S&P 500 Dividend Aristocrats

DEFINITION of 'S&P 500 Dividend Aristocrats'

Companies in the S&P 500 who have increased their dividends for at least 25 consecutive years. The S&P 500 Dividend Aristocrats index tracks their performance, and is mainly comprised of large, well-known blue-chip companies. Standard & Poors will remove companies from the index if they fail to increase their dividends from the previous year. The index is updated annually in January.

BREAKING DOWN 'S&P 500 Dividend Aristocrats'

In addition to consistently increasing dividends, dividend aristocrats must have a float-adjusted market capitalization of at least $3 billion and an average trading volume of at least $5 million. The list typically contains 40 to 50 companies.

The strength of the dividend aristocrats lies not just in their ability to continually increase dividend payments to shareholders, but in their overall performance. These companies have historically outperformed the S&P 500 by a little more than 1% per year and have been slightly less volatile.

Dividend aristocrats come from a wide variety of industries and sectors. Some companies have been dividend aristocrats for decades, such as Emerson Electric Co., which sells electronic products and engineering services predominantly to industrial clients. Others, such as Bemis Company, Inc., an industrial packaging products manufacturer, are relatively new to the list.

The recession of 2008–2009 caused many companies, such as Bank of America, General Electric and Pfizer, to be removed from the list. A company can be dropped from the list if it does not increase its dividend or if it is removed from the S&P 500.

One criticism of companies on the dividend aristocrats list is that they sometimes use share repurchases to facilitate dividend increases. The complaint is that a true dividend aristocrat should be increasing its overall payout to shareholders from year to year and, particularly if the company is overpaying for its shares, it may not be acting in shareholders’ best interests overall, even if dividends are going up.

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