When the stock market is flat, dividends are the lifeblood of an investor’s portfolio that allow money to be reinvested, funds to grow, or income to be made. Dividends and dividend growth help compensate investors for waiting on a stock to appreciate. And, there are a few companies that have increased their dividends for decades. These are the Dividend Aristocrats as Wall Street calls them, and there is even an index that tracks their progress. Dividend Aristocrats have seemed to fallen out of favor during the market upheaval of the past few years as more and more companies have reduced, suspended, or even eliminated their dividends. But, there are still a few companies in the United States that are continuing to raise their dividends year after year.
What Makes A Company A Dividend Aristocrat?
Standard and Poor’s tracks a Dividend Aristocrats Index of members of its S&P 500, the largest blue chip companies in America. The Dividend Aristocrats Index tracks companies from within the overall index that have raised their dividend distributions at least twenty-five years in a row. It is amazing to think that almost ten percent of the index has continued to increase its dividend for so long despite the United States and world economies have seen a tremendous amount of upheaval over the past two decades which have included several recessions, currency crisis, terrorist attacks, and multiple wars. Only the best companies that have strong competitive advantages and sound business models could achieved rising their dividends for over 25 years straight.
Dividend Aristocrats Have Shown High Performance
According to Standard And Poor’s, the Dividend Aristocrats of the S&P 500 Index have consistently beaten the index. The Dividend Aristocrats have returned an average annual rate of return of 12.93% per year since 1989. In fact, Dividend Aristocrats have continuously beaten the S&P 500 Index’s total return by over 1% annually. According to one recent study, Dividend Aristocrats have outperformed the total S&P 500 index in nine out of the past 18 years.
Many Dividend Aristocrats Are Dropping Like Flies
Thanks to the great recession recently, many former dividend aristocrats, historical and once respected companies, many in the financial sector were forced to cut their dividends in an effort to stay afloat. Only 42 stocks remain a member of the exclusive Dividend Aristocrat club now. Companies that offer their shareholders a dividend are rewarding their loyalty, and many shareholders are continuing to see an increase in dividend payments through dividend growth. And, the remaining Dividend Aristocrats are leading the charge. Only a company with a strong balance sheet, positive cash flow, a decent strategic plan, and a competitive advantage can continue to increase its dividend year in and year out for decades, and these are the types of companies that investors should consider.