In this article:
- What are Dividend Kings, Aristocrats, Champions, Challengers, and Contenders?
- Which criteria are used to construct the (US) Dividend Aristocrats list?
- What are the differences between European, US, and other Dividend Aristocrats?
What are Dividend Kings, Aristocrats, Champions, Challengers, and Contenders?
Before zooming in on the Dividend Aristocrats, here is the list of classifications or “terms” dividend investors oftenuse to describe dividend stocks. The classifications are based on the number of consecutive years of dividend increases. The Dividend Kings and Dividend Aristocrats are the most well-known terms.
||Minium Years of Dividend Growth
|Dividend Kings||50+ years of consecutive dividend increases|
|Dividend Aristocrats||25+ years of consecutive dividend increases|
|Dividend Champions||25+ years of consecutive dividend increases|
|Dividend Challengers||10 to 24 years of consecutive dividend increases|
|Dividend Achievers||10+ years of consecutive dividend increases|
|Dividend Contenders||5 to 9 years of consecutive dividend increases|
Wondering what the difference is between the Dividend Aristocrats and the Dividend Champions? The Champions include stocks that are not necessarily part of the S&P 500 as the Aristocrats do. There are variances on the Dividend Aristocrats theme in Europe, where the 25+ years threshold is less strict!
Which criteria are used to construct the (US) Dividend Aristocrats list?
The company S&P Dow Jones Indices applies the following criteria to construct the Dividend Aristocrats list:
- must be members of the S&P 500
- must have increased dividends every year for at least 25 consecutive years
- Market Cap at least USD 3 billion
- Liquidity at least USD 5 million (average daily value traded)
- Diversification, at least 40 constituents and no sector allocation above 30%
Noteworthy is the “special” rules for spin-offs and mergers. “For spin-offs occurring after January 1, 2013, the yearly dividend increase history of the parent company is assigned to both the parent and spun-off company on the spin-off effective date. To determine annual dividend payments, the dividends of the parent and spun-off companies are combined until a full annual cycle of dividend payments is available for both post-spin-off companies. Subsequent dividend comparisons are based on the annual dividend amounts of each respective company. For merger and acquisition events, S&P Dow Jones Indices, at its discretion, may retain dividend history for newly formed entities from their predecessor companies.”
Recently, Otis Worldwide Corp. (OTIS) and Carrier Global Corp. (CARR) were added to the S&P 500 Dividend Aristocrats Index based on spinning off those two companies from Dividend Aristocrat United Technologies Corp. (UTX). Furthermore, United Technologies Corp. merged Raytheon to Raytheon Technologies Corp. and its ticker symbol to RTX. As a result, Otis Worldwide Corp., Carrier Global Corp., and Raytheon Technologies Corp. became a member of the index, while OTIS and CARR both do not have any dividend track-record, but inherited this from UTX.
What are the differences between European, US, and other Dividend Aristocrats?
Although quarterly dividend pay-outs and yearly consecutive dividend increases are not that common in Europe, there is a list of European Dividend aristocrats. The S&P Global indices company created three indexes based on the Dividend Aristocrats “concept”. For example, S&P Europe 350 Dividend Aristocrats Index is based on the S&P Europe 350 constituents that have consistently increased dividend every year for at least 10 consecutive years.
An important rule to monitor is the “Minimum constituents rule”, S&P often introduces a minimum requirement of 40 constituent stocks, to have some diversification in the index. This introduces also as a risk for investors since S&P could lower the 10 consecutive years to 7 consecutive years.
The two other European versions are based on a high-yield approach as you can see below.
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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