Dividend Aristocrats: What Sets Them Apart from Other Stocks?

As a stock trader, potential returns can far exceed those of other investment vehicles, but they come with an added dose of risk. Many investors aim to minimize these risks by focusing their portfolios on companies that consistently pay dividends, generating additional passive income. Among publicly traded companies that share profits with shareholders, there’s an elite, almost “blue blood” group that has made dividend payments a cornerstone of their market appeal. In this article, we’ll explore what “dividend aristocrats” are and how they differ from other companies listed on Wall Street and other exchanges worldwide.

Who Qualifies as a Dividend Aristocrat?

Companies go public to raise additional capital for growth. Many allocate a portion of their profits to reward shareholders for their trust in the form of dividends. However, the decision to pay dividends is unique to each company, often dependent on the economic climate and investment plans. Picture this: a select group of companies so consistent in their generosity that they’ve been increasing their dividend payouts year after year for decades. These aren’t just any run-of-the-mill stocks. They’re the crème de la crème of Wall Street, the darlings of income-seeking investors worldwide.

But what criteria must be met to join the exclusive club of dividend aristocrats?

While there’s no rigid definition, a dividend aristocrat is generally considered to be:

A Wall Street company, preferably a member of the S&P 500 index
A firm that has increased or at least maintained dividend payments for 25 consecutive years
A stock with an average daily trading volume exceeding $5 million
A company with a market cap exceeding $3 billion

Unsurprisingly, only a few companies meet all these criteria. Those that do are typically large enterprises with established market positions. Examples include McDonald’s (MCD), Walmart (WMT), Coca-Cola (KO), and Procter & Gamble (PG). However, investors seeking opportunities for their dividend aristocrat portfolios often apply looser rules, looking at companies in various sectors and markets, focusing primarily on the longest consecutive dividend payment history.

The Appeal of Dividend Aristocrats

Focusing on companies that consistently pay dividends offers several significant advantages. Building such a portfolio is particularly recommended for long-term investors, and retirement planners:

Stable Passive Income: Dividend aristocrats provide a steady stream of additional income.
Financial Strength: These companies have demonstrated the ability to maintain and increase dividends over extended periods, indicating robust finances and stable cash flows.
Lower Volatility: Unlike other stocks and the broader market, aristocrats are typically less volatile, offering greater stability during economic downturns.
Compounding Potential: Dividends can be reinvested in the company’s stock, potentially increasing long-term returns and the number of shares eligible for future dividends.

Dividend aristocrats have become so popular that retail investors can now invest in ETFs tracking the S&P 500 Dividend Aristocrats Index. One such fund is the ProShares S&P 500 Dividend Aristocrats (NOBL), which has seen a 10% increase in 2024.

Century-Old Dividend Payers

Within the elite group of dividend aristocrats, a handful of companies stand out for their century-long commitment to sharing profits with shareholders. These include:

1877 - Stanley Black & Decker
1882 - Exxon Mobil Corporation
1885 - Consolidated Edison
1885 - Eli Lilly
1885 - UGI Corp
1887 - Johnson Controls
1891 - Procter & Gamble
1893 - Coca-Cola
1895 - Colgate-Palmolive
1898 - General Mills
1899 - PPG
1901 - Church & Dwight
1902 - Chubb Corp
1904 - DuPont
1910 - Edison International

For investors seeking reliable and stable returns in often volatile stock markets, considering dividend aristocrats in your portfolio could be wise. In the long run, your portfolio will likely thank you.