Dividend Aristocrats: What Are They? Why Are They Important?
What are Dividend Aristocrats?
The term "Dividend Aristocrats" was coined by the S&P Dow Jones Indices, which maintains a list of companies that meet the following criteria:- Member of the S&P 500 Index
- Increased dividends for at least 25 consecutive years
- Market capitalisation of at least $3 billion.
It is slightly different when it comes to UK Dividend Aristocrats. To be considered a UK Dividend Aristocrat stock, a company must be listed on the London Stock Exchange and have increased its dividends every year for at least 10 consecutive years.
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| Dividend Max Annual Dividends chart for Diageo showing increase in dividends |
Why are they important?
Consistency
A company that has consistently increased its dividends for 25+ years (10+ years for UK stocks) is likely financially stable and well-managed. This doesn't mean that Dividend Aristocrats are immune to market downturns, but they are generally more resilient than their peers.
Income potential
Dividend Aristocrats can provide a steady stream of income for long-term investors. While the yield on these stocks may not be as high as some other dividend-paying stocks, the consistency of the dividends can be attractive for investors looking for a reliable source of income.
Potential for capital appreciation
Dividend Aristocrats are often well-established, blue-chip companies with a track record of growth. As such, they may offer the potential for capital appreciation in addition to dividends.
May offer a degree of safety
Dividend Aristocrats have a history of consistently increasing their dividends, which can provide a sense of stability and resilience in times of market uncertainty and volatility. These are often the stocks with strong financials.
May be less risky
Dividend Aristocrats may be less risky than other stocks. Companies that have consistently increased their dividends over time are typically financially strong and well-managed, which can make them less risky than other stocks.
Source of diversification
Adding a mix of Dividend Aristocrats and other dividend-paying stocks to your portfolio can help diversify your holdings and manage risk.
May offer inflation protection
As the cost of living increases over time, dividends from Dividend Aristocrats may increase as well, providing a degree of protection against inflation. Dividends in general have a history of keeping up with inflation. In the US, companies that pay a dividend tend to outperform those that do not during times of high inflation. The important thing to point out is those Dividend Aristocrats are the ones that have been seen to increase their dividends even in difficult economic times.
US Dividend Aristocrats:
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| Source: https://www.fool.com/investing/stock-market/types-of-stocks/dividend-stocks/dividend-aristocrats/ For full list please visit above link UK Dividend Aristocrats:
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Dividend Aristocrats can be an important consideration for investors seeking a combination of income and long-term growth. These companies, which have consistently increased their dividends for at least 25 consecutive years (at least 10 years for UK stocks), are often financially strong and well-managed, providing a reliable source of income and potential capital appreciation.
As always, it's important to do your own research and consult with a financial advisor before making any investment decisions.
- May the dividends be ever in your favour!
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