Written by: Paul Werlin, President, Human Capital Resources, Inc.
There’s a well-known secret on Wall Street: one of the smartest ways to grow your income and build wealth is by owning stock in high-quality companies that have a long history of paying solid dividends. Over the years, a select group of US companies have earned a reputation for doing just that—returning cash to investors in the form of dividends year after year. These note-worthy companies have been called “Dividend Aristocrats.”
Dividend Aristocrats are companies in the S&P 500 that have paid and increased their base dividend every year for at least 25 consecutive years. S&P Dow Jones Indices, which owns the S&P 500 index, reviews the list of qualifying companies every year and updates the list of companies that have Dividend Aristocrat status. Their impressive track records of dividend growth make Dividend Aristocrats some of the most attractive dividend stocks to own.
Dividend Aristocrats List
As of July 1, 2020, there were 66 Dividend Aristocrats. Companies like 3M, Coke, Johnson & Johnson, Target, McDonalds and Lowes, just to name a few on the list. You can access the full list, sorted by how many consecutive years each has increased its dividend.
Historically speaking, Dividend Aristocrats, have proven to be good investments over the years, but it also depends on what you're looking for from your investments. When you invest for dividends you want a reliable source of income, so companies that have managed to increase that dividend for at least 25 years can be reliable investment opportunities. It takes a combination of great products or services, strong competitive advantages and talented management to build that kind of a track record.
Beyond the qualifying criteria to make the Dividend Aristocrats Index, these companies also tend to share other characteristics. They're often leaders in their industries with competitive advantages, operations that generate strong and reliable cash flow, and track records of generating impressive annual returns over the long term.
For investors that want diversification and don’t want to pick just one or even a few of these stocks, there’s the ProShares S&P 500 Dividend Aristocrats ETF (NYSEMKT:NOBL). It’s a low-cost index fund that makes it simple to own the full Dividend Aristocrats list. In addition to capturing the returns of the Dividend Aristocrats, investors in the Dividend Aristocrats ETF also benefit from lower volatility. As a group, Dividend Aristocrats have proven to be much less volatile than the average stock, particularly during stock market downturns and recessions. But always bear in mind that these are still stocks and can go up or down in value. But investors looking for a simple, low-cost way to invest in the entire Dividend Aristocrats universe should give this ETF a look.
Overall, Dividend Aristocrats can provide the safety of investing in some of the strongest and best managed companies in the world. And with money market and bank rates at historically low interest rates, their long-term track record of solid and increasing dividends give investors a great source of income and the opportunity for long term appreciation.