Dividend Aristocrats: What They Are and Why They Matter

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What Are Dividend Aristocrats?

The Dividend Aristocrats are an unofficial but elite collection of stocks on the S&P 500, the benchmark index tracking the 500 largest U.S.-based companies. The list changes as former Aristocrats fall from favor and new ones enter stock stardom. 

All, however, are known for longevity, stability, income generation, appreciation and market outperformance. 

Current Dividend Aristocrats List

There are currently 69 stocks that meet the high standards of the Dividend Aristocrats, which have three qualifying criteria:

• Must be on the S&P 500
• Must have at least 25 consecutive years of dividend increases
• Must meet specific liquidity and size minimums

Only the biggest, most stable and best-run companies can afford to increase their dividends every year for a quarter-century uninterrupted despite recessions, regulatory overhauls, political and social upheaval, global crises, technological advances, new competitors and changes in consumer culture. Most Dividend Aristocrats have increased their dividends for 40 consecutive years or more. 

Here are some of the top brands that grace the list.

How to Invest in Dividend Aristocrats

Investors fawn over the Dividend Aristocrats because they provide reliable and ever-growing income but also for their constrained volatility, sustained appreciation, and resistance to market downturns.

Direct Stock Investments

Some investors hand-pick their favorite Aristocrats and buy them in whatever proportions their strategy requires. However, the danger with stock-picking lies in shackling your fortunes to individual companies that could underperform, fail, unexpectedly slash their dividend, be engulfed by a scandal or be rendered obsolete by a new competitor or technology. However, those who pick correctly won’t have their gains watered down by underperformers.

Dividend Aristocrats ETFs

Others choose ETFs that expose them to all the Dividend Aristocrats, like the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). They get immediate diversification among some of the most reliable stocks in the world. However, their fortunes rise or fall with the performance of the entire lot.

Risks of Investing in Dividend Aristocrats

The comfort of stability comes with the tradeoff of slow growth — after all, giants like Coca-Cola, Johnson & Johnson and McDonald’s simply don’t have much more room to grow. Also, an overreliance on dividends can breed complacency toward income that might not always be there.

Investors in pursuit of rapid appreciation, even if it means enduring greater volatility, might instead consider companies that reinvest their profits in pursuit of fast growth to keep expanding as their stock appreciates. They usually pay only nominal dividends or no dividends at all.

Tips for Building a Portfolio with Dividend Aristocrats

The simplest and most direct route to diversification is to buy shares in NOBL, the only ETF that exposes you to the entire Dividend Aristocrats lineup. With partial-share investing, a single dollar can buy you equity ownership in all of them at once.

Those who choose to build their own Dividend Aristocrat all-star team would be wise to spread their bets across several sectors to hedge against a downturn in one and then closely monitor company performance and make adjustments when needed. 

In both cases, reinvesting dividends instead of taking them as payouts can dramatically compound your gains over time. 

The Dividend Aristocrats are a collection of the country’s largest, most stable, best-run and longest-performing stocks. Their annual dividend increases over at least 25 years provide reliable income — but more importantly, those distributions represent a level of nearly unrivaled permanence and steadiness.

As with any investment, consult an advisor, conduct thorough research and build a portfolio with long-term goals in mind.

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