What Is the S&P 500 Dividend Aristocrats Index?

The S&P 500 Dividend Aristocrats Index is a list of companies in the S&P 500 with a track record of increasing dividends for at least 25 consecutive years.

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

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 2020.

The strength of the dividend aristocrats lies not just in the ability to continually increase dividend payments to shareholders, but also performance. These companies have historically outperformed the S&P 500 by approximately 1.8% per year and exhibit slightly less volatility.

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. Some companies have been dividend aristocrats 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, were added to the list in early 2018. 

The 2008 recession caused the removal of many companies from the list like Bank of America (BAC), General Electric (GE), and Pfizer (PFE). A company can be dropped from the index if it does not increase its dividend or if it is removed from the broader S&P 500 Index. 

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). Each tracks some of the 65 stocks contained in the aristocrats' index.