Income investors often turn to bonds for yield, but with interest rates so low for so long, the stock market can sometimes be a better option, with many stocks offering better payoffs than a 10-year Treasury, which pays less than 2%.
But dividend yields themselves don’t mean much if they aren’t sustainable. That’s why being a member of the dividend aristocrats is such a distinction: There are 65 companies (also members of the S&P 500), which haven’t just paid dividends for at least 25 consecutive years — they’ve raised their dividends for a minimum of 25 straight years as well.
Just the two requirements that a stock must be a member of the vaunted S&P 500 and that it has a record of 25 years’ worth of dividend increases alone are stringent enough screens to guarantee investors are looking at a list of strong, reliable companies.
But the requirements go even further, with the following attributes also mandatory for membership on the dividend aristocrats list:
— Companies must be worth at least $3 billion at the time of each quarterly rebalancing.
— Average daily volume of at least $5 million in transactions for every trailing three-month period at every quarterly rebalancing date.
The rebalancing of the index happens every January, April, July and October. New entrants are added and old ones removed once a year.
It’s important to keep in mind the goal of the index when looking it over: It’s constructed to be a well-diversified, lower-volatility group of stocks boasting both dividend income and capital appreciation potential.
S&P Dow Jones Indices, the index creator, notes that almost one-third of total equity market returns since 1926 have come from dividends, and that its selection criteria and diversification requirements make the dividend aristocrat stocks uniquely positioned to do well as a group.
On the issue of diversification, the index has a minimum floor on membership at 40 different companies — a level in no danger of being breached anytime soon given the current group consists of 65 stocks.
The index also caps the weighting of any single sector at 30%, limiting the impact of any single sector’s hit on the broader portfolio.
To that end, while investors could certainly try to adopt their own ” smart beta” strategies to eliminate the less alluring members of the group, it’s a much lower-effort endeavor to simply buy the entire group as a whole, which is possible due to the existence of a dividend aristocrats exchange-traded fund that tracks the portfolio.
The ProShares S&P 500 Dividend Aristocrats ETF ( NOBL) is the premier exchange-traded fund in the space, with more than $8 billion in assets under management and a reasonable expense ratio of 0.35%.
Here’s a full list of all 65 S&P 500 dividend aristocrats and how long each has been increasing its payouts to shareholders. The list is current through May 2021.
(Read more after the table for info on recent additions and subtractions.)
|Company||Sector||Years of Dividend Growth||Dividend Yield (as of May 7)|
|3M (ticker: MMM)||Industrials||63||2.92%|
|A.O. Smith (AOS)||Industrials||28||1.46%|
|Abbott Laboratories (ABT)||Health care||49||1.52%|
|AbbVie (ABBV)||Health care||49||4.48%|
|Air Products and Chemicals (APD)||Materials||39||2.04%|
|Albemarle Corp. (ALB)||Materials||27||1.02%|
|Amcor PLC (AMCR)||Materials||38||3.76%|
|Archer-Daniels-Midland Co. (ADM)||Consumer staples||47||2.22%|
|AT&T (T)||Communications services||36||6.49%|
|Atmos Energy Corp. (ATO)||Utilities||34||2.44%|
|Automatic Data Processing (ADP)||Information technology||46||1.9%|
|Becton, Dickinson & Co. (BDX)||Health care||49||1.38%|
|Brown-Forman Corp. (BF-B)||Consumer staples||37||0.93%|
|Cardinal Health (CAH)||Health care||34||3.47%|
|Cincinnati Financial (CINF)||Financials||61||2.1%|
|Cintas Corp. (CTAS)||Industrials||37||0.86%|
|The Clorox Co. (CLX)||Consumer staples||45||2.41%|
|The Coca-Cola Co. (KO)||Consumer staples||59||3.11%|
|Colgate-Palmolive (CL)||Consumer staples||59||2.19%|
|Consolidated Edison (ED)||Utilities||47||3.98%|
|Emerson Electric (EMR)||Industrials||59||2.16%|
|Essex Property Trust Inc. (ESS)||Real estate||27||2.93%|
|Expeditors International of Washington Inc. (EXPD)||Industrials||27||1%|
|Federal Realty Investment Trust (FRT)||Real estate||49||3.72%|
|Franklin Resources (BEN)||Financials||40||3.3%|
|General Dynamics (GD)||Industrials||30||2.45%|
|Genuine Parts (GPC)||Consumer discretionary||65||2.46%|
|Hormel Foods (HRL)||Consumer staples||55||2.06%|
|Illinois Tool Works (ITW)||Industrials||50||1.92%|
|International Business Machines (IBM)||Information technology||25||4.52%|
|Johnson & Johnson (JNJ)||Health care||59||2.54%|
|Kimberly Clark (KMB)||Consumer staples||48||3.35%|
|Leggett & Platt (LEG)||Consumer discretionary||50||2.95%|
|Lowe’s (LOW)||Consumer discretionary||47||1.17%|
|McCormick & Co. (MKC)||Consumer staples||35||1.51%|
|McDonald’s (MCD)||Consumer discretionary||44||2.2%|
|Medtronic (MDT)||Health care||43||1.82%|
|NextEra Energy Inc. (NEE)||Utilities||25||2.08%|
|People’s United Financial (PBCT)||Financials||28||3.88%|
|PepsiCo (PEP)||Consumer staples||48||2.95%|
|PPG Industries (PPG)||Materials||49||1.2%|
|Procter & Gamble (PG)||Consumer staples||65||2.57%|
|Realty Income Corp. (O)||Real estate||26||4.17%|
|Roper Technologies (ROP)||Industrials||28||0.5%|
|S&P Global (SPGI)||Financials||48||0.79%|
|Stanley Black & Decker (SWK)||Industrials||53||1.29%|
|Sysco (SYY)||Consumer staples||41||2.17%|
|T. Rowe Price Group (TROW)||Financials||35||2.29%|
|Target (TGT)||Consumer discretionary||49||1.28%|
|VF Corp. (VFC)||Consumer discretionary||49||2.21%|
|W.W. Grainger (GWW)||Industrials||50||1.41%|
|Walgreens Boots Alliance (WBA)||Consumer staples||45||3.43%|
|Walmart (WMT)||Consumer staples||48||1.56%|
|West Pharmaceutical Services Inc. (WST)||Health care||28||0.21%|
Recent Additions and Subtractions
Although the total number of dividend aristocrats remained stagnant at 65 between 2020 and 2021, there are actually three new members of the index over the last year or so, and three stocks that were removed.
Here are the three newest dividend aristocrats:
International Business Machines. The old-school tech giant clocked its 25th straight year of dividend increases last year, making Big Blue a proud new member of the elite club.
Although things have been slowly improving for IBM shareholders over the last year, some critics actually fault IBM for focusing more on dividends than long-term, bold investments in innovation. IBM has been an extremely underwhelming performer for the last decade-plus, with shares having gained no ground since 2010.
NextEra Energy. Electric utility NextEra Energy is also a new member of the list as of 2021, having clocked 25 straight years of dividend growth. Unlike IBM, this has come alongside impressive long-term share performance, and the company has some of the most impressive clean energy operations among large U.S. companies, known for its growing focus on wind and solar.
West Pharmaceutical Services. Although this medical supplies company has actually clocked 28 straight years of dividend growth, WST is new to the S&P dividend aristocrats merely because it only joined the S&P 500 in 2020.
That tends to happen when you grow as quickly as West Pharmaceutical Services. As recently as 2012, shares were trading for less than $20; the stock recently hit all-time highs around $335.
And, because all things must come to an end, here are the three stocks making their way out of the index:
Carrier Global (CARR). It’s no coincidence that these three particular companies just lost their status as dividend aristocrats: they’re all the result of a 2020 merger between United Technologies and Raytheon that created the newly formed aerospace and defense giant Raytheon Technologies.
Heating, air conditioning and refrigeration company Carrier Global was spun off from United Technologies in preparation for the merger and began trading as a stand-alone stock in 2020.
Otis Worldwide (OTIS). Elevator and escalator giant Otis was in an identical situation last year, spinning off into its own corporate entity to help make the Raytheon-United Technologies merger more amenable to regulators.
Although the new company still pays a dividend, it’s no dividend aristocrat.
Raytheon Technologies (RTX). The newly formed defense and aerospace giant Raytheon Technologies will enjoy other benefits from its business combination in the form of increased market share and will make the segment more competitive with the likes of Boeing ( BA) in the commercial aerospace field. Alas, RTX still pays a dividend and may remain a sound investment, but it’s no longer a dividend aristocrat.
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