What Are Dividend Aristocrats?

On 2011/03/25, in Blog, by Miranda Marquit

If you are relatively new to dividend investing, there is a good chance you might be wondering what, exactly, “dividend aristocrats” are. It is clear from the term that these are dividend stocks considered to be in a “higher class” when compared to other companies that pay dividends.

Dividend Aristocrats Index

Interestingly, dividend aristocrats are those listed on a special index. This index, published by Standard and Poor’s is called the Dividend Aristocrats Index. The main characteristic of this list is that those listed on it have consistently increased stocks over the course of the last 25 years. You are not going to find dividend stocks with yields in the double digits. In fact, you’ll be hard pressed to find very many dividend aristocrats with yields above 4% (although they do exist).

Historically, this index has outperformed the S&P 500. A lot of it likely has to do with the solid business models that many companies on the index have, as well as the fact that these businesses often feature safe business decisions. Also, you might notice that the list contains insurance conglomerates, health care products companies and consumer products.

Letting Dividend Aristocrats Guide You

If you look over the dividend aristocrats list, you might discover that it’s kind of a boring list. However, you will also notice that some of these companies have been paying out dividends for decades. Coca-Cola has increased its dividend every year for the last 48 years.

The aristocrats can offer some insight into which stocks are likely to weather a recession. Even though these stocks might see setbacks in stock price, along with every other company, during a stock market crash or a recession, these companies are also likely to recover. So they might be good choices when the market is down – and you can get more shares for less.

If you are building an income portfolio using dividend stocks, dividend aristocrats can be attractive if you are looking for a source of income that is relatively stable. While dividends are not guaranteed, there is nevertheless a good chance that your dividends will remain the same (and very likely head higher) if you invest in dividend aristocrats.

Getting Started

If you want to invest in dividend aristocrats, it’s fairly easy to get started. Many of these stocks have programs that allow you to use dollar cost averaging to buy portions of shares. For those without a large chunk of capital to use, this can be very helpful. You can start out slow, and gradually build up your portfolio.


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