Dividend Aristocrat List

A Dividend Aristocrat is a company that consistently increases their dividend payout to shareholders on an annual basis. The S&P 500 stock index has listed companies that have maintained an increasing dividend return for at least 25 years. These corporations are large-cap, blue-chip companies that illustrate a positive ratio of capital growth to dividend income. In essence, they are the best of the best, with a long history of outperforming market trends.

Importance of a Dividend Aristocrat

For the past decade, dividend aristocrats have outperformed the S&P 500 with an annualized return of 10.98% over the S&P 500’s 10.53%.

Blue-chip stocks are known for being able to weather market conditions, even in the toughest of times. During the 2008 Global Financial Crisis, these stocks fell by an average of 22%, which kept investors’ money much more preserved when comparing the S&P 500 skydive of nearly 37%.

The ability to mitigate risk is a factor that money managers must keep in mind when exploring the stock market. A dividend aristocrat is one way to mitigate risk. They keep pace with markets during downtimes and continue to make strides during bulls.

Additionally, the standard deviation of the aristocrats has kept a steady 12.47% when compared to the S&P 500 average of 13.3%. Combine a stable value with increasing dividends and a lower than average volatility, and it shows why they are the cream of the crop.

How to Become a Dividend Aristocrat

To be eligible for the S&P 500 Dividend Aristocrat index, a stock must:

• Be a member of the S&P500 index
• increased its dividend payouts for a minimum of 25 consecutive years,
• have a minimum market capitalization of $3 billion.
• Have a ADVT of at least $5 million for the three months prior to the rebalancing reference date.

Re balancing?

Every January, companies are added and removed based of the criteria set out above. On January 24th 2020, 7 companies were added to the list.

1. Amcor plc (AMCR)
2. Atmos Energy Corp (ATO)
3. Realty Income Corp (O)
4. Essex Property Trust (ESS)
5. Ross Stores Inc (ROST)
6. Albemarie Corp (ALB)
7. EXpeditoe Intl of WA Inc (EXPD)

No additions are made to the index between annual rebalancing, except for qualifying spin-offs.

Spin-offs are added to the index on the ex-date. If the spin-off remains in the underlying index (S&P 500), both the parent
company and spin-off remain in the index until the next index rebalancing, provided that each gives an indication it will continue
and initiate a consistent dividend-paying policy.

On April 3rd 2020, Otis Worldwide Corp (OTIS) and Carrier Global Corp (CARR) were added to the index. UTX spun off OTIS and CARR and merged with Raytheon Technologies corp (RTX)

Stock Diversification Criteria

S&P Dow Jones Indices also makes adjustments based on the following criteria:

The Index can never fall below 40 stocks. The index can include stocks with a history of increasing dividends for more than 20 years. While also satisfying the remaining 4 rules above.

If the Stock Diversification Criteria is still not satisfied, the remaining constituents of the S&P 500 satisfying the criteria on market capitalization and liquidity are added in decreasing order of dividend yield until the Stock Diversification Criteria is satisfied

Sector Diversification Criteria

Sectors are defined as per the Global Industry Classification Standard. A GICS sector should not account for more than 30% weight of the index.

If there is a sector which has more than 30% that again the index can include stocks who have increased dividends for 20 years.

If the Sector Diversification Criteria is still not satisfied, the remaining constituents of the S&P 500 satisfying the criteria on market capitalization and liquidity are added in decreasing order of dividend yield until the Sector Diversification Criteria is satisfied

Sectorial Breakup of Aristocrats

The S&P Dividend Aristocrat Index currently contains the 66 aristocrats. When studying the index by sector, it becomes clear that markets with more stability, such as consumer staples, make up its majority.

On the other hand, there are markets with rapid developments, such as technology, that make up a much smaller portion of the index. This leads to overweight sectors such as consumer staples, materials, and industrials, while information technology, cyclical energy, and communication Services, are underweighted.

Consumer Staples (22.2%)

Archer Daniels Midland (ADM)

Since 1898, Archer Daniels Midland (ADM) has been procuring, transporting, and processing corn, oilseeds, wheat, and other commodities for the production of food and beverages. Over the past few years, ADM has been diversifying into higher-margin areas such as nutrition. After entering the new business in 2014, they believe it will generate nearly 25% of their profits by 2024. With food being such an important commodity, it goes to show that ADM’s defining services, procuring, storing, processing, and selling agricultural commodities, will be needed for years to come.

Brown Forman(BF.B)

Founded in 1870, Brown Foreman has grown into a leading producer of spirits and liquor, becoming the largest U.S. producer of alcohol with an international presence in over 165 countries. Jack Daniel’s makes up about 60% of the firms profits. Their ability to use upfront investment on expensive distilleries has kept them competitive, and is the reason they have shown consecutive dividend growth for the past 34 years.

Hormel Foods (HRL)

Skippy’s peanut butter, SPAM meats, and other American staples make up this food staple founded in 1891. Hormel’s marketing strategy plays a key role in its success, as many of its products have become American household staples. They haven’t missed a dividend payment since 1924, and have shown growth in their dividend payout for the past 53 years.

Kimberly Clark (KMB)

Tissue and Hygiene product manufacturer Kimberly Clark has exemplified its strength during recessions with nearly a quarter of the world’s population using their products. Its long term success is due to the ability for them to use their size to produce such high quantities of their products at a low cost. They have shown 47 consecutive years of dividend growth.

McCormick (MCK)

With over 16,000 spices in their arsenal, MCK has developed its brand to be driven by a strong portfolio of subsidiaries. Combined with product innovation, marketing investments, and gradual expansion, the company has been able to increase its dividend payout since 1986.

Sysco (SYY)

Food distributor Sysco is the largest of its kind in the world, producing and distributing food and non-food items to restaurants, schools, hotels, and healthcare facilities. The fact that food delivery is a relatively simple business, along with Sysco’s large scale, has allowed them to increase their dividends for the past 50 years.

Proctor and Gamble (PG)

Represented in over 160 countries with 65 product brands gives PG its advantage over the competition. They have a deep understanding of consumer tastes and market trends which has provided them 62 consecutive years of dividend growth.

Colgate Palmolive (CL)

CL has become one of the world’s largest consumer staple conglomerate. With over two centuries worth of research and development, marketing, and consumer insights, the company has been able to realize 56 consecutive years of dividend growth.

Clorox (CLX)

Clorox holds many brands that take up a lot of shelf space in grocery stores and supermarkets, which helps them maintain their competitive advantage. CLX has seen 42 consecutive years of dividend gains.

Coca Cola (KO)

Having just 37% of your profits come from North America will surely make you one of the most globally diverse companies in the world. Their combination of global reach and marketing strength have allowed them to maintain steady dividend growth since 1962.

Pepsico (PEP)

Pepsi currently owns nearly 22 brands that are staples in American grocery stores and vending machines. Their balanced portfolio and extensive distribution network all account for their 47 years of dividend growth.

Industrials (21.1%)

3M (MMM)

3M is a highly diversified company with over 45 technology platforms. Having operating margins of over 20%, and 60 consecutive years of increasing annual payout, 3M has positioned themselves as a staple amongst dividend kings.

Emerson Electric (EMR)

EMR is a global conglomerate that combines technology and engineering to provide goods and services to its clientele. They are very selective when deciding which niches they want to penetrate, which has helped them raise their payout for the past 62 years.

Dover (DOV)

Industrial conglomerate Dover has been able to sustain nearly six decades of dividend growth by focusing their work in predominately advanced technological niches.

Others

Other Industrial dividend aristocrats include Illinois Tool Works, W.W. Grainger, Pentair, Stanley Black & Decker, Cintas, General Dynamics, Roper, A.O. Smith, Caterpillar, and United Technologies.

Materials (12.6%)

Air Products, PPG, Sherwin-Williams, Ecolab, Nucor, and Praxair make up dividend aristocrat materials. This sector is known for being capital intensive and having volatile sales, and these firms are able to stay on top thanks to their size and knowledge of the industry.

Health Care(10.5%)

Health care has been growing steadily over the past few decades, and has begun dipping their feet into technology as the two sectors converge. However, Becton, Dickinson and Company, Cardinal Health, Medtronic, AbbVie, Abbott Laboratories, and Johnson & Johnson are all able to maintain their sales by sticking to what they know best and being very cautious with their decisions.

Consumer Discretionary (10.5%)

Aristocrats in this sector combine their marketing abilities with their knowledge of consumers to stay competitive. Genuine Parts Company, Lowe’s, Target, Walgreens Boots Alliance, McDonald’s, Leggett & Platt, Walmart, and V.F. Corp all make up consumer discretionary.

Other Sectors

Financials, energy, real estate, information technology, utilities, and communication industries all make up less than 10.5% of the dividend aristocrat index. So few companies in these sectors make the list because of the increasing change in each sector. However, the corporations that represent these sectors have maintained their competitiveness over the past 25 years.

The full Dividend Aristocrat list can be found here

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