If You’re Wondering “What Are Dividend Aristocrats?” You’re Likely Referring to Blue Chip Companies With Reliable Returns for the Last 25 Years.
Dividend Aristocrats are companies that have raised their dividend rates at least once every year, for a minimum of the previous 25 years. But you might be wondering, what are Dividend Aristocrats worth to my investing portfolio?
What Are Dividend Aristocrats?
Typically, a so-called Dividend Aristocrat is, by its very nature, a large and relatively stable blue-chip company with a healthy balance sheet. Dividend Aristocrats are considered the “gold standard” for dividend-generating stocks and, as such, income investors seek them out.
Income investors seeking safety and a steady stream of income gravitate toward Dividend Aristocrats. However, these stocks can’t be bought and blindly maintained on automatic pilot, because extreme events can cause even the aristocrats to fall out of favor.
For example, during the Great Recession of 2008-09, many financial institutions once considered to be rock-solid dividend plays were dumped from the list. If a company fails to increase its dividends from the previous year, it is removed.
This is what happened during the recent economic downturn and financial meltdown, when brand-name companies ordinarily associated with dividend stability were cut, notably Bank of America.
How Investing in Dividend Aristocrats Works
Dividend Aristocrats constitute the S&P High Yield Dividend Aristocrats Index, an official index of the 50 highest dividend stocks in the S&P Composite 1500.
Investors can track the performance of the Dividend Aristocrats online, via the Standard & Poor’s Dividend Aristocrats page. Also, an Exchange Traded Fund (ETF) exists—the SPDR S&P Dividend ETF—that’s designed to mirror the behavior of the S&P Dividend Aristocrats Index. It trades under the symbol SDY.
Investing in aDividend Aristocrats ETF provides broad exposure to an exclusive group of high-quality, blue-chip stocks. Many of the companies on the list are household names with storied pasts and ubiquitous brands, such as McDonald’s (MCD) and Coca-Cola (KO).
The current Dividend Aristocrats reside in multiple different industries including the consumer market, healthcare, industrials, etc. Since these companies are established, large, and well-known, they usually produce higher profit yields. Thus, shareholders expect these companies to continue to increase dividend payments annually.
What Are Dividend Aristocrats Worth To Your Investing Portfolio?
Why invest in Dividend Aristocrats? Simple. They are unlikely to not increase dividend payments. Why?
First, because they want to keep the title of “Dividend Aristocrat” and maintain their reputations.
Second, they are unlikely to experience severe loss since they are firmly established and maintain a strong grip on their respective markets. Therefore, if they aren’t losing money (they are most likely increasing profits), it would be foolish of them not to increase the amount of dividend payments.
So, what are Dividend Aristocrats worth to your portfolio? They’re a great way to add security. In the event that your portfolio experienced detrimental loss, you would at least still have some income in the form of dividend payments.
And any level of investor, experienced or inexperienced, can easily manage investing in a Dividend Aristocrat. Overall, Dividend Aristocrats are a smart and secure way for investors to generate profit and diversify their portfolios.