Inside the S&P 500: The Dividend Aristocrats

Dividends are ever-popular with investors, but owning dividend stocks or an ETF which tracks an index focused on dividends comes with one big worry: will the companies continue to pay dividends?  One of the surest signs that a stock is about to collapse is when the company announces it is reducing or eliminating the dividend.  While there is no way to guarantee that a stock will continue paying dividends, many investors look to the company’s past history for some hint of what it might do in the future. For those investors, a long history of consistent payments – or better yet, consistent dividend increases – is appealing.

The thought that a long history of increasing dividends could identify companies that would make an attractive dividend focused index is the idea behind the S&P 500 Dividend Aristocrats. Companies included in the index must have a history of at least 25 years of increasing dividends and be current members of the S&P 500. (They may not have been in the S&P 500 for all 25 years). Currently there are 53 stocks in the index, including some well-known names such as ExxonMobil, Walmart, Coca-Cola and PepsiCo.

Recognizing that past performance is not a guarantee of future results, one can see the past results compared to the S&P 500.  The chart shows monthly data for the S&P 500 and the S&P 500 Dividend Aristocrats, both measured as total return indices rebased to January 1990=100.

Further recognition was received when the S&P 500 Dividend Aristocrats index was named the Index Product of the Year 2014 at the William F. Sharpe Indexing Achievement Awards at the annual IMN Global Indexing and ETF Conference earlier this week in Scottsdale, AZ.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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