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S&P 500 Dividend Aristocrats

Definition

The Dividend Aristocrats are S&P 500 constituents that have increased their dividend payouts for 25 consecutive years.

wikipediaSource: Wikipedia
Last Sourced: 2017-08-01
This Article has been Edited for Accessibility

S&P 500 Dividend Aristocrats

The Dividend Aristocrats are S&P 500 index constituents that have increased their dividend payouts for 25 consecutive years or more.

The companies that comprise the Dividend Aristocrats span all eleven sectors within the S&P 500 index and therefore encompasses both large cap growth and large cap value companies. This composition contrasts sharply with most other dividend-yield based indices, which tend to be more value-oriented in their holdings and are more heavily weighted toward financial, telecommunication and utility stocks. . The increased popularity of "Dividend Growth" investing in recent years has greatly elevated the profile of the S&P 500 Dividend Aristocrat index in the eyes of the investing public. Dividend Growth investing involves investing in companies that are generating robust free cash flow. Free cash flow is defined as a companies' operating cash flow minus capital expenditures. The significance of strong free cash flow is that it then allows a companies' management the flexibility to pay a higher than market dividend growth rate.

Since 1990, the market dividend growth rate or median annual dividend growth rate for the S&P 500 index has been 5.81% through March 2017.

The S&P 500 Dividend Aristocrat index has traditionally had a large cap value investor audience that favored blue chip dividend stocks. However, many large cap growth investors also now view the S&P 500 Dividend Aristocrat index very favorably as they seek companies that possess a combination of both capital appreciation and a consistent and increasing dividend payout.

The S&P 500 Dividend Aristocrat index was launched by Standard and Poors in May 2005 and has historically outperformed the S&P 500 index with lower volatility over longer investment time frames. For example, over the past 10 years through the period ending June 30, 2017, the S&P 500 Dividend Aristocrat index has returned 10.00% on an average annual basis, compared to the S&P 500 index which has returned only 7.18% annually during that same period. The risk factor commonly called the standard deviation of the S&P 500 during this same 10 year period was 15.21% while the Dividend Aristocrat risk factor or standard deviation was 14.15% or 7.06% lower than the S&P 500.

Standard deviation measures investment risk as a range in percentage terms within a selected probability called in statistical terms a confidence level. The investment return would then fall within a range that is plus or minus around the mean investment return and would be typically within a bell shaped curve. The higher the standard deviation or the wider the plus and minus range of investment returns combined from that mean investment return, the greater the risk of the investment since it has the potential to be farther away from the projected mean return.

As demonstrated, the Dividend Aristocrat index has returned nearly 3% more annually than the S&P 500 index with approximately 7% lower standard deviation or risk.

To be eligible for the S&P 500 Dividend Aristocrat index, a stock must have increased their dividend payouts for a minimum of 25 consecutive years or more, must currently be part of the S&P 500 index and finally must have a minimum market capitalization of $3 billion. A committee at S&P Global makes the final decision on which companies are included in the S&P 500 index and this then allows for eligibility for inclusion into the Dividend Aristocrat index. Should a company reduce their dividend or be dropped from the S&P 500 index, the holding is automatically dropped from the Dividend Aristocrat list as well.

Since the 2008 financial crisis, the S&P 500 Dividend Aristocrat list has evolved as follows:

2009 - The list declined from 52 companies in 2008 to 42 companies in 2009, as ten companies cut their dividend payouts due to the 2008 financial crisis. They were: Anheuser Busch (BUD), Bank of America (BAC) , Comerica (CMA), Fifth Third Bank (FITB), Keycorp (KEY), Nucor (NUE), Progressive Corp (PGR), Regions Financial (RF), Synovus Financial (SNV), and Wm. Wrigley (WW).

Also in 2009, there were two additions - Bemis (BMS) and Leggett & Platt (LEG).

2010 - A second round of ten companies were dropped: Avery Dennison (AVY), BB&T, Gannett (GCI), General Electric (GE), Johnson Controls (JCI), Legg Mason (LM), M&T Bank (MTB), Pfizer (PFE), State Street Bank (STT), and US Bancorp (USB).

Also in 2010, Brown Forman (BF.B) was added.

2011 - Three companies were added, Ecolab (ECL), Hormel Foods (HRL), and McCormick (MKC).

2012 - CenturyLink (CTL) was removed from the index after reducing its dividend from 72.5 to 54 cents per share per quarter.

In addition in 2012, ten new companies were added to the index as follows:

2013 - Pitney Bowes (PBI) was removed after slashing the dividend from 37.5c to 18.75c per quarter per share.

2014 - Bemis (BMS) was removed from the S&P 500 index and therefore dropped from the S&P 500 Dividend Aristocrat list.

2015 - Family Dollar Stores (FDO) was removed from the list due to its purchase by Dollar Tree. Also in 2015, Sigma-Aldrich Corp (SIAL) was removed from the list due to its acquisition by Merck.

2016 - Chubb Corp (CB) was removed upon acquisition by ACE Limited (ACE).

2017- General Dynamics (GD) and the REIT Federal Realty Investment Trust (FRT) were added to the list and the REIT HCP, Inc. was removed from the index due to spinning off HCR Manor Care and reducing their dividend.

Also in 2017, Becton Dickinson (BDX) will be acquiring CR Bard (BCR) with the merger expected to be consummated in the fall of 2017.

The full list of 50 S&P 500 Dividend Aristocrat companies after the BDX/BCR merger is completed is as follows:

See also

Investing

The exchange-traded fund SPDR S&P Dividend (SDY) tracks the S&P High Yield Dividend Aristocrats Index. The fund is a competitor to the popular iShares Select Dividend (DVY) which tracks the Dow Jones U.S. Select Dividend Index. The ProShares S&P 500® Dividend Aristocrats ETF (NOBL) is tracking the S&P 500 dividend aristocrats since 10/9/13. Historical performance for the NOBL ETF has mildly outperformed the S&P 500 since its inception.


Additional Resources

  1. S&p 500 Dividend Aristocrats [iser.uaa.alaska.edu]
  2. The Impact Of 2003 Dividend Tax Cut On Stocks In The S&p 500 [swer.wtamu.edu]
  3. The Outlook [people.stern.nyu.edu]
  4. Why I Love Dividends [business.baylor.edu]
  5. Leggett.doc [business.missouri.edu]
  6. Inflation And Individual Equities [www0.gsb.columbia.edu]