Higher total returns with lower volatility are typical characteristics of the Dividend Aristocrats. 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%. Also, in 2002 the dividend aristocrats declined by -9.9% while the S&P 500 showed a negative performance of -22.10%.
In 2021 the Dividend Aristocrats (25.99%) underperformed the S&P500 (28.71%) by -2.72%.
Since 2000, the dividend aristocrats outperformed the S&P500 in 60% of the cases with an average difference of 8.08%. Taking the under-performance into account the average out-performance is still 2.02%.
Performance/yield triangle
The last diagram (below) shows the performance per holding period. The performance/yield triangle shows the average annual returns for any investment periods, 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 2002 and sold them at the end of 2003 achieved an average annual return of 25.40%. With an exit in 2004, however, a per-annum return (cagr) of 20.35% 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 2002, Dividend Aristocrats (buy&hold) investors made e.g. average annual price returns of 12.30%.
It also shows that it takes a maximum of 3-4 years to generate a positive annual return. A start at the end of 2006, will gave an investor a positive return in 2010.
Bear years Dividend Aristocrats
As stated at the beginning of this article, “Higher total returns with lower volatility” are typical characteristics of the Dividend Aristocrats. The Dividend Aristocrats index has produced excellent returns over the last 28 years, beating The S&P 500’s average year returns over this time period. “Higher total returns with lower volatility” is also a key rule for long term investors.
Since the Dividend Aristocrats have historically seen smaller draw-downs during recessions versus the S&P 500. This makes holding through recessions easier and keeps for some investors the emotions away. Also, the time and effort to recover from smaller declines is easier, a 50% decline requires a 100% increase to reach the same levels again.
How the dividend aristocrats performed during negative years of the S&P 500 is summarized in the table below:
Going back to the performance/yield triangle, based on the “red” performances, it never took more than 3 years to recover from a draw-down. Only investors with a start in 2006, needed some time to get back on track.
See also the article on the 2019 performance of the dividend aristocrats, and our 2020 monthly performance updates on the dividend aristocrats and dividend kings.
Please check-out the Dividend Aristocrats 2020 Overall Performance and the Dividends Aristocrats 2021 Overall Performance.
Other Sources of Dividend Investment Ideas
The Dividend Aristocrats list is not the only way to quickly screen for businesses that regularly pay rising dividends.
- 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 on 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 year of dividend can be an list of inspiration.
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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