Investing in the S&P 500 Dividend Aristocrats

Ever heard of the S&P 500 Dividend Aristocrats? Don’t feel bad if you haven’t — I hadn’t heard the term myself until I ran across it yesterday. The Dividend Aristocrats are comprised of S&P 500 constituents that have increased their dividend payouts for 25 consecutive years. Miss just once and you’re out. In other words, these are the bluest of the blue chips.

What’s the point?

In terms of performance, this Aristocrats have outperformed the S&P 500 over the past 3, 5, 10, and 15 years while exhibiting a lower standard deviation across all of these time periods (data as of 11/30/2008). In other words, they provide better performance and lower volatility than the S&P 500.

In terms of diversification, the Aristocrats span ten different sectors with both growth and value holdings. This composition contrasts with most other dividend-yield based portfolios, which tend to be heavily weighted toward financials and utilities, and often have a strong value tilt.

How to invest in the Dividend Aristocrats

As far as I’m aware, there’s no way to invest in these stocks other than to buy them directly and then rebalance (to an equal weighting as well as to reflect changes to the index) annually. That being said, there’s an ETF that trades under the ticker symbol SDY that tracks the “High Yield Dividend Aristocrats.” This index bears some similarity to the Dividend Aristocrats, but it’s not the same thing.

Who are the Dividend Aristocrats?

Sound interesting? Here’s the complete list of Dividend Aristocrats for 2009…

  • 3M Company (MMM)
  • Abbott Labs (ABT)
  • AFLAC Inc. (AFL)
  • Air Products & Chemicals (APD)
  • Archer-Daniels-Midland (ADM)
  • Automatic Data Processing Inc. (ADP)
  • Avery Dennison Corp. (AVY)
  • Bard (C.R.) Inc. (BCR)
  • BB&T Corporation (BBT)
  • Becton, Dickinson (BDX)
  • Bemis Co. (BMS)*
  • Century Telephone (CTL)
  • Chubb Corp. (CB)
  • Cincinnati Financial (CINF)
  • Clorox Co. (CLX)
  • Coca Cola Co. (KO)
  • Consolidated Edison (ED)
  • Dover Corp. (DOV)
  • Emerson Electric (EMR)
  • Exxon Mobil Corp. (XOM)
  • Family Dollar Stores (FDO)
  • Gannett Co. (GCI)
  • General Electric (GE)
  • Grainger (W.W.) Inc. (GWW)
  • Integrys Energy Group, Inc. (TEG)
  • Johnson & Johnson (JNJ)
  • Johnson Controls (JCI)
  • Kimberly-Clark (KMB)
  • Legg Mason (LM)
  • Leggett & Platt (LEG)*
  • Lilly (Eli) & Co. (LLY)
  • Lowe’s Cos. (LOW)
  • M&T Bank Corp. (MTB)
  • McDonald’s Corp. (MCD)
  • McGraw-Hill (MHP)
  • PepsiCo Inc. (PEP)
  • Pfizer, Inc. (PFE)
  • Pitney-Bowes (PBI)
  • PPG Industries (PPG)
  • Procter & Gamble (PG)
  • Questar Corp. (STR)
  • Rohm & Haas (ROH)
  • Sherwin-Williams (SHW)
  • Sigma-Aldrich (SIAL)
  • Stanley Works (SWK)
  • State Street Corp. (STT)
  • Supervalu Inc. (SVU)
  • Target Corp. (TGT)
  • U.S. Bancorp (USB)
  • V.F. Corp. (VFC)
  • Walgreen Co. (WAG)
  • Wal-Mart Stores (WMT)

*Denotes new additions for 2009.

In case you’re curious, the following companies were dropped when the list was updated in December 2008. Not surprisingly, many of them were in the financial sector.

  • Anheuser Busch (BUD) – Acquired
  • Bank of America (BAC)
  • Comerica (CMA)
  • Fifth Third Bancorp (FITB)
  • KeyCorp (KEY)
  • Nucor Corp. (NUE)
  • Progressive Corp. (PGR)
  • Regions Financial (RF)
  • Synovus (SNV)
  • Wm. Wrigley – Aquired by Mars (privately held)

Source: Standard & Poor’s (pdf)

16 Responses to “Investing in the S&P 500 Dividend Aristocrats”

  1. Bud: That’s a problem with strategies aimed at high dividends. You’ll notice that the Aristocrats aren’t defined based on yield. Rather, the only requirement is that they’ve consistently raised dividends. If the stock price has been appreciating, as well, then the yield won’t necessarily be all that high. This results in a more diverse assemblage of historically strong companies.

  2. Anonymous

    In addition to the comment by stockmanmarc, the following are similar ETF’s, VTV, FDL, DTD. Several of these are recent (2006&later). They also (currently at least) have a severe financial services basis (eg25-39% based on the data bases or articles I found).

  3. Anonymous

    For years what you descibe as the “Aristocrats” of the S&P have been available for retail investment through a number of Unit Investment Trusts. Tytpically most trusts have limited the number of holdings to the top 10 – 25 of the index. I suggest looking into Claymore and First Trust for starters. For your info I am not employed by either firm but I have been an investment professional for the past 20+ years.

  4. Anonymous

    Nickel,

    It’s an interesting list, but I’d be careful: there are many hedge funds that will use criteria like this to buy and sell stocks — sometimes, this can mean that the trend is already ‘priced in’.

    You don’t want to be in a situation like in the summer of 2007, when lots of quant funds had to get out of their trades all at once — the statistically cheap stocks (high yield, low price/book) went down more, and the expensive stocks went up. That said, it’s an interesting idea.

  5. Anonymous

    Nickel,

    Thanks for the list.

    I would guess that several more will drop of the list in 2009. I think Financial, Retail and GE will be at risk.

    I’ve been considering the Dogs of the Dow list, which are high dividend payers, as a way to tip toe back into the market. Pfizer happens to be the Dogs list also.

    Are you thinking of purchasing some of these stocks? Just curious 🙂 Thanks.

  6. Anonymous

    Thomas,

    Their are ETF’s that specialize in dividend stocks- DVY,SDY,and PEY, just to name a few. Check them out.

    We all need to start paying more attention to dividend payouts. Like ‘Dividend Growth Investor’ states your passive income increases over time, it just takes patience.

    nice article FCN

  7. Anonymous

    Investing in the dividend aristocrats would have been a smart choice last year as the dividend aristocrats’ index outperformed the S&P 500 by 15.50 percent. The dividend aristocrates lost 21.55% in 2008 versus the 37.00% loss for the S&P 500.

    The greatest part about these stocks is that they keep raising their dividend payments every year on average, which increases your passive income without really doing much, other than buying and holding the stocks. Better yet, the rate of dividend growth increases is higher than the rate of inflation.

    I do write a lot about dividend investments in general, and the Dividend Aristocrates are the best companies to own as most are non-cyclical recession proof companies whose products we use on a daily basis ( Coca Cola anyone)

  8. Anonymous

    I agree with JD. Dividend investing has move way up on my list of investing strategies. It appeals to my invest and forget little energy style of investing.

    Thanks for the list!

  9. Anonymous

    Nice. After reading the new Motley Fool book, I’ve been thinking more about dividend investing. It appeals to me. A lot. I’m bookmarking this list as a crib-sheet for the future.

  10. Anonymous

    I just read about this in SmartMoney magazine. The Sound Investing podcast also recently interviewed someone who had a similar approach (although I think his timeframe was 10 years instead of 25 years).

    I’d be interested to find out more information, if anyone finds funds or ETF’s that track it more closely or exactly. The article from Smart Money describing the S&P Aristocrats got me interested.

  11. Anonymous

    This is similar to a list that a company called Mergent used to publish called The Dividend Achievers. It was a very detailed listing that was broken down into several categories including Broad Dividend Achievers (covering the entire market), Nasdaq Dividend Achievers, High-Growth Rate Dividend Achievers, as well as several other classifications. The company had published a book each quarter outlining each of the companies making the lists with all of the qualifying information and company profiles as well, making it very easy to do the research.

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