Next to the well-known (US) Dividend Aristocrats index, there are several variants create by S&P on this theme, like the European, UK or Global Dividend Aristocrats. This article lists several Dividend Aristocrats indices available and discusses the differences. Not all Dividend Aristocrats indices, do have outperformed their benchmark over long-time intervals. High-yield dividend is an important factor.
Many dividend growth investors are using the (US) Dividend Aristocrats index as a reference, since it has produced excellent risk-adjusted returns over the last 2 decades, beating the S&P 500’s total return. Especially the higher total returns with lower volatility is an interesting characteristic of the Dividend Aristocrats and keeps often emotional investment decisions away. An important driver of the outperformance are the selection of companies that are able to increase their dividend for 25+ consecutive years.
The effect of “higher return, low vol.”, becomes clear if we look at how the dividend aristocrats performed during the negative years of the S&P 500. The table below shows the performance per year for the Dividend Aristocrats, the S&P500 (TR) and the related outperformance:
So, the Dividend Aristocrats is a good start to outperform the market.
The S&P index company created several indices based on the (US) Dividend Aristocrats concept. The difficulty for S&P is to find stocks with 25+ consecutive years of dividend increases outside the US. The dividend culture, like quarterly dividend payments and dividend growth over several years is rarely found in Europe and Asia.
The non-US based indices should be considered, since our lives have become more global. “US Investors still have nearly 72% of their equity portfolios in U.S.-domiciled companies, despite the fact that the U.S. now represents less than half of the world’s market capitalization.”, according to OppenheimerFunds. U.S.-centric investors could miss out investment opportunity, when not considering Dividend Aristocrats abroad.
US Dividend Aristocrats
The requirements to be a Dividend Aristocrat in the US (NOBL) are:
- Member of the S&P 500 index
- Have 25+ consecutive years of dividend increases
- Meet certain minimum size & liquidity requirements
The US Dividend aristocrats historically performed, as discussed, better than the market, as shown in the chart below:
Global Dividend Aristocrats
Compared to our standard Dividend Aristocrats , the global “edition”, is based on the following main requirements:
- High dividend-yield companies included in the S&P Global BMI (Broad Market Index)
- Have followed a managed-dividends policy of increasing or stable dividends for at least ten (10) consecutive years.
The main difference is that the key requirement of 25+ consecutive years of dividend increases, to 10+ years of stable or consecutive increasing dividend. There is also a focus on high-yield.
Overall the global Dividend Aristocrats (WDIV) still manage to outperform the benchmark.
Pan-Asia Dividend Aristocrats
The requirements for the Pan-Asia aristocrats are even scaling further down, here are the main requirements:
- High dividend-yield companies included in the S&P Pan Asia BMI (Broad Market Index)
- Have followed a managed-dividends policy of consistently increasing dividends every year for at least seven years.
Although the “consistently increasing dividends every year” is down from 25 to 7 years, the Pan-Asia Dividend aristocrats also outperform the S&P Pan Asia BMI benchmark.
Europe 350 Dividend Aristocrats
The requirements for the Europe 350 Dividend Aristocrats are like the Global Dividend Aristocrats, here are the main requirements:
- Companies that are member of the S&P Europe 350 index.
- Have followed a managed-dividends policy of consistently increasing dividends every year for at least 10 years.
Also, the European edition managed to generate higher total returns with lower volatility.
High Yield Dividend Aristocrats
The requirements for the High Yield Dividend Aristocrats are as follows:
- Must be a member of the S&P composite 1500
- Constituents must have increased dividends every year for at least 20 years
- Market cap at least USD 2 billion
Compared to above mentioned indices, adding “high-yielders” and lowering the market cap. results in a dividend aristocrats index that more or else copies the benchmark.
UK High Yield Dividend Aristocrats
This index create by S&P is based on the following high-level requirements:
- Highest dividend yielding UK companies included in the S&P Europe BMI
- Stocks must have increased or maintained stable dividends for at least 10 consecutive years.
The 10 years annualized return for the UK High Yield Dividend Aristocrats still look good with 11.95%, however the total return in 2009 was 41.50%. Jumping to the 5 years annualized return, which is only 1.68%, the picture is different and makes this the worst version of the Dividend Aristocrats.
The table below shows different metrics such as the 10 years annualized return, P/E ratios and indicative dividend yield. To summarize lowering the consecutive dividend years requirement or selecting high yield stocks reduces the strengths of the Dividend Aristocrats concept.
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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