The Dividend Aristocrats Index is comprised of 50 stocks that have paid dividends for 25+ consecutive years.
In addition to requiring 25+ years of consecutive dividend increases, Dividend Aristocrats must also:
- Be members of the S&P 500 Index
- Meet certain size and liquidity requirements.
What’s the big deal about being a Dividend Aristocrat?
The Dividend Aristocrats Index has outperformed the market by a wide margin over the last decade.
It’s interesting to note that the Dividend Aristocrats index is overweight consumer products companies, industrial, and health care. A sector breakdown of the Dividend Aristocrats index is shown below:
List of All 50 Dividend Aristocrats
The free spreadsheet below lists all 50 Dividend Aristocrats as of January 2016.
The list can be sorted by:
- Dividend Yield
- Standard Deviation
- Growth Rate
- Payout Ratio
- And more…
The financial metrics included in the spreadsheets are the same metrics used for the buy rules in The 8 Rules of Dividend Investing.
A brief explanation of each metric is below.
Dividend yield is calculated as 4 x most recent dividend / current price. This is the standard calculation for dividend yield and shows what percentage of dividend income you can expect on your investment in the first year (assuming no dividend increases or reductions).
Standard deviation in the spreadsheet above is calculated over a stock’s 10 year price history (when available). Long-term price histories are used to reduce the effects of unusually high or low volatility in the recent past.
Stocks with low price standard deviations have historically outperformed the market. Better price returns have come with lower ‘risk’ as defined by academics due to lower stock price standard deviation.
I don’t believe standard deviation to be a true measure of risk, but it is a good proxy for measuring real risk. It has worked to improve returns historically. The historical record should not be ignored.
The growth rates used in this article are either Sure Dividend’s own forecasts for future expected growth rates, or 10 year historical earnings-per-share growth rates.
The payout ratio is calculated as last dividend payment x 4 / trailing-twelve-month earnings per share. Adjusted earnings per share are used when applicable instead of GAAP earnings per share to minimize the effects of short-term or one-time events on the payout ratio.
Total return is a calculated as a stock’s dividend yield plus its expected growth rate. The higher the total return, the better. Click here to learn more about total returns.
The P/E Ratio (price-to-earnings ratio) is used to determine the relative value of an investment. It is calculated as current share price divided by 12 month earnings-per-share. The lower the P/E ratio, the better.
10 Year Historical P/E Ratio
This is the historical average P/E ratio over the last decade (when available). If less than 10 years of data are available (as is the case with ABBV, ABT, and MHFI due to spin-offs), the maximum amount of years available is used. Comparing the historical P/E ratio to the current P/E ratio is a quick way to get a ‘ballpark estimate’ of if a company is currently overvalued or undervalued.
PEG stands for price-to-earnings-to-growth. The PEG ratio is calculated as P/E Ratio divided by (Growth Rate x 100). It shows the relative value of a company in relation to its growth rate. The modified PEG ratio uses total return instead of growth rate; it takes into account the effects of dividends. The modified PEG ratio is calculated as P/E Ratio divided by (Total Return x 100). The lower the PEG, the better. Click here to learn more about the Modified PEG Ratio.
Why Have Dividend Aristocrats Outperformed?
The Dividend Aristocrats Index has trounced the market over the last decade.
I believe dividend paying stocks outperform non dividend paying stocks for two reasons:
- A company that pays dividends is likely to be generating earnings or cash flows so that it can pay dividends to shareholders.
- A business that pays consistent dividends must be more selective with the growth projects it takes on because a portion of its cash flows are being paid out as dividends. Scrutinizing over capital allocation decisions likely adds to shareholder value.
I suggest that Dividend Aristocrats have historically outperformed the market and other dividend paying stocks because they are, on average, higher quality businesses.
A high quality business should outperform a mediocre business over a long period of time, all other things being equal.
For a business to increase its dividends for 25+ consecutive years, it must have or at least had in the very recent past a strong competitive advantage.
The Dividend Aristocrats Are Highly Profitable Industry Leaders
Of the 50 Dividend Aristocrats, 19 (38%) are the largest by market cap in their respective industries. 37 of the 50 ( 74%) Dividend Aristocrats are one of the top 3 largest companies in their industries.
The companies in the Dividend Aristocrat Index are generally larger than their peers. Intuitively, this makes sense. If a company has grown for 25 or more years, it is most likely going to be well established in its industry.
The businesses in the Dividend Aristocrats Index have another distinguishing feature – they are highly profitable.
- Average return-on-assets for S&P 500 stocks: 5.2%
- Average return-on-assets fro Dividend Aristocrat stocks: 7.2%
Further, 19% of the stocks in the S&P 500 have a return on assets over 10%, while 30% of stocks in the Dividend Aristocrats Index have a return on assets over 10%.
The Dividend Aristocrats Series
The Dividend Aristocrats list Excel spreadsheet download in this article is a quick-and-easy way to generate investment ideas for dividend growth investors.
Sure Dividend analyzes all 50 Dividend Aristocrats in detail once a year.
The most recent analysis is from October 2015 through January 2016. Links to each and every Dividend Aristocrat analysis are below:
- Warren Buffett’s 4 Favorite Dividend Aristocrats
- Next Year’s 4 New Dividend Aristocrats
- The 10 Most Recession Proof Dividend Aristocrats
- Part 1: Stanley Black & Decker (SWK)
- Part 2: Sherwin-Williams (SHW)
- Part 3: PPG Industries (PPG)
- Part 4: V.F. Corporation (VFC)
- Part 5: Pentair (PNR)
- Part 6: Nucor (NUE)
- Part 7: Brown-Forman (BF-B)
- Part 8: Hormel Foods (HRL)
- Part 9: McGraw Hill Financial (MHFI)
- Part 10: Genuine Parts Company (GPC)
- Part 11: McCormick & Company (MKC)
- Part 12: Franklin Resources (BEN)
- Part 13: Target (TGT)
- Part 14: Clorox (CLX)
- Part 15: McDonald’s (MCD)
- Part 16: Sysco Foods (SYY)
- Part 17: Cardinal Health (CAH)
- Part 18: Aflac (AFL)
- Part 19: Chubb Corporation (CB)
- Part 20: Cincinnati Financial (CINF)
- Part 21: W.W. Grainger (GWW)
- Part 22: Archer-Daniels-Midland (ADM)
- Part 23: Sigma Aldrich (SIAL)
- Part 24: Consolidated Edison (ED)
- Part 25: C.R. Bard (BCR)
- Part 26: Becton, Dickinson, & Company (BDX)
- Part 27: Medtronic (MDT)
- Part 28: Procter & Gamble (PG)
- Part 29: Emerson Electric (EMR)
- Part 30: Abbott Laboratories (ABT)
- Part 31: ExxonMobil (XOM)
- Part 32: Leggett & Platt (LEG)
- Part 33: Chevron (CVX)
- Part 34: HCP, Inc. (HCP)
- Part 35: Lowe’s (LOW)
- Part 36: Illinois Tool Works (ITW)
- Part 37: Cintas (CTAS)
- Part 38: Ecolab (ECL)
- Part 39: Kimberly-Clark (KMB)
- Part 40: Air Products and Chemicals (APD)
- Part 41: Colgate-Palmolive (CL)
- Part 42: Walgreens Boots Alliance (WBA)
- Part 43: Automatic Data Processing (ADP)
- Part 44: T. Rowe Price Group (TROW)
- Part 45: Dover (DOV)
- Part 46: PepsiCo (PEP)
- Part 47: AbbVie (ABBV)
- Part 48: 3M (MMM)
- Part 49: Coca-Cola (KO)
- Part 50: Johnson & Johnson (JNJ)
- Part 51: AT&T (T)
- Part 52: Wal-Mart (WMT)
Historical Dividend Aristocrats List
There are currently 50 Dividend Aristocrats. Companies are added/removed most years. The image below shows the history of the Dividend Aristocrats Index from 1989 through 2015:
Note: CL, GPC, and NUE were all removed and re-added to the Dividend Aristocrats Index through the historical period analyzed above. I am unclear as to the reasoning behind this.
This information was compiled from various secondary sources. They are listed below:
- 1989 – 2004: Dividend Growth Investor
- 2005: Crossing Wall Street
- 2006: Achieving Prosperity: A Realistic, Ethical Guide to Building Wealth by Todd Lipscomb
- 2007: Seeking Alpha
- 2008: Five Cent Nickel
- 2009: S&P500 Dividend Aristocrats, December 2008, page 12
- 2010: S&P500 Dividend Aristocrats, January 2010
- 2011: Dividend Growth Investor
- 2012: Forbes
- 2013: The Passive Income Earner
Interested in why companies were removed from the Dividend Aristocrats Index? Take a look at this article. You can see the (amazing) 25 year historical performance of the Top 9 Dividend Aristocrats here.
There is nothing magical about the Dividend Aristocrats Index. It is just a collection of high quality shareholder friendly businesses that have (or at least recently had) strong competitive advantages. Purchasing this type of business at fair or better prices and holding for the long-run will likely result in favorable long-term performance.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
– Warren Buffett