Cash dividends are one of the ways in which companies listed in the capital markets share their profits with shareholders, as well as one of the most important ways to generate passive income through investment. The policy of cash dividends varies from one company to another. Some companies distribute regularly and continuously annually to attract the attention of investors to invest in them in order to generate semi-guaranteed income. These companies have a historical record of dividends that proves that they are able to continue to distribute profits regardless of the general state of the economy and the company's performance. One of the most famous dividend stocks in the US stock market is a group of companies called Dividend Aristocrats.
What are Dividend Aristocrats?
It's a group of companies that make up the S&P500 index that have increased their dividends per share on an annual basis for at least 25 continuous years without interruption. By the end of 2021, the number of these companies was 65 companies.These companies provide semi-guaranteed dividend returns as they have a long history of growing cash dividends, and the shares of these companies provide a high margin of safety compared to other shares due to their semi-guaranteed cash dividends.
Dividend Aristocrats companies are divided into 11 different sectors, and the "industrial" sector includes the largest number of Dividend Aristocrats companies as it includes 14 companies, with an average dividend yield of 1.6% and an average of 43 years for the number of years of dividend growth. In second place comes the " Defense Consumers" sector , which includes 13 companies (the most famous of which are Pepsi, Clorox and Tarket Stores ). The average dividend return for these companies is approximately 2.2%, and the average is 49 years for the number of years of dividend growth for these companies. The highest average dividend return for a sector is for the "energy" sector, where the average dividend return for companies in the sector is 5.5%. It is strange that the "energy" sector owns only two Dividend Aristocrats companies, namely Chevron and ExxonMobil. (2021)
In the table below you will find the 10 most Dividend Aristocrats companies that have raised their dividends for the most continuous period:
| Company | Symbol | Sector | Number of years to increase dividends |
| Dover | DOV | Industrial | 65 |
| Genuine Parts | GPC | Consumer luxuries | 65 |
| Emerson Electric | EMR | Industrial | 64 |
| Procter & Gamble | PG | Consumer goods | 64 |
| 3M | MMM | Industrial | 63 |
| Coca Cola | KO | Consumer goods | 59 |
| Johnson & Johnson | JNJ | Health Care | 59 |
| Colgate Palmolive | CL | Consumer goods | 57 |
| Hormel Foods | HRL | Consumer goods | 55 |
| Stanley B&D | SWK | Industrial | 53 |
To track the performance of Dividend Aristocrats companies, there is an index specially designed for them that includes all companies (65 companies), which is the S&P 500 Dividend Aristocrats Index. In addition to the continuous increase in cash dividends until the company joins the index, the market value of the company must be a minimum of $3 billion, and the total average daily trading volume on the stock is $5 million.The company may be subject to removal from the index if it fails to raise its dividend on an annual basis. All companies have equal weights in the index, and the index is rebalanced quarterly in the following months (January, April, July and October).
Historically, these companies have provided an average return on dividends of around 2.5%, outperforming the average return on the S&P500 index itself, which provides an average dividend return of around 1.8% annually. Also, another advantage of these companies is that they are less oscillate than the S&P 500 index, so they may be considered a safe investment option.
Investing in Dividend Aristocrats
Anyone can invest in these companies in one of two ways, either by investing directly in the shares of these companies, which can be more expensive and complicated, or investing in the entire index that includes all these companies through ETFs. There are two ETFs that simulate the movement of the S&P 500 Dividend Aristocrats index, which, as mentioned, includes all the Dividend Aristocrats companies:
| Fund name | Its symbol | Asset size | Charts |
| FT Cboe Vest S&P500 Dv Ast Tgt Inc ETF | KNG | $3888.83M | 0.75% |
| ProShares S&P500 Dividend Aristocrats | NOBL | $10.05B | 0.35% |
There are other funds that contain a group of dividend stocks but don't necessarily follow the movement of the S&P 500 Dividend Aristocrats. Some of these funds are:
- iShares Select Dividend ETF “DVY”
- iShares Core High Dividend ETF “HDV”
Sources:
Regulated by the DFSA
Past performance is no guarantee of future results. Your investment can fluctuate, so you may get back less than you invested. Consider each product’s risk(s) before investing.
Baraka is not a financial adviser and therefore does not provide financial/investment advice. Our content is informational only.
