Whether you realize it or not, most people’s ultimate money goal is financial independence: the ability to cover your living expenses with passive income from investments.
Most people don’t reach this goal until they retire. But whether you reach financial independence at age 30 or 70, the day comes when you no longer want to work — or can no longer work — and you need passive income to pay your bills.
Dividends are one of the simplest sources of passive income. And dividend aristocrats offer the surest dividend investments on the planet.
What Are Dividend Aristocrats?
Every year, Standard & Poor Dow Jones Indices updates their list of dividend aristocrats. This list features companies in the S&P 500 that have raised their dividend every year for the past 25 years. Companies must also have a market capitalization of at least $3 billion, and average at least $5 million in daily trading volume for the last three months.
In other words, these are large, established, blue chip companies with consistent dividends.
Current Dividend Aristocrats
There are currently 65 companies that meet S&P’s definition and qualify as dividend aristocrats. These companies include:
| Company | Years of Dividend Growth |
| Dover (NYSE:DOV) | 65 |
| Genuine Parts (NYSE:GPC) | 65 |
| Procter & Gamble (NYSE:PG) | 64 |
| Emerson Electric (NYSE:EMR) | 64 |
| 3M (NYSE:MMM) | 63 |
| Cincinnati Financial (NASDAQ:CINF) | 60 |
| Coca-Cola (NYSE:KO) | 59 |
| Johnson & Johnson (NYSE:JNJ) | 59 |
| Colgate-Palmolive (NYSE:CL) | 57 |
| Hormel Foods (NYSE:HRL) | 55 |
| Stanley Black & Decker (NYSE:SWK) | 53 |
| Federal Realty Investment Trust (NYSE:FRT) | 53 |
| Clorox (NYSE:CLX) | 52 |
| Sysco (NYSE:SYY) | 52 |
| Leggett & Platt (NYSE:LEG) | 50 |
| Target (NYSE:TGT) | 50 |
| W.W. Grainger (NYSE:GWW) | 50 |
| Illinois Tool Works (NYSE:ITW) | 50 |
| Becton, Dickinson & Co. (NYSE:BDX) | 49 |
| PPG Industries (NYSE:PPG) | 49 |
| AbbVie (NYSE:ABBV) | 49 |
| Abbott Laboratories (NYSE:ABT) | 49 |
| Kimberly Clark (NYSE:KMB) | 49 |
| PepsiCo (NASDAQ:PEP) | 49 |
| Nucor (NYSE:NUE) | 48 |
| S&P Global (NYSE:SPGI) | 48 |
| VF Corp. (NYSE:VFC) | 47 |
| Archer Daniels Midland (NYSE:ADM) | 47 |
| Walmart (NYSE:WMT) | 47 |
| Automatic Data Processing (NASDAQ:ADP) | 46 |
| Consolidated Edison (NYSE:ED) | 46 |
| Lowe’s (NYSE:LOW) | 46 |
| Walgreens Boots Alliance (NASDAQ:WBA) | 45 |
| McDonald’s (NYSE:MCD) | 45 |
| Pentair (NYSE:PNR) | 45 |
| Medtronic (NYSE:MDT) | 44 |
| Sherwin-Williams (NYSE:SHW) | 42 |
| Franklin Resources (NYSE:BEN) | 40 |
| Air Products & Chemicals (NYSE:APD) | 39 |
| Aflac (NYSE:AFL) | 38 |
| Amcor PLC (NYSE:AMCR) | 38 |
| Cintas (NASDAQ:CTAS) | 38 |
| Brown-Forman (B Shares) (NYSE:BF.B) | 37 |
| Atmos Energy Corporation (NYSE:ATO) | 37 |
| ExxonMobil (NYSE:XOM) | 37 |
| McCormick & Co. (NYSE:MKC) | 35 |
| AT&T (NYSE:T) | 35 |
| Cardinal Health (NYSE:CAH) | 34 |
| T. Rowe Price Group (NASDAQ:TROW) | 34 |
| Chevron (NYSE:CVX) | 33 |
| General Dynamics (NYSE:GD) | 30 |
| Ecolab (NYSE:ECL) | 29 |
| A.O. Smith (NYSE:AOS) | 29 |
| Linde (NYSE:LIN) | 29 |
| West Pharmaceutical Services, Inc. (NYSE:WST) | 28 |
| Roper Technologies (NYSE:ROP) | 28 |
| Chubb (NYSE:CB) | 28 |
| Caterpillar (NYSE:CAT) | 27 |
| People’s United Financial (NASDAQ:PBCT) | 27 |
| Albemarle Corp. (NYSE:ALB) | 27 |
| Essex Property Trust, Inc. (NYSE:ESS) | 27 |
| Expeditors International of Washington, Inc. (NASDAQ:EXPD) | 27 |
| Realty Income Corporation (NYSE:O) | 26 |
| International Business Machines (NYSE:IBM) | 26 |
| NextEra Energy Inc (NYSE:NEE) | 26 |
Note however that Exxon Mobil and AT&T are both at risk of losing their dividend aristocrat status. Both companies have failed to raise their dividend for more than four quarters.
Finally, you can also research lists of “dividend champions,” which meet the requirement for 25 years of consistent dividend growth but don’t meet the market cap and trading activity criteria.
Dividend Kings
The elite of the elite, dividend king stocks have raised their dividends every year for the past 50 years. Few companies can claim this lofty title.
Standard & Poor does not release an official list of dividend kings, so many pundits don’t impose the same market cap and liquidity requirements on them. Most simply include all companies that have raised their dividend for at least 50 years in a row — a narrow enough qualification.
As of 2021, 31 companies make the cut:
| Company | Years of Dividend Growth |
| American States Water (NYSE:AWR) | 67 |
| Dover Corporation (NYSE:DOV) | 66 |
| Emerson Electric (NYSE:EMR) | 65 |
| Northwest Natural Holding (NYSE:NWN) | 65 |
| Genuine Parts (NYSE:GPC) | 65 |
| Procter & Gamble (NYSE:PG) | 65 |
| Parker Hannifin (NYSE:PH) | 65 |
| 3M (NYSE:MMM) | 63 |
| Cincinnati Financial (NASDAQ:CINF) | 61 |
| Johnson & Johnson (NYSE:JNJ) | 59 |
| Coca-Cola (NYSE:KO) | 59 |
| Lowe’s (NYSE:LOW) | 59 |
| Lancaster Colony (NASDAQ:LANC) | 58 |
| Colgate-Palmolive (NYSE:CL) | 58 |
| Nordson (NASDAQ:NDSN) | 58 |
| Farmers & Merchants Bancorp (OTC:FMCB) | 56 |
| Hormel Foods (NYSE:HRL) | 55 |
| California Water Service Corp. (NYSE:CWT) | 54 |
| Stanley Black & Decker (NYSE:SWK) | 54 |
| Federal Realty Investment Trust (NYSE:FRT) | 54 |
| ABM Industries (NYSE:ABM) | 53 |
| Stepan (NYSE:SCL) | 53 |
| SJW Group (NYSE:SJW) | 53 |
| Commerce Bancshares (NASDAQ:CBSH) | 53 |
| Sysco (NYSE:SYY) | 52 |
| H.B. Fuller (NYSE:FUL) | 52 |
| Altria Group (NYSE:MO) | 51 |
| Grainger (NYSE:GWW) | 50 |
| Leggett & Platt (NYSE:LEG) | 50 |
| PPG Industries (NYSE:PPG) | 50 |
| Target (NYSE:TGT) | 50 |
In 2022, four more companies are expected to join these ranks: Abbott Laboratories (NYSE:ABT), AbbVie (NYSE:ABBV), Becton, Dickinson & Co. (NYSE:BDX), and PepsiCo (NASDAQ:PEP).
Why Invest in Dividend Aristocrats
The advantages offered by dividend aristocrats are pretty obvious.
These established, large cap companies provide consistent income yield. With enough shares, they provide income that you can live on.
And because these corporate giants are so well established, they offer more safety and security than most companies. Startups fail all the time, but companies with decades upon decades of success and experience rarely fold.
Once achieved, companies don’t relinquish the prestige of dividend aristocrat status lightly. If a company fails to raise its dividend and falls out of the list, you can consider it an early warning sign and sell your shares before the company gets into real trouble.
Downsides to Investing in Dividend Aristocrats
As with so much else in life, the greatest strengths of dividend aristocrats are also their greatest weaknesses.
They’re large, safe, and secure, with high income yields. Which means they’ve already reached mammoth proportions, and that fast early-stage growth lies far in the rearview mirror.
Large companies can still grow in revenue and share price, of course. But not typically at the same meteoric speeds that startups or small-cap companies can.
A high dividend yield also means paying shareholders rather than investing profits in growth. Again, it indicates a mature company with limited growth potential.
Finally, the IRS taxes some dividends at your regular income tax rate. In contrast, you only get taxed on price growth after selling, and even then you have many options for deferring or reducing capital gains taxes.
Strategies for Investing in Dividend Aristocrats
Consider dividend stocks in the context of your larger asset allocation. They rank among the lower-risk stocks in your portfolio, so as you get closer to retirement, consider moving some of your more growth-oriented or small-cap stocks into dividend aristocrats.
You can invest in exchange-traded funds (ETFs) that specifically hold dividend aristocrats. I personally invest in the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) for easy exposure to all of them.
But that’s not the only strategy for investing in dividend aristocrats.
Pullback Trades
On the aggressive side of my investments, I do some swing trading. I model Mindful Trader, which focuses on pullback trades of large-cap U.S. companies.
Occasionally, a member of the dividend aristocrats pulls back and triggers a swing trade. When that happens, I pick up a share or two to keep long-term, with dividends set for reinvestment. Individually they don’t look like much, but by the time I retire, they should generate significant dividend income.
There’s a fine distinction between pullback buying and trying to time the market. That distinction lies in investing based on a systematized model that you always follow, rather than letting emotions impact your investing decisions.
As a final thought here, note that some brokerages increasingly allow you to buy fractional shares. For example, Robinhood allows it, and Charles Schwab allows it for companies in the S&P 500 — which include all dividend aristocrats.
Future Dividend Aristocrats
Once companies appear on the official list of dividend aristocrats, they tend to rise in popularity and share price.
That means you can potentially buy shares in future aristocrats’ at a discount. But you have to go out of your way to find them.
Investors label companies that have raised their dividend for at least 10 consecutive years as dividend achievers. Many of these companies won’t be able to maintain enough consistency to reach 25 years, but some will. For a downloadable spreadsheet of all U.S. dividend achievers, along with their dividend yield, market cap, and forward P/E ratio, check out Sure Dividend.
You can also invest in an ETF that owns shares in these companies: the Invesco Dividend Achievers ETF (PFM).
Dividend Aristocrats in Other Countries
American investors tend to fixate on U.S. stocks, but you can explore dividend aristocrat-style stocks in other markets as well.
For instance, S&P Dow Jones Indices maintains an index of 350 European stocks that have consistently raised dividends for at least 10 years: the S&P Europe 350® Dividend Aristocrats.
Do your own homework, but by going off the beaten path, you can diversify your portfolio while still earning relatively safe, stable dividend income.
Dividend Aristocrats Performance
With the above pros and cons in mind, it comes as no surprise that dividend aristocrats have slightly underperformed the larger S&P 500 — but with lower risk and higher yield.
You can see the difference in performance between the NOBL fund of dividend aristocrats and the broader S&P 500 index in this graph, since NOBL’s inception in 2013:
(chart sourced from Charles Schwab)
However the Sharpe ratio — a measure of volatility and risk — for NOBL is 0.80, compared to the S&P 500’s ratio of 0.93. The dividend aristocrat index also boasts a dividend yield around 50% higher than that of the S&P 500.
Also, NOBL still outperformed the category average for large-cap value funds over that period.
Final Word
Dividend aristocrats and their brethren offer relatively low-risk, high-yield stock investments. That makes them an ideal type of stock for older workers and retirees.
As you approach retirement and start looking for ways to reduce risk to manage sequence of returns risk, consider dividend aristocrats. By reducing your risk profile within your stock portfolio, you can potentially leave more money in stocks and delay or reduce the shift to bonds. Because in today’s market of perpetual low interest rates, you just can’t earn much money from bonds, so stable, high-yield stocks look more attractive than ever.
