The Dividend Aristocrats is a stock investment strategy that has specific criteria which as of May 2023 has a select group of 66 S&P 500 stocks with 25 plus years of consecutive dividend increases. These are considered the ‘best of the best’ dividend growth stocks as their behavior illustrates, they have the intention the desire and ability to pay shareholders rising dividends year-after-year. This is a rare combination. The Dividend Aristocrats have a long history of outperforming the market.
That said it also much to do with market timing to really improve your portfolios performance, though this strategy helps alleviate much of that timing risk. You are looking for value and the trailing price-to-earnings ratio helps find undervalued, high-quality dividend stocks. An understanding of the business helps you also look at future opportunities and potential.
The requirements to be a Dividend Aristocrat are:
- Be in the S&P 500
- Have 25+ consecutive years of dividend increases
- Size: S&P 500 companies must have an unadjusted market capitalization of $14.6 billion or more.
- Profitability: S&P 500 companies must have been profitable in the most recent quarter and most four quarters in aggregate.
- Liquidity: The minimum trading activity for S&P 500 stocks is 250,000 shares monthly in the six months before the evaluation date. (Aristocrats additionally must have an average daily value traded of $5 million or more for three months prior to the index’s rebalancing date.)
As of May 22, 2023, there are 66 Dividend Aristocrats.
The Dividend Aristocrat list is updated annually, effective after the close of business on the last day of January. The reference date for these changes is the last day of December.
On January 24th, 2023, CH Robinson Worldwide (CHRW), Nordson (NDSN), and J.M. Smucker (SJM) were added to the Dividend Aristocrats with no deletions, leaving 68 Dividend Aristocrats. On February 7th, V.F. Corp. (VFC) announced a dividend cut. VFC will be excluded when S&P announces the 2024 changes.
The Dividend Aristocrats Index has beaten the market over the last 28 years, the rationale for this is as follows:
- On average they are higher-quality businesses that have made and stayed in the S&P 500.
- A company that pays dividends is likely to be generating earnings or cash flows so that it can pay dividends to shareholders. In short there is a history, Pre earnings, recovery or failing businesses and IPOs are excluded. This takes out the riskiest stocks.
- A business that has a goal and pays out consistent dividends has to be more selective with the growth projects it takes on. Simply a portion of its cash flows are being paid out as dividends. These capital allocation decisions add to shareholder value.
- It takes disciplined leadership and a solid business model to manage through those cycles, while continuing to increase the dividend every year.
- These companies are shareholder friendly, paying dividends to reward shareholders with cash payments.
S&P 500® DIVIDEND ARISTOCRATS
The list of all 68 Dividend Aristocrats gives you a concise list of all S&P 500 stocks with 25+ consecutive years of dividend increases (that also meet certain minimum size and liquidity requirements). The top 2 sectors by weight in the Dividend Aristocrats are Industrials and Consumer Staples. The Dividend Aristocrats Index is bent toward Consumer Staples and Industrials relative to the S&P 500.
Industrials and Consumer Staples make up ~40% of the Dividend Aristocrats Index, but less than 20% of the S&P 500. Significantly the US GDP relies on over 85% from the service industry, the consumer for growth. The Dividend Aristocrats Index is also significantly underweight the Information Technology sector, with a ~4% allocation compared with over 20% allocation within the S&P 500. These are some of the most volatile, boom and bust stocks. Great if you time them to get in, not so much if you buy and hold near the top of a growth cycle as the Nasdaq 100 will show you, or more extreme the ARKK technology fund.
In April 2023, the Dividend Aristocrats, as measured by the Dividend Aristocrats ETF (NOBL), registered a 2.1% total return. It outperformed the SPDR S&P 500 ETF (SPY) for the month.
- NOBL generated total returns of 2.1% in April 2023
- SPY generated total returns of 1.6% in April 2023
- Over the past 10 years, the S&P 500’s annualized total return of 12.6% slightly outpaced the Aristocrats’ 12.5% annualized performance.
- Over the past 12 months, the Aristocrats produced a total return of 1.7%, which handily beats the S&P 500’s -4.4% result.
Top 10 2023 Dividend Aristocrats Dividend Yields and Dividend Safety Scores™
Description as of APRIL 28, 2023
S&P 500® Dividend Aristocrats® measure the performance of S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company.
Since 1926, dividends have contributed nearly a third of total equity return while capital gains have contributed two-thirds. The S&P 500 Dividend Aristocrats index captures sustainable dividend income and capital appreciation potential, which are both key factors in investors’ total return expectations. Unlike indices that focus solely on high dividend yields, which typically hail from the financials and utilities sectors, the S&P 500 Dividend Aristocrats are well diversified across all sectors. The result is that the index
portfolio has both capital growth and dividend income characteristics.
The following methodology summary is provided for convenience purposes only.
• Universe. To be included in the S&P 500 Dividend Aristocrats, constituents must be members of the S&P 500.
• Constituent Selection. Constituents must have increased dividends every year for at least 25 consecutive years.
• Market Cap. Constituents must have a float-adjusted market cap of at least USD 3 billion as of the rebalancing reference date.
• Liquidity. Constituents must have an average daily value traded of at least USD 5 million for the three months prior to the rebalancing reference date.
• Diversification. Stock. At each rebalancing, the minimum number of constituents should be 40. Sector. Classification, using the Global Industry Classification Standard (GICS®), should not result in constituents in a particular GICS sector accounting for more than 30% of the index weight.