Investing

Dividend Aristocrats | Who Are They And How They Work


Dividend AristocratsDividend AristocratsDividend Aristocrats

If you’re interested in dividend investing, you’ve likely heard about the dividend aristocrats. These are a special breed of dividend paying stocks that have not only paid their dividends consistently over time, but have also increased their payouts as well.

If you’re interested in dividend growth investing, these are companies that need to be on your radar.

But who are the companies? How are they selected?

Here’s everything you need to know about the dividend aristocrats.

What Are The Dividend Aristocrats?

The Dividend Aristocrats are a group of S&P 500 companies that have increased their dividends consecutively for the last 25 years. The Dividend Aristocrats index was created and is maintained by the S&P Dow Jones Indices, which uses a specific methodology for determining which companies fit into the index.

The index is rebalanced each January. New companies may enter the index and others, that no longer qualify, are dropped.

To qualify, companies must also meet the following four criteria, which is specified in the above-linked methodology guide:

  • Be a member of the S&P 500.
  • Have increased total dividend per share amount every year for at least 25 consecutive years.
  • Have a minimum float-adjusted market capitalization (FMC) of at least US$ 3 billion as of the rebalancing reference date.
  • Have an average daily value traded (ADVT) of at least US$ 5 million for the three months prior to the rebalancing reference date.

Dividends must also be cash payments rather than issued in stock or as special dividends. Currently, the minimum number of stocks in the index is 40. In some cases, there may not be enough stocks that meet the annual criteria to be included in the index. When that happens, stocks that have paid dividends for 20 consecutive years are considered.

What Companies Are Included?

As of February 2020, there are 63 companies included in the index. From Wikipedia, they are:

Company

Ticker

3M Company

MMM

AbbVie Inc.

ABBV

Abbott Laboratories

ABT

AFLAC Inc.

AFL

Air Products and Chemicals Inc

APD

Albemarle Corp.

ALB

Amcor PLC

AMCR

A.O. Smith

AOS

Archer Daniels Midland

ADM

AT&T

ATT

Atmos Energy

ATO

Automatic Data Processing

ADP

Becton Dickenson

BDX

Brown-Forman

BF-B

Cardinal Health Inc.

CAH

Caterpillar Inc.

CAT

Chevron

CVX

Chubb Limited

CB

Cincinnati Financial Corp

CINF

Cintas Corp

CTAS

The Clorox Company

CLX

The Coca-Cola Company

KO

Colgate-Palmolive

CL

Consolidated Edison

ED

Dover Corp

DOV

Ecolab Inc

ECL

Emerson Electric

EMR

Essex Property Trust

ESS

Expeditors International of Washington

EXPD

Exxon Mobile Corp

XOM

Federal Realty Investment Trust

FRT

Franklin Resources

BEN

General Dynamics

GD

Genuine Parts Company

GPC

Hormel Foods Company

HRL

Illinois Tool Works

ITW

Johnson and Johnson

JNJ

Kimberly Clark

KMB

Legg and Platt

LEG

Linde PLC

LIN

Lowe’s Companies

LOW

McCormick and Company

MKC

McDonald’s

MCD

Medtronic

MDT

Nucor

NUE

PPG Industries

PPG

Pepsico

PEP

Pentair

PNR

People’s United Financial

PBCT

Proctor & Gamble

PG

Realty Income

O

Roper Technologies

ROP

Ross Stores

ROST

S&P Global

SPGI

Sherwin-Williams

SHW

Stanley Black & Decker

SWK

Sysco

SYY

T. Rowe Price

TROW

Target Corporation

TGT

United Technologies Corp

UTX

VF Corporation

VFC

W.W. Grainger

GWW

Walmart

WMT

Walgreens Boots Alliance

WBA

How To Invest In The Dividend Aristocrats?

One of the simplest ways to invest in the Dividend Aristocrats is through a fund that mimics index, which has the ticker symbol SPDAUDP.

The index is made up of 11 sectors:

Dividend Aristocrat IndexDividend Aristocrat IndexDividend Aristocrat Index

Source: https://eu.spindices.com/indices/strategy/sp-500-dividend-aristocrats

Here are several funds and ETFs that track the Dividend Aristocrat index:

  • ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
  • iShares Selected Dividend Index (DVY)
  • SPDR S&P Dividend (SDY)

An alternative approach is to simply own all companies in the index directly. That may seem challenging, but using a service like M1 Finance (which offers commission-free investing) makes it really easy. A benefit to this is that you can easily equal-weight the index, versus capitalization weight which most funds use.

You might prefer this option because equal-weighted indexes have a tendency to outperform

Final Thoughts

Fundamental and technical analysis both help in deciding which stocks are a good choice to invest in. If you’ve narrowed your choice down to only those in the Dividend Aristocrats index, you have less work to do when researching potential candidates.

Good companies are generally those that have positive income, growing revenues and earnings, and good management. But your research shouldn’t stop there. If researching a stock seems intimidating, going with the SPDAUDP index will ensure diversification across all of the Dividend Aristocrats stocks.

The post Dividend Aristocrats | Who Are They And How They Work appeared first on The College Investor.

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