What are the The Dividend Aristocrats?

Line graph showing the Dividend Aristocrats vs S&P 500 returns since 2010

Written by Robert Hodges

Published on November 27, 2019

The Dividend Aristocrats are a group of stocks, all of which are members of the S&P 500, and all of which have raised their dividend every year, for the past 25 years or more.

To be added to the S&P 500, the following criteria must be met:

  • It must be a U.S. company.
  • The market cap must be $5.3 billion or more.
  • The public float must consist of at least 50% of outstanding shares.
  • It must have positive reported earnings in the most recent quarter, as well as over the four most recent quarters.
  • The stock must have an active market and must trade for a reasonable share price.

Sourced from The Motley Fool‘s article called, What is thee S&P 500?

This shows that the companies in the Aristocrats are large, well established companies, and would be categorized as either mid cap or large cap stocks. Many of them are well known, even household names, such as McDonalds (MCD), Proctor & Gamble (PG) and Johnson & Johnson (JNJ).

To see how select a group of stocks the Aristocrats are, many of the most well-known stocks do not qualify to be Aristocrats for various reasons. Amazon (AMZN) and Google (GOOG), for example, have never paid a dividend, while Microsoft (MSFT) and Apple (AAPL), although paying and raising their dividends for the past 13 and 6 years, respectively, have not raised their dividends for the required 25 years or more.

The Aristocrats are also a well-diversified group of stock, with all 11 of the S&P sector groups being represented by at least 1 or more stocks.

Over the past 10 years the Aristocrats have produced an annual return of 14.94%, while the S&P 500 index has returned 13.7%.

(The two charts above are courtesy of SureDividend.com)

There are multiple reasons for this outperformance. First, although the DAI may slightly underperform during years in which the market is up, it significantly outperforms during bad years. The DAI falls less than the S&P 500 and can even have positive returns in years when the S&P is down. For example, in the years 2000, 2001 and 2002, while the S&P was down -9.1%, -11.9% and -22.1%, the DAI returns for those years were +10.1%, +10.8%, and -9.9%. Secondly, the DAI has less volatility than the S&P 500. So even as it’s over-all returns are better, it also has less risk. Finally, the raising of the dividends, year after year, and the reinvestment of those dividends back into the stocks that paid them, creates a double compounding effect in which the dividend income, and therefore the total return, grows at an exponential rate. This ever-growing dividend income helps support the stock price and improve the total return during weak markets.

In the end it is the quality of these companies, as demonstrated by the ever-growing dividends, that makes these companies so attractive to us as investors. Let’s face it, any company that can create enough cash flow such that it can raise its dividend ever year for 25 years or more, must be a high-quality company.

This is why we look to the Dividend Aristocrats list when trying to find stocks to invest in. As Dividend Growth Investors we look to the quality of these stocks, and the dividend growth history, as our markers for which stocks we want to buy. The only other consideration is valuation, because even when considering the best stocks, we must only buy the ones that are under-valued, or at worst, fairly valued. How we evaluate a stock’s valuation which will be covered in other articles.

At the present time there are 57 stocks in the Dividend Aristocrats index, and we at PTI have a portfolio, the Dividend Aristocrats Portfolio, which owns all 57 of these stocks. It was started on 8/1/19 by buying approximately $2000 of each of these 57 stocks. The stocks will be held for one year and one day (holding that one extra for tax purposes, to ensure we only have to pay the lower rate long term capital gains taxes), and then the portfolio will be rebalanced to get each position back into approximately equal dollar values. While held, all dividends received will be automatically reinvested back into the stocks that paid them. If new stocks are added to the DAI, they will be bought at the time that the portfolio is rebalanced. If any stock is removed, that position will be liquidated. You can follow this portfolio on our Portfolio page using the link to the Dividend Aristocrats.

You May Also Like…

A Decade of REGL

A Decade of REGL

At PTI we have focused on the Dividend Aristocrats and the Dividend Champions as the two universes of stocks from...

A Decade of Aristocrats

A Decade of Aristocrats

As the decade closes, we at PTI thought it would be a good idea to review the decade in terms of the Dividend...

Dividend Declaration Dates

Dividend Declaration Dates

As a dividend growth investor, there are certain dates one must be aware of, and understand, to help you understand...

Subscribe To The Mailing List

Would you like to be informed whenever new content is posted?

Learn More About DGI

Want to learn more about Dividend Growth Investing?