Dividend aristocrats are exchange-traded companies that distinguish themselves by paying a constant dividend.
They have steadily increased their dividends over a period of at least 25 years, and these companies are characterized by the continuity that makes it fairly easy for investors to plan.
Also known as dividend kings they can thus conclude with a fundamentally sound business model, so many investors use this quality feature to invest specifically in these equity securities. Instead of zero interest rates, the investor receives a dividend yield of 2.5% on average, which rises annually and is considered extremely safe due to the aristocrat status.
Dividend aristocrats are not only interesting as a pillar for retirement precaution, but also for young people who want to build a passive dividend income stream.
Dividend kings are often found among those corporations that produce so-called non-cyclical consumer goods, like goods in which demand is consistently high regardless of economic fluctuations. Particularly strong in the circle of dividend aristocrats are entrepreneurs in the pharmaceuticals industries (Johnson & Johnson, Abbott Laboratories), utilities (Chevron Corp., ExxonMobil) and consumer goods manufacturers (McDonalds, Unilever, Wal-Mart). These exchange-traded companies are in the circle of dividend aristocrats, above all because of the consistently high demand for their products and consistently high profits.
25 years for a dividend increase and dividend growth are already a long time, but there are also dividend aristocrats who have been able to raise their dividends over the past 50 years and even over 100 years.
Among the dividend aristocrats who have been paying a dividend for more than 100 consecutive years include:
• York Water – Utilities – Dividend payment since 1816
• Bank of Nova Scotia – Finance – Dividend payment since 1832
• Stanley Black & Decker – Engineering – Dividend payment since 1877
• Eli Lilly – Pharma – Dividend payment since 1885
• Johnson Controls – Auto Parts Supplier – Dividend payment since 1887
• General Mills – Food – Dividend payment since 1816
• Procter & Gamble – Consumer Goods – Dividend payment since 1890
• Colgate-Palmolive – Consumer Goods – Dividend payment since 1895
• PPG Industries – Chemicals – Dividend payment since 1899
• General Electric – Conglomerate – Dividend payment since 1899
• BB & T – Finance – Dividend payment since 1903
• Dupont – Chemistry – Dividend payment since 1908
• Exxon Mobil – Energy – Dividend payment since 1904
• American Electric Power – Utilities – Dividend payment since 1910
European dividend champions include:
• Roche – Pharmaceuticals – Since 1987, the dividend has risen uninterruptedly
• Pearson – Media – Since 1992, the dividend has increased steadily
• Fresenius – Health – Since 1993, the dividend has increased steadily
• L’Oreal – Consumption – Since 1995, the dividend has been rising steadily
• Novartis – Pharmaceuticals – Since 1997, the dividend has increased steadily
• Novo Nordisk – Pharmaceuticals – Since 1998, the dividend has increased steadily
• Imperial Tobacco – Tobacco – Since 1999, the dividend has risen uninterruptedly
• Vodafone – Communication – Since 2002, the dividend has increased continuously
• GlaxoSmithKline – Pharma – the dividend has been rising steadily since 2002
• Reckitt Benckiser – Consumption – Since 2003, the dividend has risen uninterruptedly
What is the return and risk of dividend aristocrats?
Dividend aristocrats have two identical points – risk and return. Both returns and risks are relatively low for dividend kings. Aristocrats generally range between 1% and 3% in terms of yield, and in the fewest cases, the stock yields are higher than that.
How do these dividend aristocrats manage to do this?
A guarantee that the dividend of the dividend aristocrats will evolve as it has already done in the past 25 years, as there is also, of course, the distribution aristocrats. But the dividend aristocrats have proven in the past that they can defy any crisis.
How is it that these public companies, despite constant ups and downs on the stock exchange, are still operating so steadily, making profits and even expanding? Dividend aristocrats are mostly stock companies that produce so-called non-cyclical consumer goods, like goods in which demand is consistently high regardless of economic fluctuations so that dividend aristocrats can also make consistently high profits.
Also, dividend kings usually have a long tradition and a particularly strong brand, a corresponding power position or capital position experts also speak of the moat.
With this so-called moat, the dividend aristocrats protect themselves. Coca-Cola, for example, is arguably the oldest and most well-known dividend king. Coca-Cola has a brand awareness around the world of almost 100%. Almost every party around the world has this refreshing drink, so Coca-Cola has a power position that is very difficult to catch up with by other beverage companies.
How did the dividend aristocrats battle in times of crisis?
Over the decades, there were always crises in the financial markets, while price losses could reach dizzying heights of 50% and more. Some stocks even went completely down in these times of crisis or were bought by competitors. In times of crisis, most of the time the wheat is separated from the chaff, so companies that have managed well and have a profitable business model can not only survive these times of crisis but can also emerge from them stronger and stronger.
Of course, the past is no guarantee of the future of dividends, so it is safe to assume that these dividend kings have weathered these crises well in the past and most likely will do so in the future.
What are the benefits of dividend aristocrats?
The big advantage of dividend aristocrats, of course, is that these companies increase the dividend annually and thus have some stability and predictability for the future. Also, assuming the stock is held long, one should not underestimate the compounding effect on dividend aristocrats. Dividend kings are certainly an interesting investment strategy, especially with regard to retirement provision.
Observing the dividend aristocratic values, it can also be seen that the stock price of these companies is usually not exposed to such strong price fluctuations – both up and down. The reason for this is undoubtedly that dividend aristocrats are very successful and stable companies whose share price reflects this stability in most cases.
What are the disadvantages of dividend aristocrats?
In the high quality of the dividend kings is certainly a disadvantage. So one can assume that investors have already priced in this stability and security at the stock price of the dividend aristocrats, which often leads to significantly higher valuations on the stock market. It should also be remembered that dividend aristocrats are very often only to have a high stock price on the stock market – that is overvalued based on fundamental criteria. Patience is therefore required to find the right moment to buy a share – for example, when these stock companies are dragged down in the course of a crash on the entire stock exchange.
It is safe to assume that the dividend kings will defend their “dividend aristocrat” status by all means.
Once such a listed company has to forego the dividend increase, or does not pay the dividend for just one year, the status of “dividend aristocrat” is strictly speaking lost for 25 years.
Thus, these dividend kings will certainly fight to increase the dividend from year to year, which in the worst case can lead to decisions that in the long run do not make sense or even hurt the company. Thus, either the existing cash reserves for the payment of the dividend must be used or possibly even new debt to be recorded – both options are more a warning to investors.
All in all, the advantages and the high quality of stock corporations, which can be described as dividend kings, are certainly outweighed. The drawbacks of the dividend aristocrats can certainly be neglected, but one should always wait for the right time when buying dividend aristocrats and only then enter into the dividend values.
What do you think about the dividend aristocrats? And would it be criteria for you to invest your money in these stocks? Feel free to share your comments in the box below – thank you.