A Dividend Aristocrat is a company that is part of the S&P 500 index that not only consistently pays dividends, but regularly increases the size of its payouts. The S&P 500 index tracks the performance of the 500 largest companies listed on stock exchanges in the U.S.
You can think of the Dividend Aristocrats as part of an elite group that also offers a high dividend yield, which is a ratio that shows how much a company pays out in dividends relative to its stock price annually.
In this article, we’ll walk through understanding the Dividend Aristocrats, examples of Dividend Aristocrats, the pros and cons of dividend stocks, and how they differ from the Dividend Kings.
Understanding the Dividend Aristocrats
There are a few hallmarks that govern the S&P 500 Dividend Aristocrats:
- Stability: The Dividend Aristocrats are known for their company strength, even during difficult economic cycles. They tend to rake in profits and keep paying dividends even while other companies struggle in downed markets.
- Increased dividends: The Dividend Aristocrats showcase dividend increases, even during poor economic cycles. In fact, the hallmark of the Dividend Aristocrats is that they have shown dividend increases for at least 25 consecutive years.
- Market capitalization: In order to belong to this elite category, a Dividend Aristocrat must have a market capitalization of at least $3 billion.
- Daily trading volume: The companies on the Dividend Aristocrats Index also have an average daily trading volume of at least $5 million in transactions for every trailing three-month period at each quarterly rebalancing date.
Examples of Dividend Aristocrats
Let’s take a look at some Dividend Aristocrats that show consistent dividend increases and fall into the high society class of dividend stocks and a quick description of each company.
AbbVie Inc., headquartered in North Chicago, Illinois, develops and sells pharmaceuticals for health care worldwide, including HUMIRA, SKYRIZI, RINVOQ, IMBRUVICA, VENCLEXTA, MAVYRET, CREON, Linzess/Constella, Lupron, ORILISSA, Duopa and Duodopa, Lumigan/Ganfort, Ubrelvy, Alphagan/ Combigan and Restasis.
Albemarle Corporation, headquartered in Charlotte, North Carolina, develops, manufactures, and markets chemicals for consumer electronics, petroleum refining, utilities, packaging, construction, transportation, pharmaceuticals, crop production, and more. It creates lithium compounds, bromine and bromine-based businesses, and clean fuel technologies.
Amcor plc, headquartered in Zurich, Switzerland, produces packaging products in Europe, North America, Latin America, Africa, and the Asia Pacific regions. The company makes flexible and film packaging products for foods and beverages and medical and pharmaceutical products, produce, snack food, personal care, and other industries. The company produces a range of soft drinks, juices, milk-based beverages, spirits, and beer as well as condiments and plastic caps for various purposes.
Archer-Daniels-Midland Company, headquartered in Chicago, deals in agricultural commodities, products, and ingredients worldwide, including oilseeds, corn, wheat, milo, oats, and barley. The company also creates vegetable oils and protein meals, crude vegetable oils, salad oils, margarine, and shortening. It also creates partially refined oils to produce biodiesel and glycols as well as peanuts, peanut-derived ingredients, and cotton cellulose pulp, including sweeteners, corn, wheat starches, syrup, glucose, wheat flour, and dextrose. It produces ethyl alcohol and ethanol, corn gluten feed and meal, natural flavors, and extracts.
AT&T Inc., headquartered in Dallas, offers telecommunications, media, and technology services all over the world, including wireless voice and data communications services, wireless computing devices, data, voice, security, cloud solutions, and more. It offers customer premises equipment for multinational corporations the government and businesses. In addition to broadband fiber and legacy telephone voice communication services, the company also distributes feature films, television, and gaming through its Werner brand.
Caterpillar Inc., headquartered in Deerfield, Illinois, manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide. It manufactures asphalt pavers, backhoe loaders, compactors, cold planers, compact track, multi-terrain loaders, excavators, and more. The company also manufactures rotary drills, hard rock vehicles, track-type tractors, and other items, including engines, generator sets, integrated systems and solutions, turbines, and turbine-related services.
Chevron Corporation, based in San Ramon, California, explores and develops energy and chemicals operations worldwide through crude oil and natural gas and refines crude oil into petroleum products. The company creates products by pipeline, marine vessel, motor equipment, and rail car and manufactures and markets commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives.
Exxon Mobil Corporation, headquartered in Irving, Texas, explores and produces crude oil and natural gas worldwide. It also manufactures crude oil, natural gas, petroleum products, petrochemicals, and other specialty products and manufactures petrochemicals as well as biofuels.
International Business Machines Corporation, headquartered in Arming, New York, offers hybrid cloud platform and software solutions, open-source solutions, data, and artificial intelligence solutions as well as security services and transaction processing software, business transformation services, business process design and operations, data and analytics and system integration services. It also offers on-premises and cloud-based server and storage solutions, support services, and solutions for hybrid cloud infrastructure and working capital financing services.
Johnson & Johnson, headquartered in New Brunswick, New Jersey, researches, develops, manufactures, and sells health care products, including in the areas of baby care, oral care, beauty, over-the-counter pharmaceuticals, women's health and wound care. The company also offers products for immunology, infectious diseases, neuroscience, oncology, pulmonary hypertension, and cardiovascular and metabolic diseases, as well as in the areas of orthopedic, surgery, cardiovascular, eye health, and more.
Stanley Black & Decker Inc., headquartered in New Britain, Connecticut, operates tools, storage, and industrial businesses worldwide, including power tools and equipment, pneumatic tools and fasteners, corded and cordless electric power tools as well as garden products and related accessories. It also provides engineered fastening systems and products in various industries as well as items for large and small diameter pipelines through the oil and natural gas pipeline industry and other industrial customers.
This is just a selection of some of the most well-known Dividend Aristocrats, but let’s take a look at a few more:
Advantages and Disadvantages of the Dividend Aristocrats
Why might you want to dip your toes into this particular avenue of this special area of the S&P 500?
First, the advantages:
- Dividend growth: You can usually depend on the Dividend Aristocrats to not only deliver consistent dividends, but those dividends usually grow every year.
- Cash flow: One of the most prevalent reasons that people invest in dividend stocks involves taking advantage of the consistent cash flow. If you want to add Dividend Aristocrats to your portfolio as part of a plan to live off of passive income, it’s a good possibility that your plan could even carry you through retirement.
- Hedge against volatility: As mentioned above, the Dividend Aristocrats represent solid companies that aren’t rocked by the whims of the stock market, including when it plunges into negative territory. The Dividend Aristocrats can offer a great hedge against imperfect situations.
We’ve painted a rosy picture of the dividend stocks aristocrats, but you can point to some downsides, which include:
- Taxes: You’ll pay taxes on dividends, so don’t think you’re getting free money. Dividends can fall into either “ordinary” or “qualified” categories, and all ordinary dividends are taxable as income. Qualified dividends receive a lower capital gains rate.
- Relatively low dividend yields and dividend increases: Make no mistake, you’re not raking in $1 million on dividends unless you have substantial investments in the Dividend Aristocrats. For example, there are only a handful of Aristocrats that even offer a 3% yield.
Dividend Aristocrats vs. Dividend Kings
What’s the difference between Dividend Aristocrats and Dividend Kings? It’s a great question because it’s easy to conflate the two. The major difference is timing. That is, Dividend Kings must have increased their dividends for at least 50 consecutive years, but companies can fall in the Dividend Aristocrats category if they have increased their dividends over the past 25 years.
If you’re in the market for growth stocks, don’t look too much further than the Dividend Aristocrats or Dividend Kings. If you don’t want to invest in stock directly (maybe you prefer more diversification), consider buying shares of an ETF instead. At any rate, take a look at our Dividend Aristocrats List for a comprehensive list of suggestions of stocks that will give you regular dividend payments and a way to collect passive income.
Companies Mentioned in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|AbbVie (ABBV)||$134.21||-6.0%||4.20%||19.01||Moderate Buy||$159.35|
|Archer-Daniels-Midland (ADM)||$80.45||-0.2%||1.99%||12.67||Moderate Buy||$88.42|
|Caterpillar (CAT)||$164.08||-1.1%||2.93%||13.13||Moderate Buy||$222.44|
|Chevron (CVX)||$143.67||-0.8%||3.95%||9.58||Moderate Buy||$169.20|
|Exxon Mobil (XOM)||$87.31||-1.5%||4.03%||9.55||Moderate Buy||$96.69|
|International Business Machines (IBM)||$118.81||-2.3%||5.56%||19.29||Moderate Buy||$144.64|
|Johnson & Johnson (JNJ)||$163.36||-0.7%||2.77%||23.78||Moderate Buy||$189.78|
|Stanley Black & Decker (SWK)||$75.21||-2.6%||4.25%||12.17||Hold||$115.33|
|Atmos Energy (ATO)||$101.85||-2.7%||2.67%||18.45||Moderate Buy||$123.13|
|Chubb (CB)||$181.88||-1.0%||1.83%||10.97||Moderate Buy||$230.83|
|Church & Dwight (CHD)||$71.44||-2.0%||1.47%||22.68||Hold||$89.86|
|Consolidated Edison (ED)||$85.76||-2.2%||3.68%||18.77||Hold||$85.82|
|Brown & Brown (BRO)||$60.48||-0.7%||0.68%||28.00||Moderate Buy||$70.63|
|Ecolab (ECL)||$144.42||-1.0%||1.41%||37.61||Moderate Buy||$194.06|
|Essex Property Trust (ESS)||$242.23||+1.5%||3.63%||40.99||Hold||$306.94|
|General Dynamics (GD)||$212.17||-1.1%||2.38%||17.95||Moderate Buy||$263.14|
|Hormel Foods (HRL)||$45.44||-1.0%||2.29%||24.83||Hold||$48.00|
|Illinois Tool Works (ITW)||$180.65||-1.8%||2.90%||21.43||Hold||$202.00|
|McDonald's (MCD)||$230.74||-1.6%||2.39%||28.42||Moderate Buy||$284.36|
|McCormick & Company, Incorporated (MKC)||$71.27||-3.0%||2.08%||28.17||Hold||$93.25|
|NextEra Energy (NEE)||$78.41||-2.0%||2.17%||59.86||Moderate Buy||$97.30|
|Sysco (SYY)||$70.71||-1.1%||2.77%||26.78||Moderate Buy||$93.67|
|Target (TGT)||$148.39||-2.2%||2.91%||16.86||Moderate Buy||$193.67|
|Walgreens Boots Alliance (WBA)||$31.40||-0.5%||6.11%||5.06||Hold||$45.75|