What are the Dividend Aristocrats and How Do I Invest in Them?
The aristocrats are a select group of stocks that pay steady dividends
“Dividend aristocrats” describes a term given to the stocks of publicly traded companies who have followed a policy of consistently increasing their dividends for at certain period of time. You can track the performance of the dividend aristocrats on the Standard & Poor’s Dividend Aristocrats page.
The Standard & Poor (S&P) company has created many baskets of stocks which they call "indexes." Each index is aimed at tracking the historical price change of that group of stocks without regard to research or market factors. Indexes show what the prices of this collective group of stocks are and what they have been in the past.
S&P indexes track several dividend funds, including the following:
- S&P 500 Dividend Aristocrats
- Canadian Dividend Aristocrats
- United Kingdom (UK) High Yield Aristocrats
- S&P Euro High Yield Dividend Aristocrats
- S&P Europe 350 Dividend Aristocrats
The definition of an "aristocrat" will vary from one type of index versus another. Let's compare a few of the indexes and funds available.
S&P 500® Dividend Aristocrats
This index has the longest dividend history requirement of the bunch. To be on the aristocrat list, a company must meet several criteria such as being a "blue chip" stock of the S&P 500 Index and have demonstrated a 25+ year history of increasing their annual dividend.
This index is designed to be equally weighted (not market cap weighted) so each stock is equally represented in the portfolio. It means that every year in January, the manager of a fund that mirrors this index must readjust the invested amount in each stock back to an equal amount for each. The S&P 500 Dividend Aristocrats Index methodology is explained on the company website by selecting the link for Methodology.
You can't invest directly in an index, so to easily invest in this basket of stocks check out the exchange traded fund that seeks to closely match the returns and characteristics of the S&P Dividend AristocratsTM Index. It is called the SPDR S&P Dividend ETF and trades under the symbol SDY.
This fund owns at least 40 stocks. If 40 companies do not meet the required dividend criteria, the fund may accept other stocks with a 20+ year increasing dividend history ( vs. 25) as alternatives.
S&P Europe 350 Dividend Aristocrats
This S&P index focuses on dividend paying European stocks, and it equally weights the stocks. In this index, the criteria for consecutive increased dividends has been reduced to 10 years. The S&P Europe 350 index site provides details on the index methodology and historical performance. The fund that most closely tracks this index is a State Street Global Advisors SPDR ETF called the Euro Dividend Aristocrats.
S&P / TSX Canadian Dividend Aristocrats (CAD)
The TSX stands for Toronto Stock Exchange, and the (CAD) represents values in Canadian Dollars. Some of the differences in the S&P/TSX Canadian Dividend Aristocrats index from that of the two indices referenced above is that the companies are weighted according to their yield (a company with a higher yield would thus represent a larger portion of the index), and the history of increased dividends has a lower criteria of only 5 or more years. And of course, this index only includes Canadian companies.
To invest in this group of stocks Blackrock offers an iShare ETF called the Canadian Dividend Aristocrats Index ETF that closely tracks this index.