S&P 500 Dividend Aristocrats Index

What Is the S&P 500 Dividend Aristocrats Index?

The S&P 500 Dividend Aristocrats Index is a list of companies from the Standard & Poor's 500 Index (the S&P 500) that have a track record of raising their dividends for at least 25 consecutive years. Each company is equally weighted within the index.

Key Takeaways

  • The S&P 500 Dividend Aristocrats Index is a list of companies, mainly well-known large-cap, blue-chip companies, in the S&P 500 with a track record of increasing dividends for at least 25 consecutive years.
  • The S&P 500 Dividend Aristocrats Index includes stocks with a float-adjusted market capitalization of at least $3 billion and an average daily trading volume of at least $5 million.
  • A company can be dropped from the S&P 500 Dividend Aristocrats Index if it does not increase its dividend or if it is removed from the broader S&P 500 Index.

Understanding S&P 500 Dividend Aristocrats Index

The S&P 500 Dividend Aristocrats Index tracks the performance of well-known, mainly large-cap, blue-chip companies. Standard & Poor's will remove companies from the index when they fail to increase dividend payments from the previous year. The index is rebalanced quarterly in January, April, July, and October.

The S&P 500 Dividend Aristocrats includes stocks with a float-adjusted market capitalization of at least $3 billion and an average daily trading volume of at least $5 million, in addition to consistently increasing dividend payments. The index requires a minimum of 40 companies and currently has 65 constituents as of December 2021.

The strength of the dividend aristocrats lies not just in their ability to continually increase dividend payments to shareholders, but also in their performance. These companies have historically out-appreciated the S&P 500; dividend aristocrats yielded an average of 2.5% compared to approximately 1.8% per year. They also exhibit slightly less volatility than the S&P index itself.

One criticism of companies on the dividend aristocrats list is they sometimes use share buybacks to facilitate dividend increases. The problem is a true dividend aristocrat should increase payouts to shareholders from year to year, and if the company is overpaying for its shares, it may not be acting in shareholders’ best interests, even if dividends are increasing.

S&P 500 Dividend Aristocrats Examples

Dividend aristocrats come from various industries and sectors, and are of varying ages—though of course, they have to have been in business for a quarter-century, at least. Some companies have booked dividend growth for decades, such as Emerson Electric Co. (EMR), which sells electronic products and engineering services to industrial clients. Other companies, like Praxair (PX), which makes industrial gases, Roper Technologies (ROP), a designer of software and other products, and A.O. Smith (AOS), which makes water heating and purification equipment, just became eligible in the late 2010s.

Three companies added to the S&P 500 Dividend Aristocrats Index in 2021:

  • IBM
  • NextEra Energy
  • West Pharmaceutical Services

While the Dividend Aristocrats index tends to feature well-known firms, being a blue-chip stock doesn't guarantee inclusion. A company can be dropped from the index if it does not increase its dividend one year or if it is removed from the broader S&P 500 Index.  The 2008 recession, in particular, caused the removal of many big-name companies from the list like Bank of America (BAC), General Electric (GE), and Pfizer (PFE).

Top S&P 500 Dividend Aristocrats

As of Nov. 30, 2021, nearly half of the S&P 500 Dividend Aristocrat companies fall into one of two sectors: industrials (20%) or consumer staples (19.9%). Materials (12.7%), health care (10.6%), and financials (10.6%) are other significant sectors. Here are the leading individual companies.

Top 10 S&P 500 Dividend Aristocrats Constituents by Index Weight
 CONSTITUENT SYMBOL SECTOR
 A.O. Smith Corp. AOS Industrials
 Albemarle Corp. ALB Materials
 W.W. Grainger Inc. GWW Industrials
 Sherwin-Williams Co SHW Materials
 Lowes Cos Inc. LOW Consumer Discretionary
 McCormick & Co. MKC Consumer Staples
 Automatic Data Processing ADP Information Technology
 AbbVie Inc. ABBV Health Care
 Franklin Resources Inc. BEN Financials
 West Pharmaceutical Services Inc. WST Health Care
Source: S&P Dow Jones Indices

Investing in the S&P 500 Dividend Aristocrats

Exchange-traded funds (ETF) are a popular way of gaining exposure to the list of dividend aristocrats. Some popular assets that directly follow the index include the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) and the SPDR S&P Global Dividend ETF (WDIV).

Other funds that track dividend stocks but don't directly follow the index include the iShares Select Dividend ETF (DVY) and the iShares Core High Dividend ETF (HDV). Even though they're not trying to track the index, each fund tends to include some of the 65 "aristocrats," since the universe of steadily rising dividend-issuers isn't all that diverse.

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