Dividend aristocrats have earned their title through steadily increasing yields. Learn more about the S&P Index.
Dividend aristocrats have earned their title through steadily increasing yields, according to S&P Indices, which tracks these bluest of blue chip stocks.
The S&P 500 Dividend Aristocrats index measures the performance of large blue chip companies that have increased their dividends every year for at least 25 years. A cash dividend is a share of company profits paid directly to a shareholder and can be an important source of revenue in a down market or low-interest rate environment.
Almost all Millionaires receive dividend income and look to dividends to provide up to one-third of their retirement income, according to a December survey by Millionaire Corner. Among Millionaires with investable assets of $10 million to $15 million, 98 percent receive dividend income. The pre-tax average was $200,000 in 2009.
Dividend stocks appeal to retirees, and to less aggressive investors who want exposure to equities, but wish to avoid the volatility typical of growth stocks. Dividend companies tend to be larger and more stable, but have less growth potential. The dividend they pay provides income and reduces some investment uncertainty, though a firm can reduce or eliminate its dividend and dividend stocks can and do lose value. Dividend income is also subject to taxes, and the rate is likely to increase upon the expiration of the Bush tax cuts at the end of 2012.
Despite the risks, many investors remain loyal to their dividend strategies and, according to S&P Indices, the tactic paid off in the most recent economic downturn. The S&P 500 Dividend Aristocrats yielded 4.59 percent in the five years ending December 2011, compared to -0.25 percent for the S&P 500 index, said the company. Returns for 2011 were 8.33 percent, compared to 2.11 percent for the S&P 500.
The aristocrats represent 10 industrial sectors and are most heavily weighted to information technology (19 percent), financials (13.6 percent), energy (12.3 percent) and health care (11.9 percent). The 51 dividend aristocrats all belong to the S&P 500 and have a market capitalization ranging from $14.5 billion to $23.44 billion. The top 10 are Sherwin-Williams Co., Family Dollar Stores, Inc., McCormick & Co., PPG Industries Inc., Brown-Forman Corp. B, Kimberly Clark, Wal-Mart Stores, AT&T Inc., Coca-Cola Co. and Ecolab, Inc., according to S&P Indices. Other household names include Procter and Gamble, Colgate-Palmolive, Clorox Co. and 3M Co. For a complete list of dividend aristocrats go to S&P Indices.
According to the website Seeking Alpha, the dividend aristocrats index has outperformed the S&P 500 in 13 of the 22 years since its development – including every down year for the S&P 500.