If you’re on the hunt for reliable dividend stocks, you’ve likely heard of the Dividend Aristocrats. These are top-quality dividend-payers—often regarded as ideal picks for novice dividend investors.
Whether investing in Dividend Aristocrats is right for you, though, depends on your investing goals and expectations. Read on to learn all about Dividend Aristocrats, including who they are, which have the highest yields, whether you can buy them in funds, and—most importantly— how to decide if these dividend stocks have a role to play in your portfolio.
Who Are The Dividend Aristocrats?
Officially, the Dividend Aristocrats are members of the S&P 500 Dividend Aristocrats Index. The index has two primary requirements:
- Aristocrats must be S&P 500 companies.
- Aristocrats must have increased their annual dividend payments in each of the prior 25 years.
Together, these two qualifications are indicators of the stock’s quality and the reliability of its dividend.
Investors use the word “quality” to describe good stocks, but what does that mean, exactly? Generally, a quality stock has some level of predictability. It’s a company that delivers slow-and-steady growth, with volatility that’s the same or less than the overall market. Conversely, less predictable stocks can outpace market movements, both up and down.
There are different ways to identify quality in a stock. You might look at the company’s debt service requirements relative to its cash flow. You’d probably want to know what the company’s competitive advantage is and how it drives ongoing demand for its products and services. And you’d need to understand the company’s history, including how it has performed in recessions and bear markets.
You can also check a stock’s inclusion in quality-related indices, like the S&P 500 or the Dow Jones Industrial Average. Dividend Aristocrats are all in the S&P 500, which implies a certain level of quality.
As described on the official index factsheet, S&P 500 companies must meet thresholds for size, profitability and liquidity. Specifically:
- 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.)
From the universe of companies that meet these requirements, the index selects the top 500 in the leading sectors of the U.S. economy. As a result, S&P 500 companies—and all Dividend Aristocrats—are among the best of the best.
A 25-year track record of dividend increases is no small feat. Any 25-year period in history is marred with recession, political crisis, changing consumer preferences and stock market volatility. It takes disciplined leadership and a solid business model to manage through those cycles, while continuing to increase the dividend every year.
Currently, only 67 companies carry the elite Aristocrat status. As you might guess, once a company achieves this milestone, the leadership team is not likely to let it go easily.
That’s not to say a Dividend Aristocrat couldn’t skip an increase or lower its dividend. Former Aristocrat AT&T had no dividend increase in 2021 and then cut its 2022 dividend by nearly 50%. The changes followed the spinoff of the company’s WarnerMedia investment. AT&T was dropped from the Aristocrats index last year.
Fortunately, these scenarios don’t happen that often. Aristocrats generally resist losing their status, because the change isn’t well-received by investors.
With inflation at a 40-year high running at more than 6.5%, dividend stocks offer one of the best ways to beat inflation and generate a dependable income stream. Click here to download “Five Dividend Stocks To Beat Inflation,” a special report from Forbes’ dividend expert, John Dobosz.
When Is The Dividend Aristocrat List Updated?
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.
As reported by S&P Dow Jones Indices, the 2023 additions, effective February 1, are Nordson, CH Robinson Worldwide and J. M. Smucker.
Note that if a company loses its S&P 500 status—which can happen anytime throughout the year—it will get dropped from the Aristocrats list at the same time.
Dividend Aristocrats With The Highest Yield
The table below shows the top 10 highest-yielding Dividend Aristocrats, followed by a brief introduction of each company.
VF designs, produces and sells apparel and footwear for men and women. The company’s best-known brands include North Face, Timberland, Vans, JanSport and Dickies.
MarketBeat reports that VF has increased its annual dividend payments for 49 consecutive years. The annual dividend currently sits at $2.04 per share.
The company’s strong dividend yield, unfortunately, is mainly a result of a falling stock price. VF trades for about $30 per share, down from about $65 per share in January 2022.
Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance operates retail pharmacy stores in the U.S. and abroad. The company has raised its dividend for 47 years in a row. This includes the track record of predecessor company Walgreen. WBA’s 2022 shareholder payments totaled $1.915 per share, up from $1.89 per share in the prior year.
3M is a diversified manufacturer of industrial chemical and adhesives, reflective signage, wound care products, water filtration solutions, bandages and home cleaning products, among other things.
3M has paid dividends for 100 years and has raised its payout for the last 64 consecutive years. In 2022, 3M paid quarterly dividends totaling $5.96, up $0.04 from the prior year.
Even at low levels, inflation destroys wealth, but at current rates it’s downright deadly. Defend yourself with dividend stocks that raise their payouts faster than inflation. Click here to download “Five Dividend Stocks to Beat Inflation,” a special report from Forbes’ dividend expert, John Dobosz.
International Business Machines (IBM)
IBM sells software, technology consulting services and server and data storage solutions. IBM also has a financing division that provides capital for technology initiatives.
The tech company has paid regular dividends since 1916, pushing through increases to those payouts in each of the last 27 years. As reported by Nasdaq, IBM’s 2022 dividends totaled $6.59 per share. This marked a $0.04 increase from the prior-year total of $6.55.
Realty Income (O)
Realty Income is a real estate investment trust (REIT) that owns and leases roughly 6,500 commercial properties in the U.S., U.K. and Spain.
Realty Income pays a monthly dividend, which is currently $0.2485 per share. The real estate company raised that payout by $0.005 four times between February, 2022 and February, 2023. The total payout last year was $2.967.
Leggett & Platt (LEG)
Leggett & Platt manufactures engineered components used in mattresses, automotive seating, sofas and furniture.
The company has been raising its annual dividend for 51 years, dating back to 1971. In 2022, shareholders received total quarterly payments of $1.74, up from $1.66 in the prior year.
T. Rowe Price Group (TROW)
T. Rowe Price is an investment manager that runs equity and fixed income mutual funds.
As reported by MarketBeat, T. Rowe Price has increased its dividend for 37 consecutive years. The financial company’s 2022 quarterly dividends totaled $4.80 per share. In 2021, T. Rowe Price paid out regular dividends of $4.32 per share, but also declared a special dividend of $3 per share.
Essex Property (ESS)
Essex Property is a REIT that specializes in residential apartment communities in Southern California, San Francisco and Seattle.
The REIT has raised its dividend for 29 years and counting. Its shareholder payments totaled $8.69 in 2022, up $0.34 from $8.35 in 2021. The current annual dividend is $8.80 per share.
Amcor PLC (AMCR)
Amcor makes packaging products used in the food and beverage and personal care industries.
The manufacturer has raised its dividend for 40 years in a row. The current yield comes from 2022 annual payments totaling $0.4825 per share. This is up $0.01 from $0.4725 per share in the prior year.
Abbvie is a pharmaceutical company. Its most successful therapies treat autoimmune diseases, plaque psoriasis and rheumatoid arthritis. Abbvie also owns Allergan, which makes Botox.
Abbvie has a 51-year track record of raising its dividend payments. The quarterly payments in 2022 added up to $5.64 per share vs. $5.20 per share in the prior year. Based on the most recent quarterly dividend of $1.48, shareholders are on track to collect $5.92 per share in 2023.
In case the highest-yielding Aristocrats don’t quite suit your fancy, below is the full list of all 67 Aristocrats, including the new additions for 2023. These are listed from highest to lowest yield.
Are There Dividend Aristocrats Index Funds?
Yes, there is one Dividend Aristocrats exchange-traded fund (ETF). ProShares S&P 500 Dividend Aristocrats ETF (BATS: NOBL) invests in the index with a full replication strategy—meaning the fund owns all 67 stocks, rather than a representative sample. NOBL has an expense ratio of 0.35% and a distribution yield of 2.7%.
You might run across other funds that have “aristocrats” in the name. Pay close attention to the investing approach, as there are other Aristocrat indices with different standards. ProShares S&P Technology Dividend Aristocrats ETF (BATS: TDV) is an example. The underlying index includes tech companies that have raised their dividends for seven years or more.
Are Dividend Aristocrats Good Investments?
The qualities that define a good investment are always relative to your expectations. The two total return comparisons between the S&P 500 and the Dividend Aristocrats below highlight this. As a reminder, total return accounts for stock price appreciation and dividend income.
- 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.
The S&P 500 beats out the Aristocrats by a hair over longer time frames. But it’s tough to keep pace with those strong dividend-payers during bear markets. The ongoing, rising dividend payments prop up the Aristocrats’ total return, even as share prices fall.
Many investors find it comforting to earn dividend income during sluggish markets. Often, dividend income is the only return you’re earning in those tough times. The thing is, you may give up some return later as a result. Only you can evaluate that trade-off.
To visualize how that trade-off works over different timeframes, try the charting comparison tool at spgglobal.com.
At the end of the day, Dividend Aristocrats are good investments if you’re seeking modest appreciation, lower downside risk and reliable, rising dividend income. Investing in Aristocrats doesn’t eliminate the risk that your dividend income will decline, but it does push that risk lower. The extra step of diversifying into multiple Aristocrats—individually or through a fund— further protects your future dividend income.
Five Top Dividend Stocks to Beat Inflation
Many investors may not realize that since 1930, dividends have provided 40% of the stock markets total returns. And what is even lesser known is its outsized impact is even greater during inflationary years, an impressive 54% of shareholder gains. If you’re looking to add high quality dividend stocks to hedge against inflation, Forbes’ investment team has found 5 companies with strong fundamentals to keep growing when prices are surging. Click here to download the report.