oriented or small-cap shares into dividend aristocrats. 

You can spend money on exchange-traded funds (ETFs) that particularly maintain dividend aristocrats. I personally spend money on the ProfessionalShares S&P 500 Dividend Aristocrats ETF (NOBL) for straightforward publicity to all of them. 

But that’s not the one technique for investing in dividend aristocrats. 

Pullback Trades

On the aggressive facet of my investments, I do some swing buying and selling. I mannequin Mindful Trader, which focuses on pullback trades of large-cap U.S. corporations. 

Occasionally, a member of the dividend aristocrats pulls again and triggers a swing commerce. When that occurs, I decide up a share or two to maintain long-term, with dividends set for reinvestment. Individually they don’t seem like a lot, however by the point I retire, they need to generate important dividend revenue. 

There’s a nice distinction between pullback shopping for and attempting to time the market. That distinction lies in investing primarily based on a systematized mannequin that you simply at all times comply with, somewhat than letting feelings influence your investing selections. 

As a ultimate thought right here, notice that some brokerages more and more help you purchase fractional shares. For instance, Robinhood permits it, and Charles Schwab permits it for corporations within the S&P 500 — which embody all dividend aristocrats. 

Future Dividend Aristocrats

Once corporations seem on the official record of dividend aristocrats, they have an inclination to rise in recognition and share value. 

That means you’ll be able to probably purchase shares in future aristocrats’ at a reduction. But you need to exit of your technique to discover them.

Investors label corporations which have raised their dividend for at the very least 10 consecutive years as dividend achievers. Many of those corporations gained’t be capable of preserve sufficient consistency to succeed in 25 years, however some will. For a downloadable spreadsheet of all U.S. dividend achievers, together with their dividend yield, market cap, and ahead P/E ratio, take a look at Sure Dividend. 

You also can spend money on an ETF that owns shares in these corporations: the Invesco Dividend Achievers ETF (PFM). 

Dividend Aristocrats in Other Countries

American traders are inclined to fixate on U.S. shares, however you’ll be able to discover dividend aristocrat-style shares in different markets as effectively. 

For occasion, S&P Dow Jones Indices maintains an index of 350 European shares which have persistently raised dividends for at the very least 10 years: the S&P Europe 350® Dividend Aristocrats. 

Do your personal homework, however by going off the crushed path, you’ll be able to diversify your portfolio whereas nonetheless incomes comparatively protected, secure dividend revenue. 

Dividend Aristocrats Performance

With the above professionals and cons in thoughts, it comes as no shock that dividend aristocrats have barely underperformed the bigger S&P 500 — however with decrease threat and better yield. 

You can see the distinction in efficiency between the NOBL fund of dividend aristocrats and the broader S&P 500 index on this graph, since NOBL’s inception in 2013:

(chart sourced from Charles Schwab)

However the Sharpe ratio — a measure of volatility and threat — for NOBL is 0.80, in comparison with the S&P 500’s ratio of 0.93. The dividend aristocrat index additionally boasts a dividend yield round 50% greater than that of the S&P 500. 

Also, NOBL nonetheless outperformed the class common for large-cap worth funds over that interval. 

Final Word

Dividend aristocrats and their brethren supply comparatively low-risk, high-yield inventory investments. That makes them a great sort of inventory for older employees and retirees. 

As you method retirement and begin in search of methods to scale back threat to handle sequence of returns threat, think about dividend aristocrats. By decreasing your threat profile inside your inventory portfolio, you’ll be able to probably go away more cash in shares and delay or cut back the shift to bonds. Because in at present’s market of perpetual low rates of interest, you simply can’t earn a lot cash from bonds, so secure, high-yield shares look extra engaging than ever.