Dividend Aristocrats

Updated on April 30, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What is Dividend Aristocrats?

Dividend aristocrats are firms that have settled dividend payments to investors throughout the last 25 years with increased payouts. They are utilized as a part of the defensive equity plan to offer lower-risk yields. Also, investors may check the list of best dividend aristocrats in the US and finance them through exchange-traded funds (ETFs) or individual purchases.

Dividend Aristocrats

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To be a dividend aristocrat, the organization must certainly be a part of the S&P 500, an index tracking the 500 biggest companies recorded on the stock exchange. Moreover, the establishment failing a single dividend increment must wait 25 years to be returned to the listing.

Key Takeaways

  • Dividend Aristocrats are publicly traded corporations (a part of the S&P 500) with consistent dividend remittances to their shareholders for the past 25 years.
  • Investors can put their money in these stocks through either individual share buying or exchange-traded funds (ETFs).
  • The dividend aristocrats list incorporates Caterpillar, Cintas, Coca-Cola, Johnson & Johnson, McDonald’s, PepsiCo, Procter & Gamble, and S&P Global.
  • Its benefits include lesser price volatility, fixed income growth, and quicker portfolio building. Additionally, the disadvantages are lack of control, time-consuming firm growth, and usually unimaginative.

Dividend Aristocrats Explained

Dividend aristocrats might not inevitably possess the highest dividend income but are normally sustainable, stable, and have gradually increased over time. Moreover, they are appropriate for investors needing constant income to support their lifestyle and expenditure. Please note that they commonly entice pensioners to prioritize earnings above capital gains.

To clarify, new businesses are included every year after touching the 25-year mark. Also, their main objective in the portfolio is to keep a steady dividend payout ratioDividend Payout RatioThe dividend payout ratio is the ratio between the total amount of dividends paid (preferred and normal dividend) to the company's net income. Formula = Dividends/Net Incomeread more across the long duration. Furthermore, the stockholderStockholderA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares.read more can fund these stocks through online and conventional brokerage accounts or ETFs.

Young entrepreneurs must certainly add the best dividend aristocrats to their portfolios and exploit the potential of compound interest and time to reinvest the received dividends for portfolio growth. But, above all, investors must contemplate the financial goalsFinancial GoalsFinancial goals are targets set by an individual to achieve financial milestones or plans. In other words, they are financial objectives that an individual wishes to accomplish within a certain time frame.read more and role of these stocks and ensure the portfolio’s conformity with their long-term targets.

Please note that these investments must mirror the investor’s criteria for productive results. Above all, these stocks demonstrate firms in the stock marketStock MarketStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more with stable proceeds, robust fundamentals, and a solid background of profitProfitProfit refers to the earnings that an individual or business takes home after all the costs are paid. In economics, the term is associated with monetary gains. read more and development.

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How To Invest in Dividend Aristocrats

Please note that everal investors prefer to purchase funds holding these stocks to add them to their portfolios. While they can finance an individual enterprise, portfolio diversification is a better option through mutual fundsMutual FundsA mutual fund is a professionally managed investment product in which a pool of money from a group of investors is invested across assets such as equities, bonds, etcread more, ETFs, or unit investment trusts (UITs). Moreover, this helps them gain extensive exposure to several such firms.

As aforementioned, investors may invest in these stocks via online and traditional brokerages. Typically, they must purchase its total shares, but a few brokerages like Fidelity, Schwab, Robinhood, and M1 Finance also permit fractional share purchases.

Please note that purchasing dividend aristocrats ETF may assist the investors in easier and cheaper funding. Even when buying fractional sharesFractional SharesFractional share refers to just a part of equity stock which doesn't amount to a single stock unit. Such shares are acquired after stock splits, merger or acquisition, dividend reinvestments, capital gains and dollar-cost averaging. The shareholders cannot sell these stocks in the open market.read more, ETFs are more efficient and convenient. Also, the investors can purchase these stocks from a sole source rather than purchasing 65 stock slices per investmentInvestmentInvestments are typically assets bought at present with the expectation of higher returns in the future. Its consumption is foregone now for benefits that investors can reap from it later.read more.

Investors must thoroughly research before buying shares of these stocks in specific firms from the list. While these stocks surge dividends annually, they pay different amounts or raise dividends at unprecedented rates. Therefore, investors must keenly analyze the dividend history of all organizations.

Examples

So, here are a few examples of the same. 

Example#1

To clarify, the below-mentioned are the top 10 of the 65 firms registered on the S&P 500 dividend aristocrats list (as of October 7, 2021).

NameDividend Yield (till 12/2019)Years of continuous dividend growth
3M4.03%57
A.O. Smith1.98%27
Abbott Laboratories1.52%47
AbbVie4.77%47
Aflac3.33%37
Air Products & Chemicals2%37
Albemarle2.07%25
Amcor5%36
Archer Daniels Midland4.14%45
AT&T7%35

Example#2

The financial services firm S&P Global (SPGI) is among the much-talked-about US dividend aristocrats whose stocks have fallen 25% year to date. Therefore, it is the perfect opportunity for investors to purchase its shares at a 25.7 price-to-earnings ratio (P/E). This level has not been witnessed since early 2019.

Please note that it delivers investors an impressive dividend earning of 0.89% with consistent dividend growth for the last 48 years. In addition, it is only two years away from joining the Dividend Kings group. In other words, SPGI has a robust competitive edge in the rating business and comprehensive income sources through other channels.

Lastly, its business structure is asset-light, implicating low operational expenditures with high margins.

Advantages And Disadvantages of Dividend Aristocrats

To clarify, the following are the advantages and disadvantages of US dividend aristocrats:

Advantages

  1. They certainly display consistent, blue-chirp corporations with an extended history of vital funds and dividend increments.
  2. Additionally, these stocks offer fixed revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more growth.
  3. In other words, they tend to possess lower price volatility.
  4. Please note that dividend investing supporters prefer a credible income source.
  5. They are sufficiently stable for continuous annual dividend increments across decades, certainly even through recessions.
  6. Above all, it helps quicker portfolio building through reinvestmentReinvestmentReinvestment is the process of investing the returns received from investment in dividends, interests, or cash rewards to purchase additional shares and reinvesting the gains. Investors do not opt for cash benefits as they are reinvesting their profits in their portfolio.read more in these stocks.
  7. They certainly ensure successful long-term investing.
  8. Regarded as among the most famous investment strategiesInvestment StrategiesInvestment strategies assist investors in determining where and how to invest based on their expected return, risk appetite, corpus amount, holding period, retirement age, industry of choice, and so on.read more, they relish extensive consumer confidence.

Disadvantages

  1. To clarify, they are considered taxable earnings.
  2. In other words, they offer a lack of control over their distribution timing.
  3. Above all, these shares have underperformed S&P 500.
  4. Company development certainly consumes a lot of time.
  5. Additionally, they are subject to market fluctuations.
  6. Moreover, they are considered unimaginative.

Frequently Asked Questions (FAQs)

What Are the Best Dividend Aristocrats?


As of October 7, 2021, the best dividend aristocrats include (but are not limited to):
1. 3M
2. A.O. Smith
3. Abbott Laboratories
4. AbbVie
5. Aflac
6. Air Products u0026 Chemicals
7. Albemarle
8. Amcor
9. Archer Daniels Midland
10. ATu0026T
11. Atmos Energy
12. Automatic Data Processing
13. Becton, Dickinson u0026 Co.
14. Brown-Forman
15. Cardinal Health

Is There a Dividend Aristocrats ETF?

Yes, there are dividend aristocrats ETF denoting an exclusive listing of best dividend-paying organizations with successful disbursements to its shareholders throughout the last 25 years. Moreover, the income investors usually consider this investment rather than fund each firm individually.

How Many Dividend Aristocrats Are There?

There are currently 65 corporations on the Su0026P 500 dividend aristocrats list. Please note that it comprises Amcor, ATu0026T, Caterpillar, Coca-Cola, PepsiCo, Target, Wal-Mart stores, Stanley Works (Black u0026 Decker), Procter u0026 Gamble, and McDonald’s.

This article has been a guide to Dividend Aristocrats & its Definition. Here we explain the best dividend aristocrats list in the US (ETF & individual investments). You may also have a look at the following articles –