The Dividend Aristocrats

Raising a dividend once is easy. Raising it every single year for a quarter of a century, through recessions, wars, oil shocks, a financial crisis and a pandemic, is something only a few dozen of America’s largest companies have done. They’re called the Dividend Aristocrats, and they’re probably the most famous list in income investing.

The rules for getting in

The S&P 500 Dividend Aristocrats is an official index run by S&P Dow Jones Indices, the same company behind the S&P 500. To be included, a company must:

• Be a member of the S&P 500.
• Have raised its regular dividend every year for at least 25 consecutive years. A flat year counts as a miss.
• Meet minimum size and trading volume requirements, so the index can actually be bought by funds.

The list is reviewed every January, with smaller checks during the year. The index also has a few guardrails: it aims for at least 40 members, and no single sector can make up more than about 30% of it. In recent years it has held somewhere around 65 to 70 companies.

Who’s on the list

The members are mostly businesses you use without thinking about it: drinks, soap, tools, insurance, industrial parts, healthcare supplies, fast food. Here’s the list Dividend Duel tracks, sorted by today’s yield, with live total returns.

A few things stand out. Yields are mostly modest, often 1% to 3%, because these are high quality businesses that rarely trade cheaply. And the returns vary a lot: being an Aristocrat says nothing about whether the shares did well over any particular stretch.

How companies get dropped

Leaving is simpler than joining. A company is removed if it fails to raise its dividend in a given year, or if it leaves the S&P 500. Some recent departures show how even long streaks can end:

We look at what came before cuts like these, and the warning signs they had in common, in Dividend Cuts: Warning Signs and Real Examples.

The streak can become a trap

Once a company has raised its dividend for 40 years, it really doesn’t want to be the CEO who ends the streak. Sometimes that leads to “penny raises”: tiny increases of a fraction of a percent, made purely to keep the record alive while the business is struggling. A raise of 0.5% a year after decades of 7% raises is a signal worth noticing. The streak is a symptom of a healthy business, not the cause of one.

How have they performed?

Over long periods the Aristocrats have done roughly as well as the S&P 500, with smaller drops in bad markets. That’s the main selling point: quality companies tend to hold up better when things go wrong. But there have been long stretches where they lagged badly, especially the past decade, when a few giant technology companies with little or no dividend history drove most of the market’s gains.

Part of the difference also comes from how the index is built. The Aristocrats index is equally weighted: each company gets about the same weight, so a small company counts as much as a giant one. The S&P 500 is weighted by size, so its biggest companies dominate it.

How to own them

• An Aristocrats ETF. NOBL tracks the index directly, equally weighted, for an expense ratio of about 0.35%. One ticker, the whole list.
• A related index fund. SDY tracks the S&P High Yield Dividend Aristocrats, a different list: 20 or more years of raises, drawn from a wider pool of large, mid and small companies, and weighted towards higher yields.
• Pick a handful yourself. Many investors use the list as a starting point for research, choosing a few from different sectors. Dividend Duel’s dividend stocks screener lets you filter for Aristocrats.