What Is a Dividend Aristocrat?

A dividend aristocrat is a company that not only pays a dividend consistently but continuously increases the size of its payouts to shareholders.

A company may be considered a dividend aristocrat if it raises its dividends consistently for at least 25 years. Some aficionados of dividend aristocrats rank them according to additional factors such as company size and liquidity.

Key Takeaways

  • A company is a dividend aristocrat if it increases the dividend it pays to shareholders for at least 25 straight years.
  • They tend to be large, established companies that no longer enjoy supercharged growth.
  • Most are recession-proof, enjoying steady profits in good times and bad.

Understanding the Dividend Aristocrat

Companies that are able to maintain high dividend yields are relatively rare, and their businesses are usually very stable. They tend to have products that are recession-proof, allowing them to keep taking in profits and paying dividends even while other companies are struggling.

At any given time, the number of dividend aristocrats is often 100 or fewer. In 2019, just 57 dividend aristocrats were listed among the Standard & Poor's 500. They can be found in many sectors including healthcare, retail, oil and gas, and construction.

46 years

The number of consecutive years that Abbott Laboratories has increased its dividend.

Startup companies and high flyers in technology rarely offer dividends at all. Their management teams prefer to reinvest any earnings back into the operations to help sustain higher-than-average growth. Some fledgling companies even run at a net loss and don’t have the cash on hand to pay dividends.

Large, established companies with predictable profits are better dividend payers in general. Many do not enjoy super-normal growth and a constantly rising stock price. These companies tend to issue regular dividends as an alternative way of rewarding their shareholders.

Examples of Dividend Aristocrats

Analysts have many ways to evaluate dividend aristocrats as investments. They include the growth of those companies' stock prices over time, their resilience to a downturn in the stock market, and their expectations for future prosperity. That means there is an ever-changing hierarchy among dividend aristocrats.

For example, Investor's Business Daily highlighted a list of dividend aristocrats whose stock prices beat the overall stock market gains from the start of 2019 into August 2019. Some of those companies included:

  • Cintas (CTAS)
  • S&P Global (SPGI)
  • Air Products & Chemicals (APD)
  • Cincinnati Financial (CINF)
  • Ecolab (ECL)

Meanwhile, Forbes selected its top dividend aristocrats for 2019 based on its expectations of the companies' total future returns. Some of its picks included:

  • AbbVie (ABBV)
  • Walgreens Boots Alliance (WBA)
  • AT&T (T)
  • Caterpillar (CAT)
  • Cardinal Health (CAH)

Some dividend aristocrats are standouts by any measure. Abbott Laboratories (ABT), for example, has declared dividends for 376 consecutive quarters since 1924 and has increased its dividend payout for 46 consecutive years.

Two ways to track the performance of these stocks include the S&P Dividend Aristocrats index and the S&P High-Yield Dividend Aristocrats index.

Identifying Dividend Aristocrats and Other Dividend-Paying Companies

In general, companies have dividend policies that fall into three categories: A stable dividend policy, a constant dividend policy, or a residual dividend policy.

  • If a company has a stable dividend policy, the shareholder can expect steady and predictable dividend payouts every year, regardless of fluctuations in the company's earnings.
  • If it has a constant dividend policy, the company pays a percentage of its profits to shareholders every year, so investors experience the full volatility of company earnings.
  • If it has a residual dividend policy, the company pays out in dividends whatever money remains after it has taken care of its capital expenditures and working capital.