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. Many stocks offer better payoffs than a 10-year Treasury, which only recently eclipsed 2% for the first time since 2019.
However, 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 members of the S&P 500 that haven’t just paid dividends for at least 25 consecutive years — they’ve raised their dividends for a minimum of 25 straight years.
Just these 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 S&P 500 rebalancing.
— Average daily trading volume of at least $5 million for the trailing three-month period before each quarterly rebalancing date.
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The rebalancing of the index happens every January, April, July and October. New entrants are added and old ones removed once a year — unless a stock is removed from the S&P 500 index itself, in which case the company would be simultaneously removed from the dividend aristocrats list.
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 owner, 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.
[SEE: 9 Highest Dividend-Paying Stocks in the S&P 500]
On the issue of diversification, the aristocrats index has a floor on membership at 40 companies — a level in no danger of being breached anytime soon, given that the current group consists of 65 stocks.
The index also caps the weighting of any single sector at 30%, limiting the impact of any sector’s potential hit on the broader portfolio if one corner of the market plunges.
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 dividend aristocrats exchange-traded funds, or ETFs, that track the portfolio.
The ProShares S&P 500 Dividend Aristocrats ETF (ticker: NOBL) is the premier exchange-traded fund in the space, with $10 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 January 2022.
(Read more after the table for information on recent additions and subtractions.)
Recent Additions and Subtractions
Although the total number of dividend aristocrats remained stagnant at 65 between the annual reconstitutions in 2021 and and 2022, there are actually two new members of the index, as well as two recent departures.
Here are the two newest dividend aristocrats:
Brown & Brown. Although insurance broker Brown & Brown has raised its dividend for 28 straight years, it qualified for the elite list only when it was finally added to the S&P 500 in September 2021.
The company joins the ranks of dividend aristocrats at an auspicious time for insurance stocks, which are poised to become more profitable as rising interest rates help them earn more money on their conservative investments.
[See: 7 Best ETFs to Buy Now.]
Church & Dwight. Although it has already announced a dividend hike that will bring its streak to 26 years of higher dividends, Church & Dwight logged its 25th straight year of dividend increases in 2021 — it just did so too late to be added to the annually reconstituted dividend aristocrats list last year.
If the consumer staples giant doesn’t ring a bell, some of its many brands will. Brands include OxiClean, Trojan, Arm & Hammer and Orajel, among others.
And because all things must come to an end, here are the two stocks that recently left the dividend aristocrats index:
AT&T Inc. (T). Telecom giant AT&T was a long-standing member of the illustrious dividend aristocrats list, having hiked its dividend for over 35 consecutive years. It was an impressive member of the list, too, with a dividend yield that exceeded 8% at times, regularly clocking in as the highest-yielding stock on the list.
Alas, AT&T is spinning off its WarnerMedia division and is cutting its dividend per share in conjunction with the spin, which will meaningfully reduce free cash flow for AT&T.
Leggett & Platt Inc. (LEG). Carthage, Missouri-based furnishings and fixtures company Leggett & Platt is an old-school American company, founded in 1883. It also was one of the most distinguished dividend aristocrats, having reliably increased payments for 50 straight years.
Unfortunately, LEG stock had been losing value in 2021, and was replaced in the S&P 500 index in late 2021, immediately disqualifying it from the above list.
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2022’s Dividend Aristocrats List: All 65 Stocks originally appeared on usnews.com
