DEFINITION of 'Dividend Aristocrat'

A dividend aristocrat is a company that has continuously increased the size of dividends it pays to its shareholders. To be considered a dividend aristocrat, a company must typically raise dividends consistently for at least 25 years. More specifically, the company needs to have a managed dividend policy that increased its dividend every year for those 25 years.

BREAKING DOWN 'Dividend Aristocrat'

Companies that are able to maintain high dividend yields are often very stable. Because stocks maintaining the title of dividend aristocrat must keep yields consistently high, the list is often under 100 companies.

TheStreet.com highlighted five dividend aristocrats that investors should consider in 2018, based on their dividend streaks and "strong buy" analyst consensus ratings over a three-month period. These include the following (in order):

  • Abbott Laboratories (ABT)
  • McDonald's Corporation (MCD)
  • Chevron Corporation (CVX)
  • Medtronic plc (MDT)
  • Stanley Black & Decker Inc. (SWK)

To pick one example: Abbott Laboratories has declared dividends for 376 consecutive quarters since 1924 and has increased the dividend payout for 46 consecutive years.

These picks cross healthcare, retail, oil and gas, and construction industries. In contrast, startups and other high-growth companies such as those in technology rarely offer dividends. Instead, these teams often prefer to reinvest any earnings back into their operations to help sustain higher-than-average growth. In addition, fledgling companies are often running at a net loss and don’t have extra cash on hand to distribute for a while. Larger, more established companies with more predictable profits are better dividend payers. These companies tend to issue regular dividends as they seek to maximize shareholder wealth in ways aside from supernormal growth.

Dividend aristocrats are rare because most companies are unable to continually boost dividend payouts while also facing recessions and market shocks. Two of the more popular ways of tracking this type of company are through the S&P Dividend Aristocrats and the S&P High-Yield Dividend Aristocrats indexes.

Dividend Aristocrat and Corporate Dividend Policies

Companies develop dividend policies that structure dividend payouts in different ways. In general, three major types of dividend policies exist: a stable dividend policy, a constant dividend policy and a residual dividend policy.

With a stable dividend policy, shareholders receive steady and predictable dividend payouts each year, regardless of earnings fluctuations. With a constant dividend policy, the company pays a percentage of earnings to shareholders every year. In this way, investors experience the full volatility of company earnings. With a residual dividend policy, the company pays out what dividends remain after it has paid for capital expenditures and working capital.

 

RELATED TERMS
  1. Dividend

    A dividend is a distribution of a portion of a company's earnings, ...
  2. Dividend Policy

    Dividend policy structures the dividend payout a company distributes ...
  3. Dividend Frequency

    Dividend frequency is how often a dividend is paid by an individual ...
  4. Property Dividend

    A property dividend is an alternative to cash or stock dividends. ...
  5. Final Dividend

    The final dividend is declared at a company's Annual General ...
  6. Cash-and-Stock Dividend

    A cash-and-stock dividend contains a portion of cash and a portion ...
Related Articles
  1. Investing

    Invest In Dividend Aristocrats With This ETF

    When volatility and uncertainty take over it pays to be strategic when looking for returns. That's why investors should watch the Dividend Aristocrats.
  2. Investing

    3 Blue Chip Stocks with Fat Dividends

    Discover what factors go into determining a great dividend stock, and learn about three large, stable companies that offer above-average yields.
  3. Investing

    WMT: Wal-Mart Dividend Analysis

    Wal-Mart raised its dividend for the 43rd consecutive year, despite losing over 25% of its market value in 2015, and its dividend remains healthy in 2016.
  4. Investing

    9 Fund Favorites for Income Investors

    Historically low interest rates have created challenges in recent years for investors seeking yield. For those who want to generate income, several leading MoneyShow.com contributors highlight ...
  5. Investing

    Dividend ETFs Sought for Solid Revenue Streams

    Dividends can be found with plenty of ETFs, but investors should study up before committing capital.
  6. Investing

    AAPL: Apple Dividend Analysis

    Apple's dividend has had healthy growth ever since its 2012 reinstatement, thanks to Apple's continuously rising revenue, earnings and operating cash flow.
  7. Investing

    Is Dividend Investing a Good Strategy?

    Understanding dividends and how they generate steady income for shareholders will help you become a more informed and successful investor.
RELATED FAQS
  1. Cash Dividends or Stock Dividends: Which is better?

    The purpose of dividends is to return wealth back to the shareholders of a company. There are two types of dividends: cash ... Read Answer >>
  2. Are dividends considered assets?

    Find out why dividends are considered an asset for investors, but a liability for the company that issued them. Learn the ... Read Answer >>
  3. Does the S&P 500 index include dividends?

    Learn about dividend payments and the S&P 500 index. Find out the reasons to why the yield has trended lower over time due ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center