Dividend stocks are often viewed as stodgy slow growers that provide income but offer only modest capital appreciation. The highest quality dividend aristocrats do not adhere to this view. There are 9 (out of 25) businesses that were dividend aristocrats in 1989, and have continued to increase their dividends for 25 years. Every single one of these businesses have a higher return than investing in a low cost index fund over the last 25 years.
The chart above compares the 9 Dividend Aristocrats in 1989 that have increased their dividends for 25 consecutive years to the dominant low cost index fund of 25 years ago, VFINX. VFINX had a compound annual growth rate (CAGR) of 10.06% for the period above.
The 9 businesses, with their annual total returns, are listed below:
- 19.35% CAGR for Lowe’s (LOW)
- 15.67% CAGR for Colgate-Palmolive (CL)
- 14.77% CAGR for Johnson & Johnson (JNJ)
- 14.02% CAGR for Procter & Gamble (PG)
- 13.42% CAGR for Coca-Cola (KO)
- 12.94% CAGR for Dover (DOV)
- 12.21% CAGR for 3M (MMM)
- 11.88% CAGR for Emerson Electric (EMR)
- 10.50% CAGR for Genuine Parts Company (GPC)
Not Rocket Science
These companies were not obscure businesses 25 years ago. They were all on the S&P Dividend Aristocrat index. Many of them sold everyday household products that were familiar to the average US family. Investing in high quality businesses at fair prices is not rocket science. All that is required is the patience, discipline, and humility to know the limits of your knowledge and stick to your investing plan.
“To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.”
– Warren Buffett
Proof of Concept, not Guaranteed Results
The 9 stocks from above were selected to show that many high quality dividend aristocrats have the potential to substantially outperform the market over long periods of time. This article is not meant to show that every dividend aristocrat will outperform the market (some will under perform), or that all dividend aristocrats will continue to keep raising dividends each year (only 9 out of 25 have gone 25 years with increases each year). With that being said, the dividend aristocrat index as a whole has outperformed the market by 2.88 percentage points per year over the last 10 years.