In the world of dividend investing, you will come across certain terms that probably won’t make sense, especially if you’re new to the game. One of those terms that’s being thrown here and there is Dividend Aristocrats.
What is a Dividend Aristocrat?
The term “Dividend Aristocrat” is a label for companies who have consistently paid dividends to their shareholders, and have raised those dividends for at least 25 straight years. That company must also be a member of the S&P 500, and some investors add other factors such as market cap, size and liquidity.
Dividend Aristocrats are usually large and established companies that doesn’t experience superfast growth unlike small cap tech companies. And they are largely recession proof, enjoying steady profits and, more importantly, increasing dividends in good or bad times. Since they are all those things Dividend Aristocrats typically have smaller growth in order to stay stable, and to compensate that, they reward their shareholders with regular increasing dividends.
Different analysts have different ways in evaluating Dividend Aristocrats. They look at the company’s stock prices, resilience and expectations, and of course, the dividends. This is why the list for Dividend Aristocrats from different sources will always be changing.
Examples of Dividend Aristocrats
Some members of the Dividend Aristocrats are probably familiar to you. For 2021, according to Forbes, the Dividend Aristocrats list included Walgreens Boots Alliance (WBA), AbbVie (ABBV), IBM (IBM), 3M (MMM), Caterpillar (CAT) and AT&T (T). If you’ve seen my recent article, AT&T is going to be dropped out of the list because of their planned dividend cut in mid-2022. If you haven’t read that yet, here it is.
Since I mentioned AT&T dropping from that list, yes, a company can be dropped from the Dividend Aristocrat list if they fail any of the criteria mentioned earlier. But the most common reasons for being dropped out is a dividend cut and dropping out of the S&P 500.
There are two ways to track the performance of these stocks, and it’s through the S&P Dividend Aristocrats index and the S&P High-Yield Dividend Aristocrats index. So check them out when you get the chance.
I’m going to link below different sources for a list of Dividend Aristocrats for you to look at.
- Forbes ► https://www.forbes.com/advisor/investing/dividend-aristocrats/
- MarketBeat ► https://www.marketbeat.com/dividends/aristocrats/
- Yahoo! News ► https://news.yahoo.com/2021s-dividend-aristocrats-list-65-192002570.html
- Wikipedia ► https://en.wikipedia.org/wiki/S%26P_500_Dividend_Aristocrats
Advantages and Disadvantages of Dividend Aristocrats
You just can’t have it all. If you look closely enough, there are some advantage and disadvantages with investing in Dividend Aristocrats.
Remember that a company is paying dividends for a number of reasons. Some of them are obvious, some are not. If a company pays an increasing dividend, then that is the ideal investment for us investors.
However, dividends are just a portion of the company’s profits that’s being distributed to its shareholders. This means, this money isn’t being reinvested back in the business. If the company has a high percentage of paying its profits to shareholders, that kind of tells you that the company isn’t interested in reinvesting back into the business.
While that may be too much of analysis, Dividend Aristocrats provide stable and predictable income for shareholders, and being part of the list is a good signal of strong financials, in general.
Building your Portfolio with Dividend Aristocrats
If you’re new to dividend investing and have small to no knowledge of picking out stocks, looking at Dividend Aristocrats is a good place to start. Some of these companies are household names and the familiarity will help you make an informed decision.
Of course, looking at their payout ratio, their dividend yield and amount, and their dividend track record should always be part of your due diligence.
If you’ve been following my progress, you’ll know that I own shares of AT&T (T) because of their dividend yield close to 7%. I used to own Coca-Cola (KO) back when I first started my dividend investing journey, but closed my positions a couple of months after because I really needed money at that time… unfortunately.
Some of the common Dividend Aristocrats that I see other investors have on their portfolio is Exxon Mobil (XOM), Chevron (CVX), AbbVie (AABV), Kimberly-Clark (KMB), AT&T (T), Coca-Cola (KO), 3M (MMM), PepsiCo (PEP) and Johnson & Johnson (JNJ).
This is not financial advise anyway. This is what I’ve seen most investors have in their portfolio, so it’s always a good step to due your own due diligence when investing in Dividend Aristocrats. They may pay stable income for us, but not all companies in the list is aligned with the strategies or goals of individual investors.