Investments

Who Are The Dividend Aristocrats

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

Whether or not you are aware of it, the majority of people’s ultimate financial aim is financial independence, or the capacity to support yourself through investments and passive income.

Typically, this objective is not attained until retirement. But whether you achieve financial independence at age 30 or 70, there will come a time when you no longer need to work and require passive income to cover your expenses because you are unable to work or do not want to.

One of the easiest ways to get a passive income is through dividends. The safest dividend investments available on the earth are provided by dividend aristocrats.

Why Do Dividend Aristocrats Exist?

Dividend Aristocrats is a list that is updated annually by Standard & Poor’s Dow Jones Indices. Companies on this list have all been included in the S&P 500, and all have increased their dividend payments annually for the past quarter century. 

A minimum of $3 billion in market valuation and $5 million in daily trading activity over the prior three months is required of eligible companies. That is to say, these are dividend-paying, substantial, well-known, blue chip corporations.

Right now’s dividend Aristocrats

S&P has identified 65 companies as dividend aristocrats as of this writing. 

Organizations under this category include:

CompanyYears 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)23
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

However, it’s important to keep in mind that both Exxon Mobil and AT&T are in danger of losing their dividend aristocrat status. There has been no dividend increase at either company for over four quarters.

Last but not least, you might look at dividend champions lists, which include companies that have met the threshold of 25 years of consistent dividend growth but which do not meet the market cap and trading activity criteria.

Dividend Kings

The best of the best, dividend king stocks have increased their payouts annually over the past half-century. Very few businesses have earned such a prestigious label.

Many analysts and commentators do not apply the same market cap and liquidity standards to dividend kings despite the fact that Standard & Poor does not publish an official list of dividend kings. 

Companies that have increased their dividend for at least 50 consecutive years are typically included, as this is a specific enough criterion.

Thirty-one businesses will make the cut by 2021:

CompanyYears 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

The following four businesses are projected to join them in 2022: Abbott Laboratories (NYSE: ABT), AbbVie (NYSE: ABBV), Becton, Dickinson & Co. (NYSE: BDX), and PepsiCo (NYSE: PEP) (NASDAQ: PEP).

Why Purchase Dividend Aristocrat Stock?

Dividend aristocrats clearly have their advantages. There is reliability in the dividends paid by these major, well-known corporations. In sufficient quantities, stock dividends can be used as a primary source of income.

And because they have been around for so long, these corporations can guarantee a higher level of safety and security than most others can. Young businesses frequently fail, while established ones seldom go down.

After attaining the position of dividend aristocrat, firms are loathed to give it up. If a firm you own drops off the list because it failed to increase its dividend, you should consider it a warning sign and consider selling your shares before the company goes bankrupt.

Cons of Purchasing Dividend Aristocrats

All things considered, dividend aristocrats’ strengths are also their faults. They’re sizable, secure, and safe, and they produce substantial returns on investment. That they have matured into gigantic sizes, with their rapid early development now a distant memory.

Companies with a lot of shares and employees can still increase their profits and value. Not usually, though, and certainly not at the same breakneck speeds as startups and small-cap enterprises.

If the dividend yield is high, then the company is paying out its earnings to shareholders rather than reinvesting them to fuel growth. In other words, it’s another sign of a stagnant, old-fashioned business.

At the end of the day, the Internal Revenue Service taxes dividends at the same rate as normal income. In contrast, you only pay tax on the appreciation in value at the time of sale, and even then, you have numerous opportunities to delay or reduce capital gains taxes.

Investment Methods for dividend aristocrats

Think about dividend stocks within the context of your overall asset allocation. In the final years before retirement, you may want to shift some of your holdings from more growth-oriented or small-cap companies to dividend aristocrats because of their lower risk profile.

You can put your money in exchange-traded funds (ETFs) that hold only dividend aristocrats. To get exposure to all of them in one transaction, I use the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). Nonetheless, there is more than one way to profit from the dividend aristocrats.

Pullback Trades

The swing trading I undertake is on the riskier side of my investment strategy. I simulate the trading system Mindful Trader, which is optimized for pullbacks in the stock price of significant U.S. corporations.

Some dividend aristocrats occasionally cut back, setting up a swing trade. If that’s the case, I’ll buy a couple of shares to hold for the long haul, and I’ll automatically reinvest any dividends that come in. 

These investments don’t seem like much taken together, but when I finally retire, the dividends I receive from them will be substantial. The difference between market timing and purchasing on a decline is subtle. 

The difference is making investment decisions based on a systematized approach that you constantly follow rather than having your emotions guide your investment choices.

Finally, you should know that more and more brokerages are facilitating the purchase of fractional shares. The S&P 500, which includes all dividend aristocrats, can be traded on Charles Schwab and Robinhood, respectively.

Future leaders of the dividend

The stock price and market capitalization of a company typically increase after it is included in the official list of dividend aristocrats. In other words, you may be able to save money while purchasing shares of future aristocrats. Still, you’ll have to make an effort if you want to locate them.

Companies that have increased their dividend payments for a decade or more are considered dividend achievers by investors. Many of these businesses won’t be able to stay in business for 25 years, but some will. 

Those interested in a printable spreadsheet detailing the dividend yield, market cap, and forward P/E ratio of all U.S. dividend achievers might check out Sure Dividend.

The Invesco Dividend Achievers Exchange-Traded Fund (ETF) is a good option for investors because it holds shares of these companies (PFM).

Aristocrats of Dividend in Other Nations

Americans have a tendency to focus on U.S. companies, but there are dividend aristocrats to be found in other economies as well. S&P Dow Jones Indices, for example, keeps track of 350 European equities (the S&P Europe 350® Dividend Aristocrats) that have increased their dividend payments for at least ten consecutive years.

If you’re willing to put in the legwork, you can diversify your portfolio and yet enjoy relatively secure, regular dividend income by looking beyond the obvious.

Aristocrats of Dividend Performance

Considering the aforementioned benefits and drawbacks, it is not surprising that dividend aristocrats have somewhat lagged behind the bigger S&P 500, although carrying the reduced risk and higher yield.

Since its debut in 2013, this graph displays the outperformance of the NOBL fund of dividend aristocrats compared to the S&P 500 index.

Sharpe ratios are used to assess volatility and risk; NOBL’s is 0.80, lower than the S&P 500’s 0.93. As an added bonus, the dividend aristocrat index has a dividend yield that is around 50% higher than the S&P 500.

As a large-cap value fund, NOBL’s performance was nevertheless superior to the category average throughout that time.

Bottom Line

Investors can find dividend aristocrats and similar stocks to be low-risk and high-yield. Therefore, they are a great investment for retirees and other people in their golden years. Consider dividend aristocrats as a means of mitigating the sequence of returns risk as you near retirement. 

To keep more of your wealth in stocks and postpone or lessen the move to bonds, you can lower your portfolio’s overall risk profile. Bonds no longer offer a desirable rate of return due to historically low-interest rates, making high-yield, reliable stocks more alluring than ever.

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