In brief:
- The Dividend Aristocrats are companies of the S&P 500 that have paid steadily increasing dividends for at least 25 years have outperformed the broader market over time.
- These 65 are large, US companies that have historically provided (slightly) better performance and (slightly) lower volatility than the S&P 500 as a whole.
- Full-year 2020 performance Dividend Aristocrats 8.68%, versus the S&P 500 index 18.40%.
- By listing the 2020 leaders and laggards of the dividend aristocrats, some active dividend growth investors may be able to identify relative bargains.
Dividend Aristocrats Performance 2020
The Dividend Aristocrats have historically shown smaller draw-downs during recessions versus the S&P 500. For example in 2008 the Dividend Aristocrats Index declined 21.9%, compared to the S&P 500 declined by 37%. In 2018 the Dividend Aristocrats (-2.73%) also outperformed the S&P500 (-4.38%) by 1.65%.
In 2020, the Dividend Aristocrats (+8.68%) underperformed the S&P 500 index (+18.40%) by -9.72%, which is a lot.
The lower volatility could give some investors “peace of mind” but this comes also with a price. In the last 10 years, the dividend aristocrats are struggling to keep up with the total return. The average outperformance even dropped below zero and is now -0.32%. Also, this year’s lows and highs are not displaying the lower volatility, like the COVID-19 dip in March.
The table below lists the yearly performance (total return) of the Dividend Aristocrats, the S&P 500, and the difference between the two.
Some additional data on the S&P 500 Dividend Aristocrats Index:
- 10 Years annualized return: 13.68% (2019: 14.75%)
- 10 years annualized risk: 12.63% (2019: 11.18%)
- PE-ratio (trailing): 29.09 (2019: 20.97)
- Dividend yield: 2.59% (2019: 2.43%)
The 10 years annualized return for the S&P 500 is 13.88%.
One good explanation for the current underperformance is the sector weighting of the Dividend Aristocrats. The dominating sectors are more defensive like Industrials (24.4%) and Consumer Staples (22.6%). The IT-sector represents only 1.7%, while in the S&P 500 index 27.6% is allocated to this sector.
2020 Changes to the Dividend Aristocrats Index
Early 2020, Amcor (AMCR), Atmos Energy (ATO), Realty Income (O), Essex Property Trust (ESS), Ross Stores (ROST), Albemarle (ALB), and Expeditors International (EXPD) were added to the Dividend Aristocrats Index which brought the total number of Dividend Aristocrats to 64 (from 57).
On March 31st, 2020, United Technologies merged with Raytheon to Raytheon Technologies, changed its ticker to RTX, and spun off Carrier Global (CARR) and Otis Worldwide (OTIS) to bring the total Dividend Aristocrat to 66.
Ross Stores (ROST), added in January announced it is suspending its dividend on May 21st, 2020 and has been removed from The Dividend Aristocrats Index prior to the market open on July 1st, bringing the total members down to 65.
2020 Leaders and laggards
Despite the COVID-19 pandemic and the uncertainty of an election year, U.S. equities recovered from their March lows to end the year on a high note based on vaccine hopes. Some dividend aristocrats did benefit from the pandemic like Clorox (CLX) while others struggled and were not able to raise dividends this year, like Ross Stores (ROST) and Exxon Mobil (XOM). See two new dividend Aristocrats for 2021 and one at risk.
The 2020 dividend aristocrats leaders are:
The 2020 dividend aristocrats laggards are:
- Exxon Mobil (XOM)
- Federal Realty Investment Trust (FRT)
- Walgreens Boots (WBA)
- Chevron (CVX)
- AT&T (T)
Below the full Dividend Aristocrats list and the price performance in 2020.
Buy & Hold approach made easy
Dividend growth investing and a buy & hold approach go hand in hand. “Life is made easy” when investing in the Dividend Aristocrats Index, any holding period of 4 years or longer would have resulted in a positive performance. The diagram below shows the performance per holding period.
This performance/yield triangle shows the average annual returns for any investment period, ie combinations of buy and sell times on an annual basis. The “year of buy” is plotted on the horizontal axis and the “year of sell” on the vertical axis. The average annualized return can be seen at the intersection of these two coordinates.
For example, those who acquired the dividend aristocrats at the end of 2008 and sold them at the end of 2009 achieved an average annual return of 26.60%. With an exit in 2010, however, a per-annum return (CAGR) of 22.87% is calculated.
The average data in the bottom indicate which average annual yield was achieved at the start of the respective year. Starting with a position in the aristocrats at the end of 2008, Dividend Aristocrats (buy&hold) investors made e.g. average annual price returns of 18.34%.
Whatever the year 2021 investors will bring, the Dividend Aristocrats Index is a good start point for your search for dividend growth stocks.
Other Sources of Dividend Investment Ideas
There are several lists to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Aristocrats Index is based on 64 companies part of the S&P 500 and with 25+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market in the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors, there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 years of dividend can be a list of inspiration.
- Blue Chips stocks from the US or the European ones.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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